Nock, draw, release. Those are the three easy steps to loosing an arrow. In comparison, reporting earnings news is three times as easy. All that medical products maker Arrow International (NASDAQ:ARRO) needs to do tomorrow is "release" its fiscal Q2 2006 numbers.

Of course, it never hurts to add one more step to the process: Aim. So let's see what Arrow's aiming to hit tomorrow.

Wall Street Wisdom:

  • General consensus. Five analysts track Arrow, and all rate it a buy.
  • Revenues. They expect the company to report 4% quarterly sales growth, to $117.5 million.
  • Earnings. Meanwhile, profits are expected to plunge 20% to $0.29 per share.

Margin watch:
Arrow's been having a tough time of things, margins-wise. According to statements made by management in the January earnings release, much of this trouble is due to the company's inability to meet demand for its disposable catheter and related products.

As long ago as September, fellow Fool Stephen Simpson was writing about this issue, but it now sounds like the company is making progress toward expanding capacity. That doesn't change the numbers we see below: Gross margins are down 340 basis points, operating margins are down 28%, and the company now nets 35% less profit from each dollar of revenue than it did 18 months ago. Still, it gives hope that better days may lie ahead.

Margins %

8/04

11/04

2/05

5/05

8/05

11/05

Gross

52.5

51.9

50.6

50.7

49

49.1

Op.

21

20.1

18

18.1

15.4

15.2

Net

12.9

12.4

10.1

10.8

8.7

8.4

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.

Foolish checkup:
While we wait for Arrow's sales to revive, let's consider the good news. Free cash flow remains strong, matching net income nearly dollar for dollar over the last four quarters. That helped Arrow to finance the costs of its expansion, pay off $2.3 million in short-term debt (the company is free of long-term debt), and increase the size of its cash war chest to $115.5 million over the last year.

Competitors:

  • Thoratec (NASDAQ:THOR)
  • Datascope (NASDAQ:DSCP)
  • Abiomed (NASDAQ:ABMD)

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