Furniture maker Furniture Brands (NYSE:FBN) reports its third-quarter 2006 earnings on Wednesday morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Eight analysts still follow Furniture Brands. What's changed is the sentiment -- to the upside. Three now say buy it, four say hold, and one says sell.
  • Revenues. On average, they're looking for less than 1% sales growth to $562 million.
  • Earnings. And they expect an 8% profit decline to $0.22 per share.

What management says:
CEO Mickey Holliman had some bad news for Furniture Brands investors early last month: "Business conditions have softened from when we last commented on trends. As a result, we have scheduled downtime in several upholstery facilities and moved to take more aggressive discounts on selected slower-moving product."

How should an investor interpret that? Thusly: The "softened" bit means we should expect weaker sales this quarter. "Aggressive discounts" almost certainly portend a contraction in the firm's gross margins. "Downtime" means that the firm is using its assets less efficiently, and it probably foretells weaker operating margins as well. On the plus side, though, when facilities are "down," they're not producing unwanted inventory. So the firm's balance sheet may look a bit better in Wednesday's news.

What management does:
Here's some more good news: Although Holliman paints the picture of a weakening business, at least the firm is starting from a position of reasonable strength. Its rolling gross and net margins today are close to what it was earning a year ago. Only operating margins are significantly weaker. So while Wednesday's news likely won't be pretty, the firm should remain solidly profitable nonetheless.

Margins %

3/04

6/05

9/05

12/05

3/06

6/06

Gross

23.2

22.3

21.9

22.9

22.9

22.9

Op.

6.3

6.0

5.5

5.1

4.9

5.0

Net

3.4

3.2

2.8

2.6

2.8

3.1

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:
The consistent margins over the past three periods you see above are a function of the firm's discipline during what are very tough times. That kind of consistency in a firm is both rare and remarkable -- and I can't help thinking that Furniture Brands is focused on keeping its numbers growing along those lines.

Over on the balance sheet, accounts receivable are up more than 4%, and inventories spiked 11% year over year, even as sales growth slowed to 1%, which may well explain why Furniture Brands now intends to enforce some downtime on its factories. Having both recognized and publicized the problem, I'll be more than a little surprised if Furniture Brands doesn't bring its inventories right back down to the level of sales growth -- or lack thereof -- on Wednesday.

Competitors:

  • Bassett Furniture (NASDAQ:BSET)
  • Ethan Allen (NYSE:ETH)
  • Haverty Furniture (NYSE:HVT)
  • Hooker Furniture (NASDAQ:HOFT)
  • La-Z-Boy (NYSE:LZB)
  • StanleyFurniture (NASDAQ:STLY)

Read more about Furniture Brands and its peers in:

Hooker and Stanley are bothMotley Fool Hidden Gemsrecommendations. La-Z-Boy is anIncome Investorpick. Try out any of our investing newsletter services free for 30 days.

Fool contributorRich Smithdoes not own shares of any company named above.