As most companies on Wall Start continue to sound optimistic notes about the future of 2007, cabinet maker American Woodmark (NASDAQ:AMWD) is preparing to end its fiscal year 2007 on a down note. Fourth-quarter and full-year earnings are due out Tuesday, and analysts aren't optimistic.

What analysts say:

  • Buy, sell, or waffle? All four of American Woodmark's remaining analysts (two jumped ship since last quarter) rate the firm a "hold."
  • Revenues. On average, analysts expect to see a 16% drop in sales to $180.8 million.
  • Earnings. Profits are predicted to fall 42% to $0.48 per share.

What management says:
The big news at Woodmark this quarter was also the most recent. On Thursday, CEO Jake Gosa announced he was stepping down from that post, but remaining chairman of the board. He's relinquishing the CEO's chair to current president and COO, and former CFO, Kent Guichard. This management shuffle taking effect August 23 seems well planned and does not appear to conceal any downside, at least to this Fool's eye.

So it sounds like Tuesday will be the last time that Gosa reports earnings on the company's behalf. Unfortunately, he's unlikely to go out with a bang. At last report, Woodmark was predicting that profits this year will total between $2.10 and $2.20 per share. If that's right, it will mark a year-over-year improvement of just 5% to 10%. That's down from the 20% to 25% improvement the firm was predicting just six months ago.

What management does:
Another thing management predicted in last quarter's earnings report: declining margins. After four straight quarters of steadily growing gross margins (a function of Woodmark's exiting low-margin product lines), management predicted that "its gross margin rate will approximate 20.5% for the fiscal year." Chances are this will also depress rolling operating and net margins for the second quarter running.

Margins

10/05

1/06

4/06

7/06

10/06

1/07

Gross

17.2%

17.0%

17.9%

19.2%

20.4%

20.7%

Operating

5.6%

5.3%

6.4%

7.6%

8.3%

8.2%

Net

3.4%

3.3%

4.0%

4.6%

5.0%

4.9%
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:
But things aren't all bad at Woodmark. As I mentioned last quarter, free cash flow has been strong this year (if not terribly strong last quarter in particular). The firm's continued progress in working down its inventories seems to be freeing up a lot of cash for more profitable use. Over the last two quarters sales may be down 8%, but inventories have fallen even faster -- down 18%.

The gray stain on this silver lining: Exceedingly weak same-store sales results at both of Woodmark's biggest customers, Lowe's (NYSE:LOW) and Home Depot (NYSE:HD), suggest we may see a reversal of the favorable inventory trend tomorrow.

What did we expect to see at American Woodmark last quarter, and what did we get? Find out in:

Home Depot is a Motley Fool Inside Value recommendation.

Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.