Telecoms need equipment to run their networks, and ADC Telecommunications (NASDAQ:ADCT) makes it for them. The company is reporting quarterly earnings tonight. We're here to give you a feel for how much cabling and connection gear it managed to sell this quarter, and what it means.

What analysts say:

  • Buy, sell, or waffle? Of the 19 analysts who follow ADC, eight recommend a buy now, and the remaining 11 say "Hold it!"
  • Revenues. Analysts expect, on average, to see tomorrow's sales number come in 7.9% higher than last year, at $340 million.
  • Earnings. Profits are a different story. They're predicting a slight decline to $0.26 per share, down from $0.28 last year.

What management says:
ADC recently won an industry award for turnaround performance, and management is happy to point out that operating profits are increasing consistently year over year. It points to operational cost savings as the source of that positive trend, but let's see for ourselves what the margin timeline says about that.

What management does:
Uh-oh. The table below does not paint a pretty picture, with shrinking gross margins hinting at pricing weakness, and no sign that the company is compensating with its operational efficiency. These margins need a shot in the arm, right away.

Margins %

1/05

4/05

7/05

10/05

1/06

4/06

Gross

37.7

36.9

36.6

36

35.1

33.9

Op.

4.3

6.3

8.4

7.5

7

6.2

Net

3.6

6.6

8.7

7.3

5.7

4.5
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:
 It looks like ADC management works with a different definition of "improved operating margins" than the rest of us, unless it has simply laid the groundwork to produce better margins in the future. The company had hoped to acquire radio and wireless equipment maker Andrew (NASDAQ:ANDW) for roughly $2 billion during this quarter, but it was a stock-swap deal, and ADC's share price fell through the floor before Andrew's shareholders voted. Needless to say, Andrew remains an independent company.

That price drop was punctuated by ADC lowering its revenue guidance, because of a drop in demand for the gear it sells. The current analyst consensus for this quarter is lower than the $368 million in revenue Wall Street had expected at that point, but still higher than the $332 million ADC itself suggested.

We've seen weak reports from other equipment makers, and it would not surprise me to see a revenue shortfall tonight. Unless margins have indeed turned north by now, that should lead to lower-than-expected earnings, too. Stay tuned.

Related companies:

  • Andrew
  • CommScope (NYSE:CTV)
  • ViaSat (NASDAQ:VSAT)
  • Radyne (NASDAQ:RADN)
  • QUALCOMM (NASDAQ:QCOM)
  • Powerwave Technologies (NASDAQ:PWAV)

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like. Foolish disclosure is always in high demand.