Now that Christmas is out of the way, it's time for that other "most wonderful time ... of the year" -- year-end earnings season, when those companies whose fiscal years align sensibly with the calendar version report their Q4 and full-year results. Next up is General Dynamics (NYSE:GD), which reports bright and early Wednesday morning.

What analysts say:

  • Buy, sell, or waffle? Two dozen analysts march to the beat of General Dynamics. Half rate it a buy, 11 vote hold, and one says sell.
  • Revenues. On average, they expect sales to increase 14% to $6.63 billion.
  • Earnings. Likewise for profits, which are predicted to come in at $1.14 per share.

What management says:
Two quarters ago, CEO Nicholas Chabraja predicted $4.15 per share in GAAP net profits for this fiscal year. Analyst estimates, therefore, are assuming that the company will beat that number by a few pennies. Could they be right? It's certainly possible, but more important than the GAAP number, in my opinion, is the volume of actual cash profits the firm generates. On that score, too, Chabraja has been reassuring, noting last quarter that "year-to-date cash generation continues to meet our expectations."

What management does:
One more reason that the GAAP results are of lesser importance is the fact that they include a one-time profit from discontinued operations, recorded in Q2, which continues to inflate the firm's net margin. Still, it's encouraging to watch how the General's operating margins -- unaffected by the one-time benefit -- continue marching upward.

Margins %

7/05

10/05

12/05

4/06

7/06

10/06

Op.

10.2

10.4

10.3

10.7

10.9

10.9

Net

6.8

6.8

6.9

6.8

7.8

7.9
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:
Getting back to free cash flow, around this time last year, when GD was reporting its Q4 2005 results, Chabraja predicted that 2007 earnings per diluted share would approximate $7.80 (pre-split; the firm's recent share split would make that more like $3.90), and that free cash flow would roughly equal net income. The firm has 407.2 million post-split shares to its name, so that suggests it expects to report about $1.7 billion of net income and free cash flow, both.

With $1.1 billion in free cash flow generated year-to-date, and the firm showing a historical bent toward outsize cash generation in its fourth quarters, I see no reason to doubt that Wednesday's news will prove Chabraja right once again.

Competitors:

  • Boeing (NYSE:BA)
  • L-3 (NYSE:LLL)
  • Lockheed Martin (NYSE:LMT)
  • Northrop Grumman (NYSE:NOC)
  • Raytheon (NYSE:RTN)
  • Rockwell Collins (NYSE:COL)

What did we expect out of General D last quarter, and what did it produce? Find out in:

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Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy is quite specific.