Ever since "going public," bedmaker Sealy (NYSE:ZZ) has done right by Wall Street, meeting or beating its earnings targets. On Wednesday, the firm will attempt a repeat as it begins its second full year of reporting earnings as a public company. Q1 2007 news is due out after market close.

What analysts say:

  • Buy, sell, or waffle? Eight analysts follow Sealy, giving it three buy ratings, four holds, and a sell.
  • Revenues. On average, they're looking for 5% sales growth tomorrow, to $414.8 million.
  • Earnings. Profits are predicted to slide 10% to $0.27 per share.

What management says:
Is it just me, or did Sealy just finish reporting its Q4 results six weeks ago?

Oh, it did. Well, then this is what management had to say six weeks ago: CEO David McIlquham (say that one five times fast) praised his firm's "over 20% growth in ... international markets, near doubling of ... specialty business ... [and] improving ... domestic unit shipments" in 2006. This year, McIlquham predicts a "rebound in industry unit shipments" generally, and believes that Sealy in particular will benefit from "particularly innovative Stearns & Foster designs that we anticipate will drive sales in the second half of the year."

What management does:
Profitability wise, Sealy isn't doing much in the way of establishing trends for us to follow. Gross margins remain in the mid-40s, operating margins are tethered at 13%, and the net keeps bumping up against 4.7%, unable to climb any higher. For comparison, that bottom line number falls short of rival and Motley Fool Hidden Gems recommendation Select Comfort's (NASDAQ:SCSS) 5.8%. It falls even farther short of the other big name in publicly traded bedding, Tempur-Pedic (NYSE:TPX), which nets nearly $0.12 in profit on each dollar of sales.

Margins

8/05

11/05

2/06

5/06

8/06

11/06

Gross

44.3%

44.3%

44.4%

44.6%

44.4%

44.7%

Operating

13.3%

13.3%

13.1%

13.0%

12.6%

13.0%

Net

4.5%

4.7%

4.7%

4.2%

4.4%

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:
Sales and costs trends at Sealy appear to be improving, with the former up 7% in comparison to last year in the second half of 2006, while cost of goods sold and selling, general, and administrative costs both came in a hair lower. Thus, margins seem stable to improving in recent quarters. Where the danger lies at Sealy is the same place we found it six months ago -- on the balance sheet.

There, accounts receivable continue to outpace sales growth modestly at 8%. There, too, we see inventories continuing to rise at more than twice the pace of sales gains -- 16%. Ordinarily a matter of concern, this trend worries me even more today. Today being half a year after I first gave the company the benefit of the doubt that "much of [a similar] inventory build [in the first half] could be attributed to the new products that McIlquham mentioned, products which were still working their way onto sales floors at last report."

So when we hear McIlquham once again promising that new products will bring new sales a few quarters down the line, I think investors should listen with a bit of skepticism. That line would hold a lot more weight if sales had materialized last time he promised them, drawing down inventories to where they were better aligned with sales growth.

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