Featured at the Festival of Stocks.

Large Cap Watch List (Track at Marketocracy) member American Standard Companies Inc. (ASD) announced that it has signed a definitive agreement to sell the company’s worldwide Bath and Kitchen products business to funds advised by Bain Capital Partners, LLC, a leading global private investment firm, for $1.755 billion in cash. Upon completion of the sale, Bain Capital will acquire all of American Standard’s Bath and Kitchen business with 2006 annual sales of $2.4 billion, 26,000 employees and 54 production facilities in 23 countries worldwide. American Standard will then change its name to Trane. Trane is the flagship brand of its global Air
Conditioning Systems and Services business, which last year generated sales of $6.8 billion.

At 0.73x sales, American Standard is selling the bath and kitchen division for a multiple lower than the company’s own 1.03x. However, the lower valuation appears more than justified, because according to the company’s annual report the division had lower asset turnover and lower profitability. Many investors are excited about the prospect of the company’s strongest division trading on a stand-alone basis.

Large Cap Watch List (Track at Marketocracy) member American Standard (ASD) announced second-quarter net income per diluted share of 84 cents in accordance with Generally Accepted Accounting Principles (GAAP), down from 93 cents a year ago. The decrease was driven by restructuring costs. Adjusted net income per diluted share was $1.05, up 14.1 percent from second quarter a year ago. The company had provided second- quarter net income per diluted share guidance of 98 cents-$1.04 on a GAAP basis and $1.03-$1.09 on an adjusted basis and analysts were expecting the company to earn $1.08.

When I previewed the earnings report, I noted that “they are on the move. They’re picking up momentum and I suspect they will top estimates.” Clearly my suspicions were wrong, and I probably should have known better than to take a stand on a company doing so much reorganizing. While I think the restructuring will be beneficial in the long term, the report illustrates how much volatility can result in the short term.

The company also updated its full-year guidance:

“If we were staying together as one company, we would expect full-year GAAP net income per diluted share of $3.21-$3.31 (including $85-$88 million for separation costs, net of tax, and separation-related tax costs) and net income per diluted share of $3.30-$3.40 on an adjusted basis (an increase of 24-27 percent over adjusted 2006 net income per diluted share).”

This compares with a consensus estimate of $3.37, and considering the $0.03 miss in Q2 the midpoint for the rest of the year is actually slightly higher than the previous consensus estimate. I think the market is taking a more cautious approach to the remainder of the year in light of today’s surprise.

The Economic Calendar is fairly active this week.

• PPI (Tuesday) - Look for my usual breakdown of the industries with pricing power
• Industrial Production (Tuesday) - Let’s see if businesses really are picking up steam
• CPI (Wednesday) - We know food costs more. What else does?
• Housing Starts (Wednesday) - Preview: They will be bad, and if not it will be bad news.
• Leading Indicators (Thursday)

The Earnings Calendar is going into overdrive this week. Some names I’ll be watching:

• Tata Consultancy Services (TCS)  - What will they say on Monday about rising wages and currencies?
• Intel (INTC - Annual Report) - (Tuesday) - Estimates seem low enough. Margins will improve ex Flash.
• Yahoo! (YHOO) - (Tuesday) - Low expectations likely justified but perhaps rewarded.
• American Standard (ASD) - (Wednesday) - They are on my Large Cap Watch List (Track at Marketocracy) and they are on the move. They’re picking up momentum and I suspect they will top estimates.
• Silgan Holdings (SLGN - Annual Report) - (Wednesday) - They are on my Small Cap Watch List (Track at Marketocracy) and have been blowing estimates out of the water. This one seems like another beater to me.
• Advanced Micro Devices (AMD - Annual Report) - (Thursday) - Hard to see how it could get any worse, but if anyone can pull it off…
• Landstar System (LSTR - Annual Report) - (Thursday) - This is one of my favorite companies and is on both the Small Cap Watch List (Track at Marketocracy) and the Mid Cap Watch List (Track at Marketocracy). They are trading a touch higher than I would like, though.
• Google (GOOG - Annual Report) - (Thursday) - Numbers are set up for them to beat them. If they don’t beat by enough, however, the stock could still suffer.
• Sandisk (SNDK - Annual Report) - (Thursday) - Who knows?
• SAP (SAP - Annual Report) - (Thursday) - Shouldn’t be much to trade on, but they might say something nasty about Oracle (ORCL - Annual Report) to make listening to their call worthwhile.
• Tempur-Pedic (TPX) - (Thursday) This one also graces both the Small Cap Watch List (Track at Marketocracy) and the Mid Cap Watch List (Track at Marketocracy). Estimates have been rising but they will probably still beat them.

Keep on your toes!

Large Cap Watch List (Track at Marketocracy) member American Standard Companies Inc. (ASD) approved the tax-free spinoff of its Vehicle Control Systems business into a new publicly traded company to be called WABCO (WBC). WABCO is a leading global producer of electronic braking, stability, suspension and transmission control systems for commercial vehicles and was originally part of the Westinghouse Air Brake Company founded in 1869.

As part of its approval, the board authorized a dividend on its common stock of one WABCO share for every three shares of American Standard and established the close of business on July 19, 2007 as the record date. The distribution will be made as set forth in the information statement, which will be mailed prior to the distribution to shareholders of record on the record date. The distribution is expected to take place after close of business on July 31, 2007. American Standard will distribute cash to shareholders in lieu of fractional shares of WABCO stock.

So now the Watch List will have an extra security in it.  I’ll probably end up taking it off the next time it I rebalance the list, because typically I require more than a few months of data before putting something in.

Large Cap Watch List (Track at Marketocracy) member American Standard Companies (ASD) Reported First-Quarter Results:

American Standard Companies Inc. today announced first-quarter net income per diluted share of 84 cents in accordance with Generally Accepted Accounting Principles (GAAP). Net income per diluted share on an adjusted basis was 58 cents, up 35 percent from first quarter a year ago. The company had provided first-quarter net income per diluted share guidance of 45-49 cents on a GAAP basis and 48-52 cents on an adjusted basis. The company is in the process of selling Bath and Kitchen and, in accordance with GAAP, has classified it as a discontinued operation.

Consensus estimates were at the high end of the company’s “adjusted” guidance, partly on fears that the slowing housing market would hurt the company’s housing-related businesses. Instead, the results blew out the top end of guidance. Furthermore, the company issued very positive guidance for the rest of the year:

The company had estimated 2007 net income per diluted share of $3.15-$3.25 on both a GAAP and adjusted basis, representing an increase of 20-24 percent on a GAAP basis and 18-22 percent on an adjusted basis. “With our current market and business outlooks, we expect the company as a whole to do better than previously estimated for the year, with net income per diluted share in the range of $3.63-$3.73 on a GAAP basis and $3.30-$3.40 on an adjusted basis,” said [CEO Fred] Poses.

“For the second quarter, we estimate sales for the company as a whole to be up about 10 percent, and net income per diluted share in the range of 98 cents-$1.04 on a GAAP basis (up 5-12 percent) and $1.03-$1.09 on an adjusted basis (up 12-18 percent),” said Poses.

Consensus estimates were for $1.06 in the second quarter and $3.18 for the year. Having turned around performance in the Bath and Kitchen segment the company is now in the midst of a transformation:

“The various steps for the sale of Bath and Kitchen and the spinoff of WABCO are moving ahead nicely, and we’re on track to complete the separation process by early fall of this year,” said Poses. “We expect to achieve our goal of completing the separation process with both Trane and WABCO emerging as independent companies with investment-grade balance sheets and debt ratios.”

Due to the operational improvements, the company expects to generate more than $700 million in free cash flow this year, up from $441 million in 2006. The share price has rallied strongly since last July, primarily on the strength of the year-end earnings and guidance.