Manufactured homebuilder Palm Harbor (NASDAQ:PHHM) reports Q3 2007 earnings results Tuesday afternoon. 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? Four analysts now track Palm Harbor, which gets a pair each of buy and hold ratings.
  • Revenues. On average, the analysts think Palm Harbor's sales fell 13% last quarter, to $168.2 million.
  • Earnings. Nor do they expect to see profits this quarter; instead, they're looking for a $0.02-per-share loss.

What management says:
Last quarter would have been essentially breakeven for Palm Harbor, but for the fact that the firm took a series of charges for an investment gone bad. That and the closing of an inefficient factory and several retail locations drove the firm deeply in the red for fiscal Q2. Meanwhile, sales grew 5% year over year -- an achievement CEO Larry Keener said he was "pleased" to see, considering that getting HUD financing for these homes remains "challenging."

CFO Kelly Tacke promised to show investors the beginnings of "$5 million in annual cost savings beginning in the third fiscal quarter." (Meaning not $5 million in cost savings, but one quarter's worth of same, or perhaps a million.) Also promised: continued efforts to "reduce" receivables and "manage" inventories.

What management does:
There's little in the way of confirmed trends visible in Palm Harbor's margins. The rolling tallies continue to bobble around on both the gross and operating levels. Net margins, however, appear to be on the rise. (That is, if you don't count last quarter's spurt of one-time charges. Those are going to drag down the rolling net for another three quarters.)

Margins %

6/05

9/05

12/05

3/06

6/06

9/06

Gross

25.7

25.6

26.6

26.1

26.3

25.9

Op.

0.8

1.6

4.1

3.5

3.7

3.4

Net

(0.4)

0.2

1.5

1.6

1.6

0.8

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:
Pondering what will be most interesting to look at in Tuesday's results, I noticed that Palm Harbor has already been making progress on reducing operating costs. Over the last six months, both sales and cost of goods sold are up 11% year over year. Meanwhile, selling, general, and administrative costs have risen less than 8%. If Tacke is correct in saying that even more cost-cutting arrived in the third quarter, we could finally start seeing an upward trend in the firm's profitability.

That said, unless the firm gets its inventories under control, it could be forced to cut prices to move product and free up working capital. Tacke wasn't kidding about the need to cut inventories and receivables. The firm is now massively free-cash-flow negative, and has been so for four quarters running. If this is not rectified soon, the damage to the firm's balance sheet is going to be considerable.

Competitors:

  • Berkshire Hathaway (NYSE:BRK-a) (NYSE:BRK-b)
  • Cavalier (AMEX:CAV)
  • Cavco (NASDAQ:CVCO)
  • Champion (NYSE:CHB)
  • Coachmen (NYSE:COA)
  • Fleetwood (NYSE:FLE)

For additional harbor-side reading, take a load off and peruse:

Fool contributor Rich Smith does not own shares of any company named above. Berkshire Hathaway is a Motley Fool Inside Value recommendation. The Fool has a disclosure policy.