Why Put the Hurt on Mine Safety?

"MSA Announces Record Fourth Quarter and Full Year Sales."

Uh-oh. You don't have to read past the headline of Mine Safety's (NYSE: MSA) Q4 and full-year 2007 earnings release to realize that the news won't be good. When the best thing a company can say about its news is that "sales" were good, your instinct should be to expect pretty poor profits. And at first glance, that seems to be what we got for Q4:

• Revenue grew 5% to $272.2 million, with safety product sales to top customers such as Home Depot (NYSE: HD) and United Rentals (NYSE: URI) rising slightly.
• Profits dropped 10% to $0.48 per diluted share.
• Operating margins grew 90 basis points year over year in the fourth quarter to 9.9% (and ended at 10.5% for the year, a bit shy of what larger rival Honeywell (NYSE: HON) pulls down).

Hold up a sec
Did I read that right? Operating margins improved last quarter? Why yes, they did. And the way I read yesterday's report, that was the real story at Mine Safety in fiscal 2007 -- things got better, not worse (which makes today's sell-off as inexplicable as  the price spike in August). For the year, revenue and earnings each grew a respectable 8%. For the quarter, raw material costs declined, and gross and operating margins improved. Really, when you look closely at the numbers, the worst you can say about Mine Safety in Q4 is that:

• Its tax burden grew 150%,
• Currency exchange fluctuations cost the company about $500,000,
• And it ramped up research and development spending by 43%.

The first two items were hardly within the company's control. And the third is ... admirable. Yet investors seem to be punishing the company for factors outside its control, and for investing in its future. Call me a Fool, but that seems incredibly shortsighted.

The future
Taking a longer view, CEO John Ryan called prospects for the current year "favorable," observing that the U.S. government is finally getting up to speed in disbursing funds under the Assistance to Firefighters Grant (funds that municipalities can use to buy Mine Safety equipment). The National Fire Protection Association (NFPA) has certified 80% of Mine Safety's breathing apparatus, so municipalities may begin buying it. And while sales didn't meet management's expectations last year, the elements are starting to fall into place for a more successful fiscal 2008.

Maybe I'm early on this, but I'm starting to see light at the end of the tunnel.