Tonight, lighting and next-generation display specialist Universal Display (NASDAQ:PANL) is reporting earnings for Q2 2006. Let's turn on the light and see what to expect.

What analysts say:

  • Buy, sell, or waffle? Five analysts follow Universal Display. Three of them are rating the stock a buy, and the other two haven't decided where to go and settle for "hold."
  • Revenues. Analysts expect, on average, to see tonight's sales number come in 26% higher than last year, at $3.8 million.
  • Earnings. This company isn't turning a profit yet, and analysts expect the losses to continue with -$0.11 of earnings per share, same as the comparable 2005 quarter.

What management says:
The management team tends to sound optimistic on conference calls, and for good reason -- the company is just beginning to move into selling actual products rather than just developing them. The list of partners on board is impressive, including divisions of Seiko Epson, DuPont (NYSE:DD), Toyota,AU Optronics, Sony (NYSE:SNE), and Samsung SDI. If and when OLED products start hitting store shelves in significant volume, the days of red ink are over.

What management does:
Did I mention that the company has yet to turn a profit? If I forgot, this table should drive that point home. If the gross margins look impossibly nice, it's because R&D expenses don't count against the gross take, and it's in R&D that Universal Display spends most of its money. The bottom-line margins are certainly headed in the right direction, and should turn positive within the next few quarters if the trend continues.

Margins %

3/05

6/05

9/05

12/05

3/06

Gross

91.6

93

93.2

92.9

93.2

Op.

(287.2)

(214.8)

(171.3)

(172.1)

(135.9)

Net

(263.3)

(195)

(153.9)

(155.7)

(119.9)
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:
Universal Display has delivered pleasant earnings surprises in three of the last four reports, but when it comes right down to it, I really don't care much. Not yet.

You see, the company is in a position where it can let up on research for a few quarters if it wanted to look good on the bottom line, much like how Netflix (NASDAQ:NFLX) can manage earnings by controlling its marketing budget. In both cases, spending more now is likely to lead to better results later on, and that's what I like to see. Once real sales of the company's licensed technologies take off, as opposed to the research samples the company is largely selling today, net margins will turn positive as the same R&D expenses -- or larger ones, even -- start to disappear in the flood of revenues.

So tonight, I'd be delighted to hear news about shipping products, more manufacturing partners, or sales much higher than forecast. The rest of the financial details matter less at this point, and it's all about building the business.

Competitors:

  • Cambridge Display Technology (NASDAQ:OLED)
  • Eastman Kodak (NYSE:EK)
  • Mitsubishi Chemical
  • Philips (NYSE:PHG)

Netflix is a Motley Fool Stock Advisor recommendation, and Universal Display is a Rule Breakers pick. Try a 30-day free trial to one of our services.

Fool contributor Anders Bylund is a shareholder in Universal Display and Netflix, but holds no position in the other companies discussed here. You can check out Anders' holdings if you like. Foolish disclosure is HDTV-ready.