It's been 10 quarters since Dolby Labs (NYSE: DLB) turned in an earnings report that failed to set investors to cheering. Who wants to bet that Thursday's second-quarter 2008 numbers will be any different?

What analysts say:

  • Buy, sell, or waffle? Fifteen analysts listen in on Dolby's reports. Eleven of them rate the stock a buy, and four say hold.
  • Revenue. On average, they're looking for sales to grow 24% to $159.5 million.
  • Earnings. Profits are predicted to likewise rise 24% to $0.42 per share.

What management says:
Like I said back in February, Dolby Labs "blew out the box" last quarter, and left CEO Bill Jasper crowing over the company's "strength across a broad range of entertainment platforms." Whether it's Sony (NYSE: SNE) DVD players, Microsoft (Nasdaq: MSFT) PCs, or (of course) cinematic auditory enjoyment at a Regal Entertainment (NYSE: RGC) theater that you seek, Dolby's got you covered, providing the technology that keeps the sound systems at all these companies humming.

And shake your head as you might, that hum in your ears isn't going away. Management expects to earn about $1.39 per share this fiscal year on $595 million in revenue, both at the midpoint of guidance.

What management does:
But hold on a sec. That revenue number doesn't look so bad -- $595 million would be about 23% more than Dolby raked in last year. But what's with the $1.39 in profits? Dolby's gross, operating, and net margins marched relentlessly upward last year, leaving Dolby earning profits on revenue far in excess of what more diversified rivals such as Kodak (NYSE: EK) or Philips boast -- and better than what focused, but tiny, rivals SRS Labs (Nasdaq: SRSL) and DTS (Nasdaq: DTSI) can muster.

Margins

9/06

12/06

3/07

6/07

9/07

12/07

Gross

80.6%

82.0%

82.0%

82.9%

84.6%

86.1%

Operating

32.2%

34.8%

35.9%

36.7%

38.3%

40.3%

Net

22.9%

25.2%

26.4%

27.2%

29.6%

30.4%

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:
But the midpoint of this year's earnings-per-share guidance is just 10% above fiscal 2007's $1.26 per share. If management expects to grow its sales 23% this year, but to grow profits at less than half that clip, then that seems to portend significant margin compression.

At least one analyst has already downgraded the stock on fears that "weakness in PCs and consumer electronics" will begin to surface this year, torpedoing Dolby's profits. I, for one, will be very curious to see if this is how things play out in Thursday's news.

For more on Dolby, read:

Dolby is a Stock Advisor recommendation. Microsoft is an Inside Value recommendation.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool's disclosure policy can hear a heart break.