Was I too quick to write off Furniture Brands (NYSE:FBN) as a goner? Judging from yesterday's earnings report, it sure seems so.

I argued earlier this week that between its surging inventories, weak collections of accounts receivable, and even weaker sales trends, Furniture Brands (FBI) was doomed to follow in the footsteps of peers like Stanley (NASDAQ:STLY), Hooker (NASDAQ:HOFT), La-Z-Boy (NYSE:LZB), and Bassett (NASDAQ:BSET). As losses mounted, I figured that the firm would be forced to shutter stores, lay off employees, and take resultant charges to earnings.

But in so arguing, I relied a bit too much on my assumption that Wall Street analyst projections would be somewhere in the ballpark, and that FBI's own projections would be similarly accurate. Since they were made just two weeks before quarter's end, that seemed reasonable to me. But as it turned out, neither party's projections were in the ballpark. Heck, they weren't even in the same ZIP code. To illustrate, let's compare what FBI promised us last month, versus what it reported yesterday:

FBI Said


Q2 sales decline



Q2 per share profits (loss)



Q2 "adjusted" profits *



*FBI calculated adjusted results to back out "several special items and restructuring charges."

See what happened there? Depending on whether you consider one-time items real or imaginary, FBI either earned $0.09 per share or $0.12 per share in Q2. Either way, it was a far cry from the anticipated $0.07-per-share loss.

But it gets better
Personally, I appreciate that FBI went out of its way to calculate an "adjusted profits" number that actually makes its performance look worse than it does under GAAP. More often, companies finagle the definitions of adjusted (also known as pro forma) profits to make themselves look better. FBI should be commended for its efforts to do the opposite.

That said, when reviewing earnings reports, I prefer to sidestep the entire GAAP/pro forma issue entirely, denying management the tools with which to spin its news to its liking. Instead, I focus on cash profits -- free cash flow. And here's the best part: From a cash-profits perspective, FBI did even better!

Inching its inventories down 1% year over year, and driving its accounts receivable down even faster (12%) than sales fell, FBI opened the spigots on cash flow this quarter. The $50.5 million in free cash flow it generated improved on last quarter's $41.1 million. In both cases, cash profits eclipsed net profits by a wide margin.

If FBI can keep this up, I now think this company might just stick around a while longer.

How else was this quarter better than last? Read for yourself:

Stanley Furniture is a Motley Fool Hidden Gems recommendation. La-Z-Boy is an Income Investor selection. Try any of our Foolish newsletters free for 30 days.

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