One of the strange things about following Russian companies is that there's no telling when they're going to report their numbers. It was barely over a month ago, for example, that metals and mining conglomerate Mechel (NYSE:MTL) last reported earnings (for Q2 2006). A few weeks later, and the company's already back on Wall Street regaling us about its third-quarter performance. The news is due out tomorrow morning.

What analysts say:

  • Buy, sell, or waffle? Nine analysts follow Mechel; five still think it's a buy; three now say hold; and one still votes sell.
  • Revenues & Earnings. None of the analysts have made public their estimates for how much Mechel either sold or earned in the quarter, but on average they predict $3.80 per ADR in profits on $3.7 billion in firmwide revenues.

What management says:
How does a company come up with an entirely new set of quarterly numbers just weeks after reporting the last batch? It helps if the company has known, more or less, what it will be saying for over a month. And that's the case at Mechel. Back in October, management had already reported its Q3 (or rather, its Qs 1-3) results. According to COO Alexey Ivanushkin, Q3's "high production results" essentially offset Q1's weak results, with the net effect that the business remains on target to meet its goals for the year.

Ivanushkin noted that in Q3, pricing improved for rolled steel products; the company maxed out its production of long products; and it produced more flat steel because it had no more room to make long. Demand for coal remains strong, and Mechel's volume shipments are up 6% year-to-date in comparison to last year. In contrast, demand for coke is low, and for that reason, the firm cut production (down 15% year-to-date) and used the downtime to carry out scheduled maintenance on its coke facilities. Coke production is expected to ramp back up in Q4, however, so investors should hope pricing has improved by then, or else margins could contract significantly.

What management does:
That would be bad for Mechel, whose gross margins continue to contract, as they have for the last 18 months. Operating results are starting to stabilize, however. As for the net margins, pay them no mind. While important to the bottom line, Mechel's net margins can't show us any reliable trends, buffeted constantly as they are by one-time charges and benefits for such unusual items as "forgiveness of debts," and currency exchange fluctuations.

Margins %




























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:
Turning to the balance sheet, it appears that Mechel is running a pretty tight ship and managing its working capital well through the decline in sales (10% in the first half of the year). Bill collection is strict, with accounts receivable down 20% during the same period -- much more than sales. And although inventories aren't falling quite as fast as sales, their 7% decline isn't too far off from the sales decline.

Of course, we wouldn't mind seeing sales pick up tomorrow, or inventories at least falling faster (and the slackening of coke production might help with that). We'll be watching both of these metrics in tomorrow's news.

Investors and Institutional Shareholders:

  • JPMorgan Chase (NYSE:JPM)
  • T. Rowe Price (NASDAQ:TROW)
  • Credit Suisse (NYSE:CS)
  • Deutsche Bank (NYSE:DB)

For related Foolishness on Mechel, read:

JP Morgan Chase is an Income Investor selection.

Fool contributor Rich Smith does not own shares of any company named above.