Now that Christmas is out of the way, it's time for that other "most wonderful time of the year" -- year-end earnings season, when those companies whose fiscal years align sensibly with the calendar version report their fourth-quarter and full-year results. Next up is kitchen and bath fixture-maker American Standard (NYSE:ASD), which reports Thursday.

What analysts say:

  • Buy, sell, or waffle? Sixteen analysts follow American Standard. Four now rate the stock a buy, 11 say hold, and one still thinks you should sell it.
  • Revenues. On average, analysts believe American Standard grew its quarterly sales 8% to $2.74 billion.
  • Earnings. Profits are predicted to rise 11% to $0.51 per share.

What management says:
CEO Fred Poses sounded a muted note three months ago, when describing American Standard's Q3 performance. Although he called the quarter "good," words such as "pleased," "excellent," and "record" were in notably short supply. The best performance continued to come from the firm's air-conditioning and vehicle-control systems units, while the bath-and-kitchen business continued to disappoint.

Looking forward to Thursday's news, Poses predicted that A/C's performance would once again be "strong," vehicle control systems "good," and bath-and-kitchen: "similar to the third quarter." Oh.

What management does:
One problem that Poses mentioned in particular as holding down last quarter's results: raw materials costs. Although we've seen these moderating in general throughout the economy in recent quarters, at American Standard, "higher commodity costs" remain the order of the day. As a result, the firm's rolling gross margins resumed their fall last quarter, dragging operating and net margins down with them.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

26.9%

26.8%

27.1%

27.0%

27.0%

26.7%

Operating

8.9%

8.7%

9.5%

9.4%

9.5%

9.4%

Net

4.1%

4.0%

5.4%

4.9%

4.7%

4.4%
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:
Operating and net margins didn't go down without a fight, though. Reviewing the last two income statements, we see that sales were up 11% on average, year over year. Just as Poses indicated, the cost of goods sold exceeded that rate of growth, rising 12%. However, the firm made an admirable effort to control operating costs. Selling, general, and administrative expenses rose just 8% compared to last year. However, because SG&A costs are only about one-fourth the size of raw materials costs, the efficiencies gained here weren't enough to counterbalance the increase in cost of goods sold and salvage the net margin.

Over on the balance sheet, the situation looks similar -- not great, but not lousy, either. Accounts receivable are a tad high, rising 15% on average for the last two quarters. But inventories are just keeping pace with sales growth at 11%. While we'd love to see improvement here in Thursday's news, things are basically going okay. I think the place we most want to read good news two days hence will be on the income statement, and in particular, in the lines telling us how well sales are reviving in the bath-and-kitchen segment.

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.