American Standard Companies (NYSE:ASD) continued last quarter's strong performance as the company progressed through the first quarter of 2004. On Wednesday, the diversified manufacturer of kitchen and bath fixtures, air conditioning units, and vehicle control systems announced increased sales of 12% year over year. More importantly, the company managed to parlay that sales growth into a 31% increase in earnings over first-quarter 2003, falling just short of the absolute top of its range of projected earnings for the quarter.

Interestingly, nearly half of the sales growth and almost a third of the earnings growth came from the company's smallest revenue source -- selling electronic braking and air suspension systems to truck manufacturers (Audi, a Volkswagen AG subsidiary, and General Motors (NYSE:GM) both appear to be customers). If this trend continues, within about five years, American Standard may be better known as an auto parts manufacturer than as a provider of reasonably priced kitchen and bath fixtures.

As for the quality of the earnings, that looks pretty solid, too. While both accounts receivable and inventories grew over the past year, neither of those numbers increased faster than sales -- a strong sign that American Standard owes none of its sales growth to channel stuffing or similar accounting chicanery.

The company's cash reserves are also looking mighty healthy, swelling by about $80 million (to $192 million), a 71% increase compared with last year. That good news, however, is offset by the only bad number evident on the balance sheet: Long-term debt increased to $1.7 billion from $1.6 billion.

Finally, in contrast to the year-ago period, American Standard was slightly free cash flow positive this quarter (plus $700,000 as opposed to minus $800,000). And the company is promising to further improve those numbers, boasting that by year end, it should have racked up about $500 million worth of free cash flow.

American Standard shareholders should hope that the company can deliver on this claim, and more importantly, on its promise to spend a considerable portion of this "discretionary income" on debt reduction. With all of Wall Street atremble at the prospect of increased interest rates, American Standard really needs to move debt reduction up a few notches on its list of priorities.

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Fool contributor Rich Smith owns no shares in American Standard. The Motley Fool is investors writing for investors.