Grilling season has come again, investors, and with it, the first earnings report of the new fiscal year for TurboChef (NASDAQ:OVEN). This firm is a rival to Motley Fool Hidden Gems recommendation Middleby (NASDAQ:MIDD), providing ovens to customers from Hilton (NYSE:HLT) to Starbucks (NASDAQ:SBUX) to Disney (NYSE:DIS).

Yet while it has an impressive customer list, TurboChef hasn't booked an actual profit in two years. Did the company manage to reignite its profit pilot light in Q1 2007?

What analysts say:

  • Buy, sell, or waffle? Six analysts now follow TurboChef, voting it a buy by a 3-2-1 margin.
  • Revenues. On average, analysts expect to see 93% sales growth to $18.4 million.
  • Earnings. They further predict a net loss narrowing to $0.09 per share.

What management says:
Good news, TurboChef investors! Remember the $1.9 million charge that your company took in Q4 of last year? The one that swelled TurboChef's quarterly loss from a nice round $0.10 per share to a bloated $0.16? Well, in April, the company got some good news. It's finally wrung payment out of the third-party assembler whose destruction of TurboChef inventory prompted the charge last quarter. Since the $1.9 million payment arrived April 20, however, and the Q1 books were closed in March, I suspect we won't see the windfall appear on the firm's income statement until next quarter's report.

What management does:
That chunk of change represents as much as 10% of TurboChef's quarterly revenue. As such, it should do wonders for the bottom line of the chart below, once it's returned to TurboChef's income statement. Combined with rolling gross profit margins that have risen for three quarters straight, and rolling operating and net margins that are becoming steadily less negative, it looks like TurboChef is finally moving back toward the black. (Mind you, because the company got itself caught up in the neverending stock-option backdating scandal, most of these numbers are tentative, until the firm straightens out its accounting and gets its SEC filings up to date.)

Margins

9/05

12/05

3/06

6/06

9/06

12/06

Gross

24.9%

16.7%

9%

13.9%

31.5%

34.4%

Operating

(10.2%)

(43%)

(70%)

(68%)

(47.5%)

(34.2%)

Net

(17.1%)

(53.9%)

(83.6%)

(82%)

(64.8%)

(52%)
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:
Meanwhile, things are starting to look up over on TurboChef's balance sheet as well. As sales leapt 36% year over year in the second half of 2006, accounts receivable grew just 21%, and inventories actually shrank by 5%.

This efficient use of working capital helped reduce the firm's cash burn-rate significantly. Cash outflows in the second half were roughly half the $14.7 million in negative free cash flow the company incurred in H2 2005. Now obviously, we'd rather see positive free cash flow at TurboChef. But bakers can't be choosers, and if less negativity is the most we can hope for right now, we'll take it.

What did we expect from the oven last quarter, and what rose up? Find out in:

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