Lighting specialist Color Kinetics (NASDAQ:CLRK) is set to report quarterly earnings tonight, and the Fool is here to help you understand what the market expects from the company. Why should earnings remain flat over last year while sales are expected to skyrocket? Stay tuned for the answer.

What analysts say:

  • Buy, sell, or waffle? Half a dozen analysts follow Color Kinetics, and they all want you to buy the stock.
  • Revenues. Analysts expect, on average, to see revenues clocking in at $15.5 million, 20.6% higher than last year.
  • Earnings. Profits per share, on the other hand, are a flatter affair: The average prediction is $0.05 of earnings per share, exactly in line with last year's results for the same quarter.

What management says:
Last quarter's earnings were weighed down by stock option expensing, and barely cleared the red-black borderline. This quarter isn't expected to be much better, for much the same reason. However, Color Kinetics is pumping out new products, including consumer staples branded by SC Johnson, and the tipping point where earnings take off could be in sight.

What management does:
Gross margins are climbing steadily thanks to relatively stable fixed production costs and rising order volume. But with rising SG&A costs and mandatory stock options expensing taking sizable cuts, net margins have stayed low anyway. I'm not so sure that the company's management is committed to cost control right now, as it looks like it's ramping up the sales staff in preparation for a marketing push.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

50.6

50.9

51.4

52.1

52.9

53.7

Op.

4.6

4.4

4.5

5.9

10.4

9.5

Net

5.9

6.3

6.9

7.3

8.2

6.9

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:
Color Kinetics is working on getting LED lights into pretty much everything that holds an incandescent light bulb today. LEDs are more efficient and more robust and can do many things that are hard or impossible to duplicate with white-hot metal filaments inside a glass bulb.

The problem is that there are many horses in this race. I'm not just talking about LED competitors like Philips Lighting (NYSE:PHG), Cree (NASDAQ:CREE), or Super Vision International (NASDAQ:SUPVA). There's also entirely different technologies, like the organic LED (OLED) lighting panels that Universal Display (NASDAQ:PANL), Cambridge Display (NASDAQ:OLED), and others are working on.

It's a fair bet that we're not far from the day when light bulbs go out of style, and Color Kinetics wants to be part of your living room's next lighting redesign -- and much more. Tonight, I want to hear details on the company's marketing plans, or at least some of the rationale behind the expanded sales and marketing costs. Assuming that the technology is ready, a sales push is the next logical step.

Competitors:

  • Koninklijke Philips
  • General Electric (NYSE:GE)
  • Super Vision
  • Universal Display
  • Cambridge Display
  • Cree

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Fool contributor Anders Bylund owns stock in Universal Display but holds no other position in any of the companies discussed here. You can check out Anders' holdingsif you like. Foolishdisclosureis always one step ahead.