Progress Software (NASDAQ:PRGS), a maker of application-infrastructure software, reports its third-quarter 2007 earnings results Thursday morning. 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:

  • General consensus. Six analysts still follow Progress; five have a buy rating and one says hold.
  • Revenues. On average, analysts expect to see sales rise 7% to $119.6 million.
  • Earnings. They also project 42% growth in profits to $0.44 per share (pro forma).

What management says:
As we discussed last quarter, Progress added numerous new clients and expanded its relationship with several existing ones. QAD (NASDAQ:QADI), Dow Jones (NYSE:DJ), Allied World Assurance (NYSE:AWH), Hastings Entertainment (NASDAQ:HAST), and Spectra Energy (NYSE:SE) were just a few of the names mentioned. Yet none of them could put together for Progress a quarter that met analyst expectations.

Will Progress do any better in the second half of the year? Management thinks so, in at least one respect, since it raised its revenue guidance to range between $475 million and $485 million for the year. Unfortunately, the same couldn't be said for profits guidance.

What management does:
With its gross margins intact and varying by just a few dozen basis points in any given quarter, Progress began to reverse the declines in operating and net margins two quarters ago. However, improvement stalled last quarter, so I'll be interested to see whether the downward trend resumes on Thursday. I'm not optimistic -- the downward revision in expected profits last quarter suggests to me that no matter how good sales are, Progress is expecting to see its margins erode.

Margin

2/06

5/06

8/06

11/06

2/07

5/07

Gross

84.4%

84.5%

84.5%

84.6%

84.7%

84.6%

Operating

15.2%

13.5%

12.1%

9.6%

9.9%

9.7%

Net

10.6%

9.5%

8.3%

6.6%

7.0%

7.0%

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:
But here's the good news. The downward revision in earnings guidance appears to have been in connection with Progress' taking a $0.04-per-share charge to earnings for a "write-down associated with a portion of the implementation of a new ERP system." (Basically, the system didn't play nice with the firm's OpenEdge-based system.) That sounds to me like a one-time charge that, while it will hurt the year's earnings, does not affect the firm's intrinsic profitability.

If I'm correct about this, we could see the rolling operating and net margins continue to decline over the next three quarters, only to snap back up as soon as the charge is no longer counted in our trailing-12-month results.

What kind of Progress did we expect last quarter, and what did we get? Find out in:

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