Anticipating Heinz's (NYSE:HNZ) earnings release? Well, be thankful: The company's not going to keep you waiting much longer. Heinz reports its fiscal Q3 2006 numbers before the markets even open tomorrow morning.

Wall Street Wisdom:

  • General consensus. Of the 14 analysts covering Heinz, five recommend buying the stock, seven vote for a hold, and two counsel selling it.
  • Revenues. None of them expect a lot of excitement tomorrow, however. On average, the call is for 4% sales growth to $2.36 billion.
  • Earnings. Profits are headed the other way. Analysts are looking for a 7% decline to $0.56 per share.

Margin watch:
Back in November, Heinz CEO William Johnson termed himself "generally pleased" with his company's results. From the looks of the below chart, however, I'm betting he's not in the majority. Heinz's gross, operating, and net margins have all taken a long-term slide over the past 18 months.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

36.7

36.4

36.1

36.3

36

36

Op.

16.3

15.9

15.3

15.5

15

15

Net

9.2

9.2

8.4

8.4

7.9

7.9
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish forensics:
How do you turn an increase in sales into a decrease in profits? Easy. Just put a stopper on the margins. If you earn fewer pennies of profit per dollar of sales, making more sales won't necessarily net you greater earnings.

How do shareholders get a 10% boost in their share price with declining margins and a predicted decrease in profits hanging over their company? That one's tougher to answer, but last week's CNBC report that billionaire activist investor Nelson Peltz is seeking to pressure Heinz to "do something" to increase shareholder value likely had a lot to do with it.

Foolish lookout:
This is good news for Heinz investors. Effectively, the prospect of a sale of the company in whole or in part, as well as the possibility of a boosted dividend, greater share buybacks, and so on, should put a floor under the stock price. Regardless of tomorrow's news, speculators are flocking to the stock and will help to support it.

Meanwhile, oblivious to the ferment about it, Heinz quietly plugs along. It has generated $900 million in free cash flow over the past year and patiently, stoically continues to pay out its 3.2% dividend. Indeed, life is good at "The Good Food Company."

Heinz is aMotley Fool Income Investorrecommendation. Want to get paid to invest? Follow Mathew Emmert as he seeks out the market's best dividend-paying stocks -- take Income Investor for a free, 30-day trial.

Fool contributorRich Smithdoes not own shares of any company named above.