Spring has almost sprung, and even ardent investors are thinking more of burgers and barbeques today. Not so with investors in Sonic (NASDAQ:SONC), however. For them, when it comes to burgers, even home-grilled goodness can't compare to drive-in convenience. Sonic reports its fiscal Q2 2006 numbers Monday afternoon.

Wall Street Wisdom:

  • General consensus. Fifteen analysts follow Sonic, with eight buys narrowly topping seven holds. No one says the "S" word.
  • Revenues. Sales are expected to rise 13% to $150.4 million.
  • Earnings. Profits are predicted to rise only 5%, to $0.21 per share. Remember, however, that Sonic didn't expense stock options in the year-ago period (as it will on Monday). If it had, last year's $0.20-per share profits would have come in at $0.18 -- making Monday's expected increase a 17% improvement in a burgers-to-burgers comparison.

Margin watch:
Sonic has been holding its margins remarkably steady. The rolling gross margin is only off 10 basis points from where it was 18 months ago. Operating margins are only down 40 basis points, and the net is actually up 30 points.

Margins %

8/04

11/04

2/05

5/05

8/05

11/05

Gross

78

77.8

77.7

77.7

77.9

77.9

Op.

23.6

23.4

23.3

23.3

23.5

23.2

Net

11.7

11.7

11.7

11.9

12.1

12

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 lookout:
Over the past six months, Sonic has grown its sales by 13% year over year, while holding its cost of goods sold to a 10% increase, and growing selling, general, and administrative expenses by only 11%. That's even more impressive when you consider that Sonic cited increased advertising as a major factor in its recent business success. If the firm can keep this up, margins should continue to rise.

Meanwhile, Sonic has been generating free cash flow that exceeds its reported GAAP income by about 8% (a reversal of past trends). Again, it's accomplished this despite continued capital expenditures aimed at expanding its business. All of this speaks to the efficiency of Sonic's management -- efficiency recorded for all to see in the company's returns on invested capital and equity, both of which hover near 20%.

Valuation metrics:
Unfortunately, a great business like Sonic often comes with a price tag to match. Trading at 36 times trailing free cash flow and 26 times trailing earnings, but expected to grow profits at just 17% per annum over the next five years, Sonic's priced a bit too close to perfection for this Fool's taste.

Fool contributor Rich Smith has no interest, short or long, in any company named above.