Confection and trading card company Topps (NASDAQ:TOPP) will report third-quarter 2007 financial results tomorrow, January 3, and it looks like there may be some not-so-sweet things to trade on.

What analysts say:

  • Buy, sell, or waffle? With five analysts covering the Ring Pop maker, three found a sour sucker and say hold, while two rate it a buy.
  • Revenues. For the first quarter, revenues are expected to flip at $76.3 million, a meager 4.7% increase over the year-ago period.
  • Earnings. Profits, however, are expected to come in at $0.06 per share, much better than the $0.09 loss chalked up a year ago.

What management says:
Last year, the company had decided during the third quarter to exit a card trading business called thePit.com, where one could buy and sell rookie trading cards of sports figures in a stock market-like setting. That discontinued operation caused Topps to recognize a $3.7 million after-tax loss; otherwise, it would have broken even for comparison purposes this time around.

The company has been experiencing lagging sales growth internationally. In the second quarter this year, however, it saw overall increases of 30% in its entertainment division, primarily in the U.S., which offset the declines experienced overseas. The candy segment saw declines -- those Ring Pops and Push Pops just weren't ringing the registers or pushing sales growth -- and management expects total revenues to come in at the mid-single digit level for the full year, although it expects margins to continue improving.

What management does:
Gross margins have been steadily deteriorating, though Topps did manage to eke out a minor improvement last quarter as it sold new lines of higher margin trading cards. Yet it simply hasn't been able to trade its improving sales growth (slim though it's been) into any kind of improvement in profits or efficiency that would enable investors to have something to smile about.

Margin %

08/05

11/05

02/06

05/06

08/06

Gross

34.7

33.6

32.6

32.4

32.5

Op.

1.4

1.1

0.0

0.4

1.1

Net

3.1

0.8

0.4

0.7

0.2


Efficiency Ratios

08/05

11/05

02/06

05/06

08/06

ROA

0.9

0.7

0.0

0.3

0.8

ROE

4.3

3.0

1.9

2.2

1.5

ROC

1.2

0.9

0.0

0.4

1.0

YOY Revenue Growth

(4.6)

(0.5)

(0.1)

4.0

4.4

YOY Earnings Growth

(19.7)

(53.4)

(65.0)

(43.1)

(67.0)
*Earnings from continuing operations. 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:
There's a lot of hope built into Topps' stock price, sort of like hoping to find that Mickey Mantle rookie card in the pile of shoe boxes your mom stored away in the attic. Though Topps trades at a forward P/E of 31 (cheaper than its trailing P/E of 145), that's still putting it at a premium to competitors that sell for two-thirds that value. We'll see tomorrow if Topps can finally flip those sales into profits, but the closest I'd get toward trading this stock would be playing a game of "got 'em, got 'em, need 'em, got 'em" with its cards.

Competitors:

  • Wrigley's (NYSE:WWY)
  • Tootsie Roll (NYSE:TR)
  • Hershey (NYSE:HSY)
  • Cadbury Schweppes (NYSE:CSG)

Related Foolishness:

Wrigley's is an Income Investor selection.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.