Last quarter marked a low point for Mobile Mini (NASDAQ:MINI) investors. For the first time in more than three years, the portable storage specialist tripped over the earnings hurdle set for it by the folks up on Wall Street. But can Mini get back on track when it reports its Q3 numbers tomorrow morning?

What analysts say:

  • Buy, sell, or waffle? Only nine analysts still follow Mobile Mini, down two from last quarter. Four of them say to buy it, and five say to hold it.
  • Revenues. On average, they're looking for 12.5% sales growth to $83.2 million.
  • Earnings. Profits are predicted to flatline at $0.35 per share.

What management says:
Mobile Mini gave us a peek behind its earnings curtain last week when it released "preliminary 2007 third-quarter results" describing a sizable earnings miss. Mini expects to report total revenues of $83.5 million tomorrow, of which $74 million derive from lease payments. Earnings should come in at $0.34 or $0.35 per share -- as much as 15% below previous guidance.

Mini attributed its profits shortfall to "higher than expected fleet repair and maintenance expense," as well as "costs incurred in connection with reducing the scope of certain U.S. manufacturing operations in light of slower growth rates this year." It's that latter point we should probably be focusing on. The silver lining 'round this cloud is that Mini says only "certain geographic locations" are suffering from the "slower growth rates" in question -- and that "European operations have continued to achieve exceptional growth." But the cloud remains: Mini is seeing its U.S. business slow down, and as a result has had to scale back box production, incurring unanticipated costs in the process.

What management does:
And perhaps sacrificing efficiencies of scale, as well. Both Mini's rolling operating and net margins tipped downward last quarter (however, the competitive positions of the major storage players remain unchanged -- Mini's still achieving much better operating margins than AMERCO (NASDAQ:UHAL), Public Storage (NYSE:PSA), U-Store-It (NYSE:YSI), and Williams Scotsman (NASDAQ:WLSC)). But it's starting to look like Mini's lead might contract.

Margins

3/06

6/06

9/06

12/06

3/07

6/07

Gross

81.1%

88.9%

69.1%

93.7%

91.2%

89.0%

Operating

35.9%

36.0%

36.5%

36.4%

36.7%

36.4%

Net

16.4%

14.3%

15.2%

15.6%

16.3%

15.2%

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:
 Motley Fool Stock Advisor members can rest assured that we're watching this situation closely. To get our latest thoughts on Mobile Mini, grab a 30-day free trial subscription and check out David Gardner's advice on the Mobile Mini discussion board, and Fool analyst Nick Kapur's thoughts at Stock Advisor.

For my part, I'm still less than thrilled with Mini's valuation.

On the surface, everything looks dandy: A 14 trailing P/E with 17% projected profits growth? Cheap! But the fact that Mini generates no free cash flow continues to nag at me. Yes, I "get" that Mini is an expanding and dominant business, and that it plows what free cash it has right back into the business in order to keep on expanding, and getting more dominant. But I'm old and crotchety. I like to see my companies produce hard cash profits (a bias that's kept me out of many a growth story, by the way: Starbucks (NASDAQ:SBUX), because it doesn't generate nearly as much free cash flow as it reports in net profit. But also Cosi (NASDAQ:COSI) -- so sometimes the bias pays off.)

Perversely, a slowdown in Mini's business may be good news for investors like myself. If the company is indeed slowing down its box-building in response to a construction industry slump, maybe it will spend less investing in its business -- and allow some of its cash profitability to emerge into the visible spectrum.