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 defense and aerospace conglomerate Textron (NYSE:TXT), which reports after trading closes on Wednesday.

What analysts say:

  • Buy, sell, or waffle? Fourteen analysts chart Textron's flight path. They give the stock 11 buy ratings and three holds.
  • Revenues. On average, analysts estimate that Textron will report $3.1 billion in sales ...
  • Earnings. ... and $1.46 per share in profits from continuing operations, up 17% from last year's Q4.

What management says:
With just days to spare before releasing its earnings news, Textron jarred the markets -- and its stock price -- when it issued an earnings warning late Thursday. Management advised that "additional costs related to its Bell Helicopter H-1 program" would stop the firm short of analysts' estimates for the quarter.

Not even the mention that "stronger financial performance at Cessna, Textron Systems and Textron Financial, plus a lower tax rate, more than offset the additional H-1 costs" sufficed to calm Wall Street, which sold the shares off on Friday. This despite the fact that Textron itself had only predicted earnings from continuing operations of $1.35 to $1.45 per share this quarter, and on Thursday it promised to beat those numbers thanks to the performance of its non-Bell divisions.

What management does:
The analysts' disappointment with Textron's news notwithstanding, the company has been doing a fine job of improving its gross and operating performance in recent quarters. The rolling tally of gross margins has been rising for two quarters straight, and operating margins for three in a row. Net margins continue to show the effects of (so-called) one-time items, which have run to the hundreds of millions of dollars in recent quarters.

Margins %

7/05

10/05

12/05

4/06

7/06

9/06

Gross

26.3

27.5

25.4

25.2

25.8

25.9

Op.

12.0

12.6

12.0

12.2

12.6

12.9

Net

5.7

2.5

2.0

2.4

1.8

4.8
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:
Reviewing the firm's performance over the last couple of quarters, I see that sales -- not including revenues from the finance division -- are up 10% year over year. Against that performance, cost of goods sold has risen a bit less than 10%, and selling, general, and administrative expenses are up less than 9%. Hence the expanding gross and operating margins.

On the balance sheet, inventories are rising just a hair faster than sales at 11% -- not enough to get worked up over. Meanwhile, the firm has made admirable progress on collecting its bills. Accounts receivable plunged 24% year over year during this period. Excellent progress there.

Basically, neither the income statement nor the balance sheet shows me any reasons to worry about Textron at this point. Everything looks pretty much "steady as she goes." My take, therefore (which I reserve the right to reverse on a dime when earnings come out), is that the investors who sold off this stock on Friday did so without reason.

Competitors:

  • Alliant Techsystems (NYSE:ATK)
  • Embraer (NYSE:ERJ)
  • First Aviation (NASDAQ:FAVS)
  • Parker-Hannifin (NYSE:PH)
  • TRW (NYSE:TRW)
  • United Technologies (NYSE:UTX)

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

Embraer is a Motley Fool Stock Advisor pick. To find out why, and see which other companies made the cut, you can take a 30-day free trial of the newsletter.

Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy is a robot in disguise.