Tic-tac-toe, investors want to know: Will RV parts maker and Motley Fool Hidden Gems pick Drew Industries (NYSE:DW) make it three in a row for earnings misses when it next reports earnings? Tuesday's the big day, when Drew announces its fiscal fourth-quarter and full-year 2006 results.

What analysts say:

  • Buy, sell, or waffle? Three analysts still follow Drew. Holds outnumber buys 2-to-1.
  • Revenues. On average, analysts expect a 12% slide in quarterly sales to $158.5 million.
  • Earnings. Profits are predicted to fall 44% to $0.24 per share.

What management says:
The big news at Drew this quarter came in the form of a pair of tack-on acquisitions. In January, management announced the swallowing of two affiliated companies, Trailair and Equa-Flex, which manufacture "innovative suspension systems used primarily for towable recreational vehicles. The two acquired companies reported combined sales in excess of $3.0 million." (Over the last 12 months, presumably.)

Drew will pay somewhere between $5.5 million and $8.1 million for its new prizes, in the form of $3.3 million up front, $2.2 million in IOUs to be paid off over the next five years, and a potential $2.6 million that is contingent on the new subsidiaries hitting certain sales targets over the next five years. As such, the purchase price comes somewhere in the neighborhood of 1.8 to 2.7 times sales. CEO Leigh Abrams advised that the deal will "be immediately accretive to Drew's earnings." And investors will certainly hope that proves correct. With Drew proper selling for less than 0.8 times sales, the premium paid here looks to be high.

What management does:
Meanwhile, back at the ranch, Drew proper has watched its rolling gross margins compress over each of the last three quarters, and its rolling operating and net margins over the last two.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

21.8%

21.9%

22.5%

22.3%

22.0%

21.6%

Operating

8.2%

8.3%

8.7%

8.7%

8.6%

8.4%

Net

4.2%

4.5%

5.0%

5.3%

5.2%

4.8%
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:
Updating members of Motley Fool Hidden Gems on the progress of Drew back in November, Gems co-analyst Tom Gardner had this to say about his recommendation: "Drew Industries, our leading manufacturer of doors, windows, bathroom features, slide-outs, and other components for recreational vehicles and manufactured homes, has had a very eventful [last] 12 months."

First, Hurricane Katrina boosted sales in early 2006; then the stock succumbed to the malaise pervading its customers in the RV and manufactured housing industry. Tom likes the way management has been making "small, targeted acquisitions that increase their product lines and don't impair the balance sheet" (such as the two noted above, both of which took place after Tom penned that comment). Based on demographic trends of first aging, then retiring, then RV-buying baby boomers feeding into the end-user base, Tom predicts that although it will set no speed records for growth, Drew will nonetheless "offer growth for a long time."

To find out what price would make Tom a buyer again, click here to read his six-month review (and get a 30-day subscription to Hidden Gems free in the bargain).

Customers:

  • Champion (NYSE:CHB)
  • Coachmen (NYSE:COA)
  • Fleetwood (NYSE:FLE)
  • Skyline (NYSE:SKY)
  • Thor (NYSE:THO)

What did we expect out of Drew last quarter, and what did we get? Find out in:

Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy loves the open road.