Foolish Forecast: Metal Management Checkup

As earnings season enters yet another lull (it never seems to actually end), the less sexy of Wall Street's offerings take the time to enjoy a few moments of exposure. Here, investors might actually see their reports outside of the madding crowd of peak earnings season. So today, we'll take a quick look at Metal Management (NASDAQ:MTLM), a scrap metal recycler that doesn't get a lot of press. Metal Management reports tomorrow before market open.

What analysts say:

• Buy, sell, or waffle? Three analysts follow Metal Management. One rates it a buy, and the other two a hold.
• Revenues. On average, analysts predict a 10% drop in sales to $413.7 million.
• Earnings. Profits, in contrast, are expected to rise 5% to $0.67 per share.

What management says:
In the last quarterly earnings release, CEO Daniel Dienst described the business environment in which Metal Management works as "challenging," the pricing environment "volatile," and international demand for recycled scrap "weak." Because the company sells both here and abroad, however, Metal Management responded to weak international demand by emphasizing domestic sales.

What management does:
As you can guess from the adjectives the CEO was throwing around back in February, things haven't been going so well for Metal Management recently. Sales were down year over year in each of the last two quarters, and they're expected to be down again tomorrow. Meanwhile, the company's rolling gross, operating, and net margins are all lower today than they were 18 months ago.

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:
According to an April 8-K filing with the SEC, Metal Management could be due for a bit of relief in the form of extra profits next quarter. The company announced that it and its partner, Southern Holdings, are selling their respective interests in Southern Recycling to European Metal Recycling. The all-cash deal, valued at $161.4 million, will net Metal Management $46 million and allow the company to report $17 million in extra pre-tax profit in Q1 2007.

In the nearer term, however, you probably want to know what to look for in tomorrow's report, right? Here, I'd take a cue from the CEO, who, in describing the volatile prices for the various metals that Metal Management processes, emphasized the importance "of Metal Management's disciplined approach to rapidly turning inventory." Over the past 18 months, Metal Management's inventory turns (calculated based on trailing-12-month results) have declined from 15.3 times to 12 times per annum, so this is an area where the company could actually use some improvement. Sequentially, the company improved its inventory turns from 11.7 times to 12 times last quarter. We'll want to look for a continuing trend of improvement in tomorrow's results.

Competitors:

• Schnitzer Steel (NASDAQ:SCHN)
• Commercial Metals (NYSE:CMC)

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