With two earnings misses, a beat, and a match to its credit over the last four quarters, kitchen and bath fixture-maker American Standard (NYSE:ASD) hasn't exactly set the standard for consistent outperformance lately. Tomorrow, the company aims to get its batting average back up to .500. Will it succeed?

What analysts say:

  • Buy, sell, or waffle? Sixteen analysts follow American Standard. Three still rate the stock a buy; 12 now say hold; and one says you should sell it.
  • Revenues. On average, analysts believe American Standard grew its quarterly sales 8% versus last year, to $2.8 billion.
  • Earnings. Profits are believed to have risen 9% to $0.82 per share.

What management says:
In American Standard's report on fiscal second-quarter results back in July, CEO Fred Poses described the quarter as "good," but with the usual qualifications we've come to know and love. Sales growth of 9% was plenty "good", and the firm's air conditioning business boasted "record sales, segment income, margins, commercial orders and backlog."

As for the division by which most of us recognize the company, however, the best Poses could say was that he saw "progress on our Bath and Kitchen improvement initiatives." -- "progress" apparently meaning sequential sales growth, but a 4% drop in revenues year over year. In addition, profits dropped 8% in comparison to last year. (This was inevitable, though, as we'll see below.)

What management does:
Back on the "good" side of things, margins at American Standard are holding pretty steady at the gross level, and the strength in A/C is helping to keep operating profitability in the mid-9% range. The net margins haven't yet been able to benefit from the improvements higher up the income statement, but investors shouldn't pay that too much mind. Between four straight quarters of restructuring charges (none of which were seen in the previous year), a massive tax benefit recorded back in Q4 2004 (whose effects are now falling off the back end of our trailing-twelve-month tally), and considerably higher taxes paid this year, the net margin was bound to suffer.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

26.7%

26.9%

26.9%

27.1%

27%

27%

Op.

9%

8.9%

9%

9.5%

9.4%

9.5%

Net

3.7%

4.1%

4%

5.4%

4.9%

4.7%

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:
Over on the balance sheet, we see a picture that can again be described as "good" at best. The inventory picture that I called "superb" back in July's Foolish Forecast has become a bit less so. While it's wonderful that inventories are only up 3% on average year to date, versus 9% sales growth, that's actually a deterioration from what we saw last time, when inventories had actually declined against the same sales rate. But we can't complain much about that.

However, accounts receivable outpaced sales growth by twice, rising 18% on average over the last six months. Although a single quarter's results are hardly the be-all and end-all of a company's future -- as Wall Street often suggests -- the trend does seem to have reversed itself last quarter. If it keeps going this way tomorrow -- the gap between inventory and sales growth narrowing as the gap between A/R and sales growth opens -- that would be anything but "good."

Competitors:

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

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