Here we are once again, at the tail end of an earnings season -- and you know what that means. With the home crowd traffic thinning out, it's time for all the international companies to squeeze in their own news, before the earnings merry-go-round begins its next circuit. Early Wednesday morning, Russian mobile phone provider Mobile TeleSystems (NYSE:MBT) takes its place in line.

What analysts say:

  • General consensus. Seventeen analysts follow MTS, with 15 rating it a buy and two a hold.
  • Revenues. On average, they expect to see sales rise 20% to $1.66 billion.
  • Earnings. Profits are predicted to shoot up 394% to $0.89 per share, topping last year's $0.18 EPS.

What management says:
In its latest update on subscriber trends, MTS gave the expected news that its rate of signing up new users continues to slow. MTS reported only 31% growth in total subscriber numbers this October, compared to October of last year (although 31% sounds fast, it's actually down from the 48.5% rate at which MTS was landing new customers just back in May.) Subscriber growth in Moscow has fallen to the almost first-world level of just 12%, and St. Petersburg isn't much different. In fact, to find anything more than 30% growth, you need to leave Russia entirely and visit Ukraine (47%) or Belarus (53%), or even better, Turkmenistan or Uzbekistan (where triple-digit growth remains the norm.)

What management does:
Decelerating growth rates are just one of MTS's problems. Also threatening the firm's profits: some serious trends in margin compression. Although revenue growth remains strong (up 21% on average over the last six months), the profitability of those revenues is imperiled by the rising cost of services (up 45%) and growing operating costs as well (up 24%). Between them, these higher costs have removed 320 basis points of gross margin and 500 basis points of operating margin from MTS's take over the course of the last 18 months. The rolling net is down nearly 600 basis points.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

81.6

81.0

80.6

80.3

79.3

78.4

Op.

36.1

33.9

32.4

33.6

31.0

31.1

Net

25.3

23.5

22.2

22.5

20.6

19.4

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.

One Fool says:
None of which, however, has prevented the company's shares from outperforming the S&P by a healthy margin over the last 52 weeks -- a remarkable turnaround from where we were just five months ago.

I can't say as I know where the newfound optimism is coming from, however. Perhaps it's based on the likelihood that MTS will post triple-digit profits gains in comparison to last year's third quarter. Perhaps it's because for two back-to-back quarters, MTS saw profits per share decline year over year. But whatever the reason, in this Fool's view, it looks misplaced. With MTS's shares now trading at a trailing P/E of 17, and GAAP profits projected to grow at just a 5% annual rate over the next five years, I'd be more likely to pick up the phone to take a telemarketer's call than pick up MTS shares for my portfolio at these prices.

Competitors:

  • Golden Telecom (NASDAQ:GLDN)
  • VimpelCom (NYSE:VIP)

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