Pet-pill maker VCA Antech (NASDAQ:WOOF) reports Q4 and full-year 2006 earnings results Wednesday afternoon. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Only seven analysts follow VCA Antech, which gets three buy ratings, three holds, and a sell.
  • Revenues. On average, they're looking for 7% sales growth tomorrow, to $232.4 million.
  • Earnings. Profits are predicted to rise 5% to $0.21 per share.

What management says:
Let's put the "fore" in "forecast," shall we? Rather than play Wall Street's game and try to predict what tomorrow's numbers will be, let's look farther out to fiscal 2007.

Why? Well, first and foremost, because VCA made it really easy for us to do this by publishing its fiscal 2007 guidance back in December. The hospital operator, lab operator, and pet-pill maker expects to take in $1.05 billion to $1.08 billion in revenue this year, to earn between $109 million and $113 million from it, and to translate all this into profits per diluted share between $1.27 and $1.31.

What management does:
If you own a pet and have visited a vet recently, you may well think that VCA Antech is an immensely profitable operation -- I know I did, when I discovered that three of the firm's little de-worming pills had set me back $60. But that's not really the case at all. With gross margins hovering around 27%, operating margins short of 20%, and even much-improved net margins still just barely nosing into the double digits, Merck (NYSE:MRK) or Pfizer (NYSE:PFE) this ain't.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

27.2%

27.3%

26.9%

26.9%

27.1%

27.3%

Operating

19.8%

19.5%

19.2%

19.1%

19.3%

19.7%

Net

7.9%

8.0%

8.1%

9.0%

10.5%

10.8%
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:
The reason VCA isn't as profitable as "human" pharmas is quite simple: Most of the firm's business isn't in pharma at all. Breaking the business down by segment, pharmaceutical products fall within the firm's biggest business -- "animal hospital" -- but apparently contribute just a fraction of those hospital revenues. In fact, of the three segments (the other two being laboratory, which tests samples just like a human "lab" business, and medical technology, which sells medical equipment), animal hospital is only the second most profitable. The lab business brings in less than one-quarter of the firm's revenues, but more than half its operating profits.

Going forward, it looks like the dynamics of the business are trending toward the more profitable lab business contributing a smaller and smaller proportion of revenues (and profits), while medical technology and animal hospitals take on more important roles as the firm's growth drivers. The downside: This growth is coming in the firm's two least profitable operations. Sounds like a formula for margin compression to me.

Competitors:

  • Canon
  • Idexx Labs (NASDAQ:IDXX)
  • PetMed Express (NASDAQ:PETS)
  • PetSmart
  • Philips (NYSE:PHG)
  • Siemens (NYSE:SI)

For more on VCA and its peers, read:

Pfizer is an Inside Value recommendation. Find out why with a 30-day free trial of the newsletter. Merck is a former Income Investor pick.

Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.