Aviation electronics maker Rockwell Collins (NYSE:COL) reports Q1 2007 earnings results bright and early Thursday 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? Twenty-two analysts follow Rockwell, with half rating the stock a buy, nine more a hold, and two a sell.
  • Revenues. On average, they're looking for 11% sales growth, to $979.6 million.
  • Earnings. Profits are predicted to rocket 24% to $0.73 per share.

What management says:
Last quarter, CEO Clay Jones crowed that Rockwell Collins had just completed its third consecutive year of either meeting or exceeding the firm's "long-term targets for growth and financial performance." Sales were up 12% (10% of which was organic), profits up 20%, and profits per share up 24% -- twice the rate of sales growth. Contributing to the superb growth in profits were several factors -- first and most obviously, more sales; second, about a 200-basis-point improvement in the operating margins on those sales; third and finally, stock buybacks that concentrated firmwide profits among fewer shares than in fiscal 2005.

Looking forward, the company isn't expecting quite that level of success in the new year. In fiscal 2007, it will be targeting 10% sales growth and 15% growth in profits per share.

What management does:
Reviewing the rolling margin tallies, we can see that gross margins have been marching upward for at least five quarters now, as have net margins. The operating margins mentioned above, however, hit a bump last quarter.

Margins %

6/05

9/05

12/05

3/06

6/06

9/06

Gross

27.7

27.8

27.8

28.2

28.7

28.9

Op.

16.2

16.5

18.7

19.0

19.6

18.1

Net

11.2

11.5

11.5

11.6

11.9

12.3
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:
What happened in fiscal Q4 2006? Nothing horrible that I can see. Apparently, this was the first quarter in which all trailing 12 months incorporated the costs of expensing stock options -- hence the drop in rolling operating margins.

Other than that, everything looks sound from an operational point of view. Rockwell has grown its sales at a 9% year-over-year clip in the last six months. Meanwhile, the cost of goods sold has risen only 7%, and management has kept a tight rein on non-stock-option operating costs, allowing selling, general, and administrative costs to rise just 2% year over year.

On the balance sheet, inventories are likewise growing slower than sales -- up just 7%. The only downside here is that accounts receivable have outpaced sales, 14% to 9%. We'll want to keep an eye on that in Thursday's news and going forward, but it doesn't particularly alarm me at this point.

Competitors:

  • General Dynamics (NYSE:GD)
  • Harris Corp. (NYSE:HRS)
  • Honeywell (NYSE:HON)
  • L-3 Communications (NYSE:LLL)
  • Northrop Grumman (NYSE:NOC)
  • Raytheon (NYSE:RTN)

Keep up to date on Rockwell's competition with:

Got an opinion on Rockwell or its competitors? Bring it to CAPS!

Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.