Just on the other side of the weekend, Italian sofa emporium Natuzzi (NYSE:NTZ) will report its fourth-quarter and full-year 2006 earnings. While you're waiting for the news to come out on Monday afternoon, sit back, take a load off, and ponder the following.

What analysts say:

  • Buy, sell, or waffle? One analyst now follows the stock and rates it a buy.
  • Revenues and earnings. Unfortunately, this analyst does not appear to publish either revenue or earnings estimates.

What management says:
If your sofa comes equipped with a seatbelt, Fool, then I'd advise you to buckle it before Monday's news breaks. So far this year, Natuzzi's stock has edged out the S&P's returns, but judging by the tone of new CEO Ernest Greco's remarks last quarter, that could be about to change.

The furniture maker did a great job in the third quarter of pulling its year-to-date profit margin above management's target of 3%. But as I pointed out back in November, Greco warned us that the firm's sales gains had been "mainly sustained by the existing backlog that has decreased materially over the past few months," that the firm's rising sales have "not been accompanied by a similar order flow," and that in fact "the group has been reporting a decrease in the order flow, which could lead us to an adjustment of the production level."

What management does:
Last quarter's results were no fluke -- the company did pretty well the quarter before as well. Indeed, Natuzzi has now put together back-to-back quarters of rising rolling gross, operating, and net margins. That said, if Greco is right -- and I see no reason to question his grasp on the firm's order flow -- we could be looking at a reversion toward downward-trending margins in the near future.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

30.8%

32.7%

32.4%

31.8%

33.1%

33.9%

Operating

(2.3%)

(1.0%)

(1.2%)

(0.7%)

2.2%

2.9%

Net

(2.3%)

(3.5%)

(2.2%)

(0.6%)

1.9%

2.3%
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:
Key to gauging the risk to Natuzzi's margins, in my view, is the firm's balance sheet. If we see accounts receivable and inventories begin to grow much more quickly than sales, I'd consider that a clear sign of deterioration in the business. Fortunately, neither of these warning signs are yet evident. On the contrary, over the last couple of quarters, as Natuzzi's sales were goosed 13% year over year by its new budget-priced Italsofa line, accounts receivable barely budged -- up just 1%. Even better, business was so brisk that Natuzzi managed to sell down its inventories by 11%.

I doubt that the company will be able to keep that kind of performance up much longer, but if Monday's results prove me wrong, you should consider that very good news indeed.

What did we expect from Natuzzi last quarter, and what did we discover under the cushions? Find out in:

Looking for other opportunities outside the U.S.? Then our new Global Gains newsletter may be just the thing to bring your portfolio a little international intrigue. Sign up today for your free 30-day trial to see what it's about.

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