Tic-tac-toe, investors want to know -- for two quarters running, alternative energy technology company Energy Conversion Devices (NASDAQ:ENER) has managed to lose money, yet elate the Street at the same time, by "beating estimates." Will Thursday's news make it three in a row?

What analysts say:

  • Buy, sell, or waffle? Eleven analysts now follow Energy Conversion Devices, up three from our last Foolish Forecast. But today, in addition to nine buys, there are two hold ratings.
  • Revenues. On average, they're looking for 34% sales growth tomorrow, to $32.6 million.
  • Earnings. The quarterly loss is predicted to shrink to $0.06 per share.

What management says:
CEO Robert Stempel was positively ebullient in last quarter's earnings report, declaring that his firm has "momentum," "improved performance," and is bringing its "new manufacturing capacity ... online at just the right time for growing demand in our United Solar Ovonic segment."

That segment posted lower operating profits on higher revenue for the quarter, but only because the firm took a $1 million charge for "uncollectible accounts." Absent that bad debt, operating profits for the segment would have grown 47% year over year on a 23% increase in sales. We hope that will be a one-time event.

What management does:
Margins-wise, Stempel pointed out that United Solar Ovonic's gross profit margin hit 24% in the first quarter of fiscal 2007, up 400 basis points year over year. The fact that this is the firm's largest segment meant that -- as reflected below -- gross margins for the firm as a whole continued to approach that number. Furthermore, the negativity of operating and net margins continues to shrink.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

54.7%

55.9%

16.3%

20.6%

22.4%

22.4%

Operating

27.6%

27.0%

(37.5%)

(28.9%)

(26.7%)

(26.3%)

Net

32.1%

27.0%

(35.2%)

(25.9%)

(18.2%)

(13.6%)
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:
Often, we'll use this segment of a Foolish Forecast to tell you what to focus on in an upcoming earnings release or to take a deeper look into the numbers creating the margin trends. Today, I want to do something different: I want to commend Energy Conversion Devices for a shareholder-friendly move.

Five months ago, you see, I chastised the firm for being "not in the habit of providing the cash flow statement you'll need to [calculate cash burn], in its earnings releases)." Well, guess what? Either somebody at ECD was listening, or Foolish minds think alike, because last quarter ECD began including the triple crown of financial tables in its earnings releases: income statement, balance sheet, and cash flow statement -- we got 'em all.

And it's not like the firm was just waiting until it had great news to report before revealing it, either. To the contrary, last quarter's cash flow statement showed cash burn increasing year over year. Although operating cash flow came within an electron's breadth of breakeven, capital investments in building manufacturing capacity increased the negativity of ECD's free cash flow. But ECD 'fessed up to that fact, displayed it for all the world to see in its press release, warts and all. Kudos, ECD. That's what we like to see.

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