Lens purveyor 1-800 Contacts (NASDAQ:CTAC) reports fourth-quarter and full-year 2006 earnings results tomorrow after trading closes. 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? One analyst rates the stock a hold.
  • Revenue and earnings. According to Yahoo! Finance, no analysts have published revenue or earnings estimates for the company.

What management says:
Financially speaking, the biggest news at 1-800 Contacts this quarter was the firm's move to consolidate international manufacturing operations in Singapore. As described in a press release last month, the firm's manufacturing operations in the U.K. and Singapore had each been working at around half their capacity, resulting in production inefficiencies that depressed margins. After closing its U.K. facility and consolidating production in Singapore, the firm "anticipates a significant reduction in unit manufacturing costs."

Restructurings such as this one always entail a cost, however. In 1-800 Contacts' case, the cost will run from $7.1 million to $8.7 million in severance and lease termination costs, asset impairments, and the like. The good news: Only $3.4 million to $5 million of this sum will involve cash outlays.

What management does:
The other good news: If all works out as planned, by reducing operating costs, the company may be able to reverse the continuing slide in its gross, operating, and net margins (shown below).

Margins

7/05

10/05

12/05

4/06

7/06

9/06

Gross

38.5%

38.4%

37.3%

37.6%

36.9%

36.7%

Operating

4.6%

3.9%

2.4%

3.5%

2.8%

2.6%

Net

1.3%

0.4%

(1.1%)

(0.7%)

(1.5%)

(1.9%)
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:
For about as long as I've been following 1-800 Contacts, the backstory to its financial news has revolved around the firm's fight to end the practice of optometrists prescribing "doctors only" lenses. In essence, the problem boiled down to one company -- apparentlyCooper Companies (NYSE:COO) subsidiary CooperVision -- refusing to allow 1-800 Contacts to resell its products. Instead, CooperVision's products could only be purchased through the eye doctors themselves. On the one hand, 1-800 Contacts argued that this harmed consumers by preventing price competition. On the other, it obviously harmed the company itself by shutting it out of the market for these lens brands.

That no longer appears to be the case. Although in a press release from January, 1-800 Contacts continued to avoid "naming names," it announced that rather than continue pressing for a legislative solution to its problems, it had concluded commercial supply agreements with "the four largest manufacturers ... We believe these four manufacturers represent approximately 98% of all soft contact lenses sold in the United States." With CooperVision variously described as the third- or fourth-largest lens manufacturer (the others being Bausch & Lomb (NYSE:BOL), Novartis (NYSE:NVS) subsidiary CIBA, and Johnson & Johnson (NYSE:JNJ) subsidiary Vistakon), it appears CooperVision is now on board.

If that's in fact the case, it would suggest two additional bits of good news for 1-800 Contacts: (1) more sales; and (2) fewer expenses related to a legislative fight that no longer need be fought.

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