In the Shade of the Palm: Fool by Numbers

On March 22, communications-gadget whiz Palm (Nasdaq: PALM  ) released third-quarter 2007 earnings for the period ended Feb. 28.

• Earnings came in at the low end of management guidance, while revenues topped the forecast range by $1 million. Those Treo smartphones are selling like hotcakes, in other words, but the company could do a better job of turning those sales into profits.
  
  
• The merger rumors swirling around Palm came to nothing in the end, as neither Nokia (NYSE: NOK  ) nor Motorola (NYSE: MOT  ) felt compelled to make a bid. Both of those competitors harbor much stronger net and operating margins than Palm, even before this downhill slide, so maybe it was a vote of fiscal no-confidence.
  
  
• Or maybe it's jitters about the coming Apple (Nasdaq: AAPL  ) iPhone and that rumored Google (Nasdaq: GOOG  ) phone (gPhone?), both of which could encroach on Palm's territory. Either of those companies have enough cash on hand to buy this small-cap swinger outright, should they feel like it.
  
  
• Management expect essentially a repeat performance in the fourth quarter, with similar earnings and revenue ranges.

(Figures in millions, except per-share data)

Income Statement Highlights

	Q3 2007	Q3 2006	Change
Sales	$411	$389	5.7%
Net Profit	$12	$30	(60.7%)
EPS	$0.11	$0.28	(60.7%)
Diluted Shares	103.7	106.0	(2.1%)

Get back to basics with the income statement.

Margin Checkup

	Q3 2007	Q3 2006	Change*
Gross Margin	36.9%	33.6%	3.2
Operating Margin	3.1%	7.4%	(4.3)
Net Margin	2.9%	7.7%	(4.9)

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets	Q3 2007	Q3 2006	Change
Cash + ST Invest.	$504	$536	(6.0%)
Accounts Rec.	$214	$119	79.6%
Inventory	$38	$51	(26.6%)

Liabilities	Q3 2007	Q3 2006	Change
Accounts Payable	$199	$157	26.9%
Long-Term Debt	$0	$0	N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

	Q3 2007	Q3 2006	Change
Cash From Ops.	$83	$91	(8.6%)
Capital Expenditures	$5	$4	34.5%
Free Cash Flow	$78	$87	(10.6%)
Owner Earnings	$14	$31	(54.3%)

Free cash flow is a Fool's best friend.

Related Foolishness:

• Foolish Forecast: New Palm Tricks
• iPhone Calling?
• Google's Calling?
• Motorola in Motion
• Foolish Fundamentals: Margins

Palm is a Motley Fool Stock Advisor selection. Get a free 30-day trial pass to our premium newsletter service and find out what the hoopla is all about.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund had no position in any company mentioned. Fool rules are here.