Home fixture maker American Standard (NYSE:ASD) is expected to release its earnings numbers for Q3 2005 some time tomorrow morning, followed shortly thereafter by a discussion of the data in a 9:30 a.m. conference call. With the call beginning just as the opening bell rings on Wall Street, the company's stock is likely to be an active trader in the early hours of tomorrow's market. How that trading will be colored -- red or green -- will depend on a number of factors. Let's take a look at a couple of them.
Although the company did not provide investors quarterly guidance in last quarter's earnings release, it did provide this information to those who tuned in for its subsequent conference call and posted a .pdf file on its website summarizing the numbers it expects to post tomorrow. Essentially, the company is looking for $0.69 to $0.73 in net profits this quarter, or $0.74 to $0.78 in "adjusted" profits. Add that to the $1.52 already earned this year and, if it makes its numbers, American Standard will be well on its way toward hitting its targeted $2.60 to $2.75 per diluted share this year.
Fools should try to contain their excitement over American Standard's progress, though. Sure, good news tomorrow would suggest that the company has a "lock" on hitting its annual numbers. American Standard would need only another $0.40 or $0.50 in Q4 to achieve its target, and that's just a fraction of what it has earned, on average, in each of the past three quarters.
But last February, the company took a charge to earnings that knocked its Q4 2004 numbers for a loss. A year before that, American Standard earned just $0.38 in Q4 2003. A year before that, in Q4 2002, the company earned more than a buck. So, historically, American Standard's fourth-quarter earnings have been all over the map.
Setting aside the fickle GAAP numbers, I think it's more important to focus on the company's progress toward its goal of generating more than $550 million in free cash flow this fiscal year. After its historically weak Q1, American Standard began reversing its negative free cash flow trend in Q2. By the end of June, American Standard was up $158 million for the year -- less than half the distance to its goal.
In order to have a chance of hitting $550 million by Dec. 31, the company probably needs to repeat last quarter's performance, and post close to a quarter-billion dollars in free cash flow for Q3. Else, its chances of posting better than 9% annual free cash flow growth will be in jeopardy.
Want to read more about kitchen and bath fixtures? Go wild:
- American Standard vs. the Street's Standard
- Lowered Standard
- American Pressured
- American Standard's Slow Drain
Fool contributor Rich Smith has no position in American Standard.
