As yet another earnings season draws to a close, Very Important Phone company VimpelCom (NYSE:VIP) is set to report third-quarter 2006 earnings results on Thursday morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Of the 17 analysts who follow VimpelCom, 14 call it a buy and three a hold.
  • Revenues. On average, they think VimpelCom grew its sales 50%, to $1.33 billion.
  • Earnings. Profits, however, are perceived to have grown "only" 28% to $1.23 per share.

What management says:
So at one and the same time, we see Wall Street getting more bearish on VimpelCom (last quarter, there was only a single "hold" rating in the bunch), yet projecting a turnaround in sales (which were supposed to rise only 37% last quarter). Perhaps investors are getting impatient at the firm's continued inability to grow profits as fast as sales.

Last quarter, we saw VimpelCom make a play to keep those sales growing by buying a 51% interest in Georgian cell phone operator Mobitel (and a call option on the remaining 49%). This quarter, the company continued its south-of-the(-Russian)-border trek, buying itself a 90% stake in Armenia's mobile and fixed-line operator ArmenTel for $450 million, plus $53 million in assumed debt. According to VimpelCom, it is currently negotiating to buy the remaining 10% from the Armenian government, so as to turn ArmenTel into a wholly owned subsidiary. The Armenian acquisition marks VimpelCom's entry into its sixth non-Russian CIS market, and in contrast to the start-up Mobitel deal, lets VimpelCom hit the ground running with an existing 40% market share.

What management does:
VimpelCom's gross margins have been slipping for two quarters now, but as a rolling average, remain above where they were one year ago. Contrast that with the steadily deteriorating margins at archrival Mobile TeleSystems (NYSE:MBT), and you can tell who's winning this game -- and who's losing.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

81.9

81.9

82.0

83.1

82.9

82.5

Op.

30.9

30.9

30.8

30.5

30.3

29.3

Net

16.2

17.0

18.5

19.2

18.7

17.9
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
VimpelCom's stronger gross margin position puts it in a good position from which to make the investments in higher-value added services that should (one hopes) improve its profitability over time. As we warned last quarter, profitability will continue to suffer as the firm makes these kinds of investments generally, and as it works to get its new Georgian business up and running in particular. As things stand, Mobile TeleSystems (usually referred to as "MTS") remains the more profitable of Russia's two biggest mobile providers, but over time, VimpelCom's efforts to get its existing customers to spend more on "not-just-talking" are likely to close the gap.

Suppliers:

  • Alcatel (NYSE:ALA)
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  • Comverse (NASDAQ:CMVT)
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Competitors:

  • Golden Telecom (NASDAQ:GLDN)

For further Foolish musings on Russia's telecom titans, read:

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Fool contributor Rich Smith does not own shares of any company named above.