Paper maker Neenah Paper (NYSE:NP) reports Q1 2007 earnings results Wednesday afternoon. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Both analysts following Neenah rate the stock a hold.
  • Revenues. On average, they expect to see 26% sales growth to $208 million.
  • Earnings. Profits are predicted to leap 13 times in value to $0.78 per share.

What management says
Reporting full-year and Q4 2006 earnings in March, CEO Sean Erwin highlighted "significant improvement in pulp operations resulting from both higher selling prices and improved costs, a more favorable pricing environment in our paper segments, and growth in Technical Products."

It's useful to get an overall picture of the business like this from the CEO, because if you've been following this company since its spinoff from Kimberly Clark (NYSE:KMB), you know that its earnings results have been heavily dependent on the effects of one-time items. Last year, for example, we saw the firm's profits quadruple on $5.22 per share in gains from the sale of timberlands. And yet, overall business was off. Absent that one-time gain, net income would have declined thanks to "a stronger Canadian dollar, increased raw material and energy costs, losses on pulp price hedges, and higher corporate expenses that offset the benefits of higher volumes and selling prices."

What management does
Evidence of a turnaround can also be found in this firm's margin trends, which showed a bump upward in each of the rolling gross, operating, and net margins last quarter. For comparison, Neenah is now grossing about 10% less than industry titan International Paper (NYSE:IP), and about 5% more than its closer-in-size rival Wausau Paper (NYSE:WPP).

Margins

9/05

12/05

3/06

6/06

9/06

12/06

Gross

18.7%

18.0%

9.7%

9.0%

8.3%

15.5%

Operating

10.2%

10.1%

3.1%

3.2%

1.2%

8.3%

Net

(10.7%)

(5.6%)

(4.3%)

4.7%

2.9%

10.5%
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
Reviewing his recommendation of Neenah Paper in the December issue of Motley Fool Hidden Gems, Fool co-founder Tom Gardner called the management team "terrific" and highlighted accelerating revenue growth and profitability as two trends to watch -- and "pulp operations, hedging operations, and currency impact" as three things to watch out for. Three months later, that "terrific" management gave us the following update on these trends:

  • "Pulp prices have continued to strengthen," and H1 2007 results may show particularly large improvements over H1 results from 2006, compared with more muted improvements in H2.
  • "All remaining pulp price hedges expired by December 2006 and the company has no current plans to enter into similar new hedges." That should make investors rest easy. In 2006, these kinds of hedges cost Neenah $11 million in losses.

Also, I'd point out that the Canadian dollar has gained about 6% in value on the greenback since the beginning of this year. The thing to remember here is: "The weaker the loonie, the better for Neenah." So from the shareholders' perspective, things are headed in the wrong direction.

For more on Neenah Paper, read:

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