Every once in a while, a Fool gets lucky. For example, last week, I ended my Foolish Forecast of Logitech's (Nasdaq: LOGI) earnings release with the admonition:

"With margins growing, management promising 'more than 20%' earnings growth for fiscal 2008, and analysts predicting 16% annual growth over the next half-decade ... well, it can't be much longer before people notice that 14 times free cash flow is an awfully small price to pay for such stellar growth prospects. Get this one while it's still cheap."

Cheap no more?
Now that Logitech has run up 11% since the release, the stock's no longer quite so cheap. But there's a reason for that. Consider the numbers that Logitech posted on Monday:

  • Q4 sales grew 17% to $601 million.
  • Gross margins expanded 110 basis points to 35.6%.
  • Operating margins rose by 20 basis points to 11%, securing Logitech's lead over rivals Sony (NYSE: SNE), Nam Tai (NYSE: NTE), Philips (NYSE: PHG), and Plantronics (NYSE: PLT).
  • Profits, however, grew just 10% to $0.32 per share.

Now, at first glance, you're probably looking at these numbers and wondering: How is this good news? It doesn't appear to make sense that Logitech's sales rose nearly twice as fast as profits, when margins were expanding -- expanding margins are supposed to accelerate profits growth. But in fact, they did. Operating income growth outpaced sales growth 20% to 17%. The reason net profits failed to measure up was because the company paid more taxes this past quarter and suffered an "impairment loss related to other-than-temporary declines in fair value of short-term investments."

So pro forma, things were OK?
If you like looking at things pro forma, as Wall Street analysts do, then yes, things were OK. Most refreshing (to this Fool's weary eye) was the fact that Logitech finally quit complaining about declining webcam sales. While sales by unit were again down, it would appear that if Logitech is indeed losing share to Microsoft (Nasdaq: MSFT) here, as some have argued, then it's doing so at the low end of the scale. Webcam sales by revenue increased despite Logitech selling fewer units -- up 9% -- so the higher-margin models are once again moving.

Faster forwarding to the future
And now it's time for the bad news. While Wall Street has been obsessing over Logitech's webcam madness, I've had my eye on the company's most innovative products: the ultra-modern remote controls business. Q4 showed disturbing trends here. Unit sales were up strongly at 22%, but revenue grew much more slowly, at 12%. For the time being, I'm hoping this means Logitech is sacrificing margins to grab market share in the short term, but it's something to keep an eye on going forward.

What did we expect out of Logitech last time around, and what did we get? Find out in:

Fool contributor Rich Smith does not own shares of any company named above. Microsoft is a Motley Fool Inside Value pick and Nam Tai is a Global Gains selection. The Motley Fool has a disclosure policy.