On Jan. 25, hard drive maker Western Digital (NYSE:WDC) released second-quarter 2007 earnings for the period ended Dec. 29, 2006.

  • These results exceeded management guidance on both the top and bottom lines, despite a fungible amount of share dilution and shrinking gross margins.
  • However, be aware that some of these gains may not have been very tangible. Free cash flow grew slower than net income, and is smaller by dollar amount. Owner earnings actually decreased, and is the shortest of the three stacks.
  • Retail operations may care the most about the cash conversion cycle (CCC), but widget manufacturers need to make sure their cash is working effectively, too. In WD's case, every conceivable cash conversion metric moved in a negative direction, worsening the overall cycle by more than a week.

(Figures in millions, except per-share data)

Income Statement Highlights

Q2 2007

Q2 2006

Change

Sales

$1,428

$1,117

27.8%

Net Profit

$128

$104

22.7%

EPS

$0.57

$0.47

21.3%

Diluted Shares

226.0

221.5

2.0%



Get back to basics with a look at the income statement.

Margin Checkup

Q2 2007

Q2 2006

Change*

Gross Margin

17.9%

20.4%

(2.6)

Operating Margin

8.5%

10.0%

(1.4)

Net Margin

9.0%

9.3%

(0.4)

*Expressed in percentage points.

Margins are the earnings engine. See how they work.

Management Effectiveness

Q2 2007

Q2 2006

Change*

Return on Assets

21.0%

24.0%

(2.9)

Return on Equity

38.0%

49.9%

(12.0)

*Expressed in percentage points.

See how management puts its financial tools to work.

Balance Sheet Highlights

Assets

Q2 2007

Q2 2006

Change

Cash + ST Invest.

$830

$645

28.7%

Accounts Rec.

$668

$428

56.0%

Inventory

$265

$168

57.5%



Liabilities

Q2 2007

Q2 2006

Change

Accounts Payable

$816

$580

40.6%

Long-Term Debt

$21

$32

(34.2%)



Learn the ways of the balance sheet.

Cash Flow Highlights

Q2 2007

Q2 2006

Change

Cash From Ops.

$184

$126

46.0%

Capital Expenditures

$110

$62

77.4%

Free Cash Flow

$74

$64

15.6%

Owner Earnings

$68

$81

(15.9%)



Find out why Fools always follow the money.

Cash Conversion Checkup

Q2 2007

Q2 2006

Change

Days in Inventory

18.5

17.3

1.2

Days in Receivables

40.4

36.2

4.2

Days Payables Outstanding

60.1

62.2

(2.1)

Cash Conversion Cycle

(1.2)

(8.7)

7.5



Read up on cash conversion metrics.

Related Companies:

  • Seagate (NYSE:STX)
  • Hitachi (NYSE:HIT)
  • IBM (NYSE:IBM)
  • Micron (NYSE:MU)
  • Hewlett-Packard (NYSE:HPQ)

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Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund had no position in any company mentioned. Fool rules are here.