Next up in our series of earnings previews: an American standard. Actually, theAmerican Standard (NYSE:ASD), best known for its kitchen and bath fixtures, but also a big name in HVAC and vehicle control systems. The company reports Q1 2006 earnings results tomorrow before the market opens.

What analysts say:

  • Buy, sell, or waffle? Eighteen analysts follow American Standard. Over the last three months, the number of sell ratings has tripled (to three). Eight analysts still rate the stock a hold, and the number of buys has dropped to seven.
  • Revenues. Wall Street will be looking for a 6% rise in revenues tomorrow, to $2.5 billion.
  • Earnings. Even so, profits are expected to fall 15% to $0.40 per share.

What management says:
In the January earnings release, American Standard CEO Fred Poses sounded pretty satisfied with the performance of all of his firm's divisions -- save one. Actually, the one for which I'd wager the company is best known: bath and kitchen. But while the nation's most famous toilet maker isn't doing so hot in the toilet-selling department, its air conditioning, residential, and vehicle control systems units all turned in strong performances.

Unsurprisingly, in making its predictions for fiscal 2006, American Standard named bath and kitchen as the business that it will focus on improving.

What management does:
The company's margins continue to tell two diverging stories as you read from top to bottom. Gross and operating margins continue to contract, while the net margin increases. Keep the reason for that in mind before deciding that things are better than they seem: In February 2005, American Standard took a $188 million "big bath" to account for anticipated asbestos liability costs. The further we move away from that month (and tomorrow is when it finally falls off the trailing-12-month numbers), the truer the net margin will reflect American Standard's actual business performance.

Margins %

9/04

12/04

3/05

6/05

9/05

12/05

Gross

27.1

26.9

27.4

27.6

27.6

27.1

Op.

9.7

9.2

9.7

9.9

9.9

9.5

Net

5.2

3.3

3.7

4.1

4

5.4
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:
As for what that performance will be, I actually expect good things, at least from a cash flow perspective. Over the last six months, American Standard has grown its inventories only 3% on average against sales gains of about 8% year over year. Although accounts receivable are up a bit more (10%), that won't really worry me unless and until I see inventories outpacing sales as well.

Competitors:

  • United Technologies (NYSE:UTX)
  • Crane (NYSE:CR)
  • Honeywell (NYSE:HON)
  • Lennox (NYSE:LII)
  • Johnson Controls (NYSE:JCI)
  • Jacuzzi (NYSE:JJZ)

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