Cabinet maker American Woodmark's (NASDAQ:AMWD) turnaround continues to take form, with the company having now put together three back-to-back "earnings beats" for its Wall Street analyst-skeptics. Still, skeptics they remain for the most part. On Tuesday, we'll learn whether the skeptics have reasons for their doubts.

What analysts say:

  • Buy, sell, or waffle? American Woodmark's six analysts give the firm a total of one buy and five hold ratings.
  • Revenues. On average, analysts expect to see a 4% drop in sales to $206.5 million.
  • Earnings. Profits are predicted to leap 57% to $0.58 per share.

What management says:
It's been nearly a year since CEO James Gosa began steering his company away from low-margin sales in pursuit of greater profits, and the effort continues to bear fruit. As already mentioned, Gosa's firm has beaten Wall Street estimates in each of the three quarters since he announced the firm's new pro-profit paradigm.

With the firm's shares now outperforming the S&P by better than a 2-to-1 margin over the last 52 weeks, Gosa sees even better days ahead. He announced earlier this week that the firm is putting its money where its expectations are in the form of a new $50 million share buyback (on top of the $20 million plan previously announced) that the firm aims to complete within the next year or two.

What management does:
In each of the past two quarters, American Woodmark's focus on profitability has borne fruit in the form of rising gross, operating, and net margins (note that all numbers shown below are on a rolling, or trailing-12-month, basis).

Margins %

4/05

7/05

10/05

1/06

4/06

7/06

Gross

19.6

18.7

17.2

17.0

17.9

19.2

Op.

7.5

6.8

5.6

5.3

6.4

7.6

Net

4.6

4.1

3.4

3.3

4.0

4.6
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 the same press release announcing the new share buyback program, Gosa threw down the gauntlet before Wall Street, promising to "gain market share and grow sales, net income and free cash flow." Bold words indeed for a firm that has been throttling back on sales (and, one presumes, market share) in order to focus on profits.

Although this Fool wishes the company luck, he's more than a bit worried that if American Woodmark does indeed seek to expand sales and market share, it may be willing to do so at the expense of its newfound profitability. Therefore, I'll be keeping close watch on how the new plan works out over the next few quarters. If American Woodmark truly does intend to "mess with success," I may even have to remove my bullish "outperform" rating on the stock. When and if that happens, users of our free Motley Fool CAPS service will be the first to know, and the change will be shown on my CAPS profile under TMFDitty.

Competitors:

  • Fortune Brands (NYSE:FO)
  • Kimball (NASDAQ:KBALB)
  • Masco (NYSE:MAS)

Customers:

  • Home Depot (NYSE:HD)
  • Lowe's (NYSE:LOW)

We've been watching American Woodmark's impressive turnaround for some months now. Follow along in:

Home Depot is a Motley Fool Inside Value recommendation.

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