Do you enjoy PBS specials on earthquakes? Do you turn to the obits before the comics? Then I think I've got something right up your alley, dear Fool. Auto parts maker Visteon (NYSE:VC) releases its fourth-quarter and full-year 2006 earnings bright and early Friday morning.

What analysts say:

  • Buy, sell, or waffle? An unlucky 13 analysts rubberneck at Visteon. Two of them think the company's a buy, ten more vote hold, and one says sell.
  • Revenues. On average, they're looking for quarterly sales to slide 6% to $2.7 billion.
  • Earnings. Yet another loss is expected, but not as big a one as last year -- just $0.83 per share this time around.

What management says:
On Tuesday, Visteon announced that it has a new, permanent CFO: then-current vice president, corporate controller, and chief accounting officer William Quigley. Quigley previously served as corporate controller at the impressively named, but currently bankrupt, Federal-Mogul Corp, as an assistant corporate controller at Nissan (NASDAQ:NSANY), and an audit manager at Deloitte & Touche. He will be taking over the post from James Palmer, who has "left the building" to become CFO at Northrop Grumman (NYSE:NOC).

What management does:
Good news for Quigley: he's got momentum on his side. Palmer is leaving in his hands a company whose margins are moving upwards at all three levels -- gross, operating, and net -- and that have been doing so for three straight quarters.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

3.5%

3.4%

3.3%

4.4%

5.6%

5.8%

Operating

(1.6%)

(1.7%)

(1.9%)

(0.8%)

0.5%

0.7%

Net

(15.8%)

(9.3%)

(1.6%)

(0.7%)

9.1%

10.6%
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:
In January, Visteon filed an investor presentation with the SEC, describing its plans to continue improving operations. These include closing down or improving the operations of underperforming facilities, laying off employees, and shifting more work to developing countries such as China, India, and the Czech Republic.

A quick review of the firm's last couple of income statements will tell you why: Year over year, the firm's sales are down 38%, while cost of goods sold are down 40%. That's a good thing, because when raw material costs go down more than sales, the firm's gross margin expands. The bad news is that the firm isn't currently reaping the full benefit of the gross margin expansion, because its operating costs are down only 33% -- not nearly as much as the sales decline.

Another objective Visteon highlighted is "cash flow management." To see the reason for this, look not to the firm's income statements, but its balance sheets. These show that accounts receivable for the last two quarters are down 23% year over year -- as with the operating costs, not down sufficiently given the decline in sales. The situation with inventories is even worse, as they've declined just 5% despite the huge fall-off in sales. As a result, Visteon's cash-burn accelerated this year. Free cash flow of negative $106 million over the last two quarters is roughly 40% worse than we saw last year.

Long story short: Visteon has correctly identified at least some of its problems. Tomorrow, we learn whether it's been able to make any progress in fixing them.

Competitors:

  • American Axle (NYSE:AXL)
  • Lear Corp (NYSE:LEA)
  • PPG Industries (NYSE:PPG)
  • TRW Automotive (NYSE:TRW)

For more on Visteon, read:

PPG Industries is an Income Investor pick.

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