Milk -- it does a body good. But is it good for your portfolio? Tomorrow, we'll get an update on that score, as Russia's dairy king, Wimm-Bill-Dann Foods (NYSE:WBD), reports its Q2 2006 results.

What analysts say:

  • Buy, sell, or waffle? Seven analysts follow Wimm. Three say to buy, three say to hold, and one whispers "sell."
  • Revenues. On average, they predict 15% sales growth to $410.2 million.
  • Earnings. For some reason, they do not make any predictions on profits for the quarter. For the year, the consensus estimate is $1.40 per share.

What management says:
No earnings estimates? How weird. Then again, as I pointed out back in April, Wimm doesn't provide earnings guidance. Could the analysts simply have failed to venture a guess because the company didn't tell them what to estimate? Could Wall Street's finest really be so coddled that they only prepare estimates when the companies they're "analyzing" do all the work for them? [Gasp.]

What did the company tell us last quarter? Read all about it in Stephen Simpson's "Milking Russia for All It's Worth."

What management does:
If the guiding principle in real estate is "location, location, location," then in dairy, it's "volume, volume, volume." Wimm's been boosting its operating and net margins, despite wobbly gross margins, by increasing its sales, spreading its fixed costs over a larger volume of product. The results are shown below.

Margins %

10/04

1/05

4/05

7/05

10/05

1/06

Gross

30.6

27.4

27.5

27.4

31.5

29.3

Op.

4.5

4.4

4.2

4.9

6.3

7.4

Net

1.9

1.7

1.4

1.9

2.2

3.1
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:
According to new CEO Tony Maher, the 18% sales growth that Wimm posted last quarter was "almost entirely organic." What's more, although the trend in gross margins was down, Maher pointed out that "Group gross margin stood at 29.5%, compared to 25.7% a year ago." Year over year, gross margins were up. What's more, Maher advised investors that he thinks there's still room for "enhancing profitability" going forward.

Where should we be looking for those extra profits? I'd suggest that the firm's beverages segment (juice and water) is worth keeping an eye on. Last quarter, sales grew strongly in both dairy and baby food. In contrast, beverage sales stagnated, and the unit's profitability declined as consumers opted to buy its lower-priced lines of juice. Considering that the firm now faces fierce competition from Coca-Cola (NYSE:KO), and that it's been doing pretty well fending off dairy competition from Danone (NYSE:DA), I wouldn't be too surprised if a failure to revive the beverages segment pushes Wimm to sell this business at some point -- perhaps to Coke rival PepsiCo (NYSE:PEP) -- to focus on what it does best: dairy. That decision could well hinge on how successful Maher is in kick-starting growth in the juice business.

Customers:

  • McDonald's (NYSE:MCD)

Milk -- it does a body good. For an additional dose of financial calcium, bone up on Wimm-Bill-Dann with:

Coca-Cola is a Motley Fool Inside Value pick. To discover more sweet deals from Wall Street's bargain bin, try Inside Value free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above.