After nine straight months of underwhelming investors, hazmat equipment manufacturer Mine Safety (NYSE: MSA ) finally rocked the cynics last quarter. Can the erstwhile Motley Fool Hidden Gem repeat this feat when it reports its Q1 2007 numbers Wednesday morning?
What analysts say:
• Buy, sell, or waffle? Four analysts still follow Mine Safety, with ratings unchanged since last time around: one buy, and three holds.
• Revenues. On average, they expect to see less than 5% sales growth to $238.8 million.
• Earnings. Profits, however, are predicted to be up 13% to $0.59 per share.
What management says:
CEO John Ryan pronounced himself "very pleased" with the firm's 2006 performance, in which Mine Safety aimed to "offset [a] reduction in U.S. military sales with growth in [its] sales to commercial markets" -- and more than succeeded in that feat, posting positive sales growth of one big, beautiful percent for the year. Granted, profits were down year over year, but a last-ditch, $0.54-per-share effort in the fourth quarter brought Mine Safety to a respectable $1.73 per share for the year.
What management does:
Even so, the trend is no friend to Mine Safety. Rolling gross margins continued to slide for their second quarter running, and both rolling operating and net margins trended downwards all year long.
|
Margins
|
9/05
|
12/05
|
3/06
|
6/06
|
9/06
|
12/06
|
|
Gross
|
38.7%
|
38.4%
|
39.2%
|
39.5%
|
39.4%
|
37.8%
|
|
Operating
|
13.4%
|
14%
|
14%
|
13.8%
|
12.9%
|
11.8%
|
|
Net
|
8.4%
|
9%
|
8.4%
|
8.1%
|
7.7%
|
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 I pointed out in last quarter's Foolish Forecast, Fool co-founder and Motley Fool Hidden Gems co-lead analyst Tom Gardner finally threw in the towel on Mine Safety back in November. Admitting that 15% profits growth no longer looked to be in the cards, he advised Gems members to take their 125% profit and stash it in a more promising business.
Management didn't disabuse us of this impression last quarter, declining to provide earnings guidance in its release. But neither did it promise bad news in the year to come, instead sounding hopeful notes on the prospect of "controlling and reducing operating costs." Investors should hope Ryan can deliver on this. In the second half of 2006, for example, sales grew about 1.5% on average, while selling, general, and administrative costs rose 10%. Until the gap between those two lines of the income statement is eliminated, margins are bound to continue deteriorating.
On the bright side, the firm's operating margins are at least better off than we're seeing at much smaller rivals like Lakeland Industries (Nasdaq: LAKE ) and Abatix (Nasdaq: ABIX ) , which lack Mine Safety's advantages of scale.
What did we expect out of Mine Safety last quarter, and what did it produce? Find out in:
• Foolish Forecast: Plumbing Mine Safety
• Mine Safety Shines: Fool by Numbers
• Mine Safety Saves the Year
Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.
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