On July 19, computer memory specialist SanDisk (NASDAQ:SNDK) released second-quarter earnings for the period ending July 1, 2007.

  • This was yet another higher-volume, lower-pricing quarter, which led to decent revenue growth, but at the cost of slimmer margins across the board. However, management thinks that the industrywide oversupply situation has finally turned, and expects better pricing in the next couple of quarters.
  • That's no excuse for a reckless amount of share dilution, but it looks like that trend is turning. SanDisk did buy back more stock than it issued in the first quarter, and repeated the feat in the second quarter. All of those dilutive new shares are going out through an internal plan that lets employees buy company stock at a 15% discount to the current market value.
  • Inventories are higher than last year because of the msystems acquisition, and relatively flat from the previous quarter. Again, the big cheese here thinks that bulging warehouses will come in handy when the market normalizes in the second half of the year.

(Figures in millions, except per-share data)

Income Statement Highlights

Q2 2007

Q2 2006

Change

Sales

$827.0

$719.2

15%

Net Profit

$28.5

$95.6

(70.2%)

EPS

$0.12

$0.47

(74.5%)

Diluted Shares

236.0

203.0

16.3%

Get back to basics with the income statement.

Margin Checkup

Q2 2007

Q2 2006

Change*

Gross Margin

27.1%

40.5%

(13.5)

Operating Margin

1.6%

17.9%

(16.2)

Net Margin

3.4%

13.3%

(9.9)
*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q2 2007

Q2 2006

Change

Cash + ST Invest.

$2,911

$2,298

26.7%

Accounts Rec.

$311.7

$311.9

(0.1%)

Inventory

$601.4

$378.2

59%

Liabilities

Q2 2007

Q2 2006

Change

Accounts Payable

$190.2

$197.0

(3.4%)

Long-Term Debt

$1,225

$1,150

6.5%

The balance sheet reflects the company's health.

Cash Flow Highlights

Q2 2007

Q2 2006

Change

Cash From Ops.

($90.5)

$59.3

N/A

Capital Expenditures

$54.0

$37.1

45.5%

Free Cash Flow

($144.5)

$22.2

N/A

Owner Earnings

$62.4

$94.2

(33.8%)

Free cash flow is a Fool's best friend.

Related Foolishness:

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.