Swiss computer equipment producer Logitech (NASDAQ:LOGI) reports its fiscal second-quarter 2007 earnings after close of market Wednesday. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Eleven analysts follow Logitech. Four of them rate the stock a buy, and the rest a hold.
  • Revenues. On average, analysts estimate that the company grew its fiscal Q2 sales by 17% versus last year's numbers, to $494.3 million total.
  • Earnings. They also predict that profits grew just 10% to $0.21 per share.

What management says:
CEO Guerrino De Luca termed Logitech's performance last year "solid" -- and the market agreed wholeheartedly, bidding the shares 10% higher in the wake of the firm's Q1 earnings report. Since then, optimism about Logitech has only grown, and the stock has tacked on an additional 14%. De Luca confirmed previous earnings and sales expectations of 15% growth in both sales and pro forma profits over the course of this year, with much of that growth occurring in Q2 (that means Wednesday) and beyond, when new products will be added to the lineup.

De Luca also predicted "substantial" improvement in gross margins in Q2, but only "slightly higher" margins in the second half of the year, and about 32% for the year's average gross margin.

What management does:
That would be nice to see, because as the table below shows, Logitech's rolling gross margin has been declining for at least the last 18 months. Farther down the income statement, though, things are starting to improve. The rolling operating margin ticked up in Q4 of last year, for example, and although it ticked right back down last quarter, that was because the firm began expensing its stock options in Q1 2007. Meanwhile, the rolling net margin improved in both quarters.

Margins %




























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:
My main beef with Logitech in recent quarters has concerned its quality of earnings. Sales have increased at an impressive clip (on a rolling basis, they grew 21%, 21%, and 20% year over year in the last three quarters). But both inventories and accounts receivable had been outpacing sales growth.

That changed (in part) last quarter. Inventories rose only 15% against quarterly sales growth of 18%, but accounts receivable proceeded along their old trend, spiking 42%. A divergence of that magnitude suggests one of two things: Logitech isn't being particularly strict in requiring its customers to pay their bills on time; or it is resorting to "channel stuffing" to inflate its sales numbers. If either of those is true, we'll likely see continued margin deterioration in place of the margin improvement that De Luca has promised. Alternatively, if margins do improve, we'll have to look more closely to determine why A/R continues to climb even as inventories begin to sell down.

One final note: Logitech had some big news on Sept. 14, announcing that it will terminate its U.S. ADR program sometime later this month. Ordinarily, you'd think that would be a bad thing -- another instance of Sarbanes-Oxley driving a foreign company from our exchanges. But in Logitech's case, it's quite the opposite. Instead of listing shares in Switzerland, depositing them there, and issuing corresponding depositary receipts via Bank of New York to trade in the U.S., Logitech will list its shares on the Nasdaq directly (and yes, also in Switzerland). Life just got a little bit simpler for Logitech shareholders.


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What were we expecting from Logitech last quarter, and what did it produce? Find out in:

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