Russian coal and steel producer Mechel (NYSE:MTL) reports second-quarter 2007 earnings Wednesday. To learn what Wall Street expects to see -- and discover what really matters -- read on.

What analysts say:

  • Buy, sell, or waffle? Nine analysts follow Mechel. Four still think it's a buy; five now say "hold."
  • Revenue and earnings. None of the analysts have publicized their estimates for how much Mechel either sold or earned in the quarter. But on average, they predict $5.65 per ADR in profits this year (up 28% year over year), on $5.33 billion in firmwide revenue (a 21% increase).

What management says:
One year ago, COO Alexey Ivanushkin saw "signs of recovery in our steel segment." At the time, I observed that improving profits in this segment would be crucial to growing Mechel's earnings. It seems that both of us were right. By the time Mechel closed its books on fiscal 2006, steel profits were up 252% in comparison to fiscal 2005, on just a 13% rise in revenue. Mining, in contrast, grew its revenue 22% year over year -- and saw profits decline 20% in response.

What management does:
The increased emphasis on steel seems to be paying off for Mechel. Rolling gross, operating, and net margins are all marching upward. At last report, the firm was more profitable than Arcelor Mittal (NYSE:MT), U.S. Steel (NYSE:X), or Nucor (NYSE:NUE) on the steel side, and more profitable than Arch Coal (NYSE:ACI), CONSOL Energy (NYSE:CNX), or Peabody (NYSE:BTU) on coal.

Margins

12/05

3/06

6/06

9/06

12/06

3/07

Gross

35.1%

31.7%

31.3%

33.4%

34.8%

36.4%

Operating

13.9%

10.0%

10.3%

13.9%

16.6%

20.1%

Net

10.0%

7.6%

8.7%

10.9%

13.7%

15.0%

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:
Over the past two reported quarters, Mechel's sales have risen about 58% year over year. Recent comments from U.S. steel producers, though, suggest that maintaining such growth could become difficult as the year progresses.

According to a business update from Nucor last month, the company expects margin expansion as the flow of steel imports from abroad slows toward the end of this year. China was specifically named, but I suspect that commodity imports move in tandem among exporting nations such as China, Ukraine, and Russia. If Nucor's right about that, it could portend weakness in an exporter like Mechel. Although Mechel only derives 5.5% of it revenues directly from the U.S., it also mines coal and iron used in other Russian steel mills that export to the States. Don't be surprised if the company begins to feel some indirect effects from the slowdown in U.S. steel imports.

We'll be looking for on-the-ground comments from Mechel about the pricing and export environments in Wednesday's news, to see how well those statements tally with what we've been told here at home.

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