For two quarters running, cord blood storage specialist ViaCell (NASDAQ:VIAC) has managed to appease its critics by turning in better-than-expected -- if still wildly unprofitable -- quarters. Can the company add another "x" to its hatch mark for Q1 2007, and claim tic-tac-toe? We'll find out when it reports Tuesday morning.

What analysts say:

  • Buy, sell, or waffle? Five analysts follow ViaCell, where buy ratings outnumber holds four to one.
  • Revenues. Quarterly sales are expected to rocket 30% to $15.7 million.
  • Earnings. Analysts predict losses will grow a penny to $0.12 per share.

What management says:
There's ominous news at ViaCell this quarter. On April 4, the firm announced the resignations of two of its non-employee directors. No explanation was given for the departures. Five days later, Anne Marie Cook, the company's general counsel, also resigned (effective last week), explaining she wanted to return to private practice.

What management does:
Management turmoil aside, the operational news has been more mixed at ViaCell. On the plus side, the firm got its gross margin stabilized at where it was one year ago, and reduced the negativity of its net for the second quarter running. On the minus side, it added yet another quarter of worsening operating margins to a streak that's now lasted 18 months. Then again, this isn't exactly uncommon in the bio-tech-sphere. ViaCell peers Cytori (NASDAQ:CYTX) and Osiris (NASDAQ:OSIR) have negative operating margins that run to three digits; Geron (NASDAQ:GERN) and Aastrom (NASDAQ:ASTM) are at four; and StemCells (NASDAQ:STEM), has five (count 'em, five) digits, 22,252.69%.

Margins

9/05

12/05

3/06

6/06

9/06

12/06

Gross

88.9%

81.4%

81.4%

81.2%

80.9%

81.3%

Operating

(25.8%)

(31.7%)

(35.9%)

(39.1%)

(39.9%)

(41.1%)

Net

(37.0%)

(33.0%)

(34.0%)

(40.2%)

(39.7%)

(38.7%)
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:
As we saw last quarter, ViaCell is experiencing some success from its recent marketing drive. Cost of sales in the firm's all-important, cash-generating storage business, ViaCord, began to taper off as the year progressed. While for the year, sales and cost of sales both increased 24%, by year-end, the Q4 rate of costs growth slowed to 19%, while sales raced ahead 26%. This suggests that, if the trend continues, we'll see continued gross margin improvement both Tuesday and in quarters to come.

Which means the main issue with ViaCell remains what it's always been: those nagging operating costs. As the table above shows, they've been eating up ViaCell's superb 80%-plus gross margins and regurgitating red ink all over the income statement. The company made some progress in this regard last quarter, reducing the pace of growth in selling, general, and administrative expenses to 32%. On Tuesday, we'll want to see more of the same.

What did we expect when we last put ViaCell under the microscope, and what did we see? Find out in:

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