Now that Christmas is out of the way, it's time for that other "most wonderful time of the year" -- year-end earnings season, when those companies whose fiscal years align sensibly with the calendar report their Q4 and full-year results. Next up is software company Sybase (NYSE:SY), which reports on Thursday.

What analysts say:

  • Buy, sell, or waffle? Five analysts set up camp at Sybase; two of them rate it a buy, and three more a hold.
  • Revenues. On average, the analysts expect to see 10% sales growth, to $246 million.
  • Earnings. Profits are predicted to rise just a penny, to $0.46 per share.

What management says:
"We're pleased with our operating results this quarter," said CEO John Chen last quarter. Ordinarily, that would be a de rigeur statement by any company's CEO in its quarterly press release. For Sybase, the statement has a bit more significance, given Chen's emphasis on the "operating results." The company has indeed been doing well operationally -- even as its net profits, and net margin, disappoint somewhat.

The firm was so embarrassed over its bottom-line numbers, in fact, that it took Sybase five paragraphs full of announcements regarding revenue growth, mobile and wireless revenue growth (in particular), and license revenue growth (in very particular), before it finally admitted that net profits were down last quarter. The culprits: higher taxes, stock options expensing, and -- coming Thursday -- amortization of goodwill from the firm's recent acquisition of Mobile 365.

What management does:
Those culprits, especially the last one, suggest strongly that Thursday's news will continue recent margin trends. Gross margins should remain strong, operating results will likely "please" the CEO yet again, but net results may continue to slip.

Margins %

6/05

9/05

12/05

3/06

6/06

9/06

Gross

73.4

74.2

74.7

75.3

75.8

76.0

Op.

15.9

16.3

15.9

16.2

16.9

17.1

Net

8.7

10.0

10.5

10.9

12.0

11.5

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:
Does Sybase really need to be so shy? I don't think so. Whatever the net results show, the firm shouldn't be afraid to show them to its shareholders right at the top of its earnings report. (We're going to read on down to it anyway, guys. Might as well get it out of the way.) After all, the profits that really count at Sybase -- the free cash flow -- put those net numbers to shame, which should make management itself pretty proud.

Over the last 12 months, Sybase has generated a whopping $185 million in free cash flow, or nearly twice its net profits under GAAP. Net profit growth may leave something to be desired, sure. But with an enterprise value of less than $1.8 billion, and a resulting enterprise value-to-free cash flow ratio of less than 10, Sybase shares look pretty desirable to this Fool.

Related Competitors:

  • BEA Systems (NASDAQ:BEAS)
  • Borland Software (NASDAQ:BORL)
  • CA (NYSE:CA)
  • IBM (NYSE:IBM)
  • Microsoft (NASDAQ:MSFT)
  • Oracle (NASDAQ:ORCL)

Related Foolishness:

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