Foolish Forecast: Drew Drawn Down

Another day, another quarter of declining profits. Monday afternoon, RV parts maker and Motley Fool Hidden Gems pick Drew Industries (NYSE: DW  ) breaks the bad news on Q1 2007. But will it be as bad as Wall Street thinks?

What analysts say:

• Buy, sell, or waffle? Four analysts now follow Drew, splitting their votes 50-50 between buy and hold.
• Revenues. On average, analysts expect a 17% sales slide to $172.8 million.
• Earnings. EPS is predicted to drop 40% to $0.28 per share.

What management says:
Yet again, Drew has updated investors on its business far in advance of its earnings. Here's what we gleaned from the firm's investor presentation in March:

• As of last year, Drew had two primary segments, manufactured housing (MH) and RVs, which account for 30% and 70% of its revenues, respectively. But MH contributes slightly more to the company's earnings, providing 32% of operating profits to RVs' 68%.
• Major customers include Champion (NYSE: CHB  ) and Palm Harbor (Nasdaq: PHHM  ) in MH, Coachmen (NYSE: COA  ) and Thor (NYSE: THO  ) in RVs, and Fleetwood (NYSE: FLE  ) and Skyline (NYSE: SKY  ) in both.
• Drew's continued goal: to expand its already dominant market share, both organically and through acquisitions. Speaking of which, the firm is holding, well, firm on its valuation criterion. It says it doesn't want to pay more than six times EBITDA on any new purchases.
• Finally, Drew cited some interesting figures that speak to its success in acquiring market share in MH. Though industry production is down 69% from 1998 to 2006, Drew boasted that its own MH sales have risen 13% in the same period. A clearer picture of growing market share is hard to imagine.

What management does:
In other good news, Drew reversed a three-quarter-long slide in its rolling gross margins last quarter. But overall, margins still aren't back up to where they were a year ago, as operating and net margins continue to head south.

Margins	9/05	12/05	3/06	6/06	9/06	12/06
Gross	21.9%	23.8%	22.3%	22%	21.6%	22.8%
Operating	8.3%	9%	8.7%	8.5%	8.3%	8.1%
Net	4.5%	5%	5.3%	5.2%	4.8%	4.3%

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:
Updating members of Motley Fool Hidden Gems on Drew's progress back in February, analyst Bill Barker warned us to "Expect a fairly tough year ahead for Drew in terms of comparisons with 2006, barring a significant reduction in gas prices and interest rates."

That said, Bill also reminded us that the problems the company faces aren't limited to Drew per se, but run throughout the RV and MH industries. That situation's not great for short-term profits, but it's tailor-made for Drew's plans to expand market share by making "strategic acquisitions of small players that are less equipped to handle the present climate," as Bill noted. What's more, "the longer that sector weakness lasts, the more acquisitions it is likely to make."

Hmm. It's almost enough to make a shareholder hope for a bad quarter. Almost.

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Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.