For six straight quarters, defense contractor Textron (NYSE:TXT) has consistently thumped the earnings expectations of Wall Street's Wisest Wise Men. Tomorrow morning, the company reports its Q1 2007 numbers and goes for lucky No. 7.

What analysts say:

  • Buy, sell, or waffle? Textron's other significant number looks less fortunate -- 13 analysts rate the company. Luckily, their ratings are broken up into two less offensive sums: 10 buys, 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:
CEO Lewis Campbell characterized fiscal 2006 as a "solid year of organic revenue growth driven by our aerospace, defense and finance businesses." For the year, the firm booked $11.5 billion in revenues (up 14% from 2005), $706 million in earnings from continuing operations ($601 million net), and $691 million in free cash flow.

Campbell predicts $12.3 billion in sales, and about $780 million in profits, but only $500 million to $550 million in free cash flow in fiscal 2007. In light of all that, I'm curious to see whether achieving these goals will qualify as "strong," based on the revenue and GAAP profits, or "anemic," based on the free cash flow. Time will tell.

What management does:
Gross and operating margins show no clear trends, although both numbers sit somewhat higher today than they did one year ago. Net margins are another matter entirely. At 5.2% over the last four quarters, Textron is currently earning more than twice as much profit on each dollar of revenue as it was just one year ago.

Margin

10/05

12/05

4/06

7/06

9/06

12/06

Gross

27.5%

25.4%

25.2%

25.8%

25.9%

25.6%

Operating

12.6%

11.7%

12.2%

12.6%

12.9%

12.6%

Net

2.5%

2.0%

2.4%

1.8%

4.8%

5.2%
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:
Looking forward, I see a couple of catalysts that could keep profits rising, the decline in free cash flow notwithstanding. First, the company noted last quarter that its Cessna business is doing a "higher volume of Citation business jets," getting "favorable pricing" on same, and experiencing "favorable warranty performance." That last point especially speaks to the quality of the product, if Textron isn't spending a lot of money repairing its wares, and promises good sales strength in the future if potential buyers appreciate the quality of Textron's planes.

Speaking of planes, I couldn't help but notice that that problem child of Textron's Bell Helicopter division, the V-22 Osprey, is finally going into operation in Iraq. The first planes will be shipped off this coming September. Aside from the obvious benefits for Textron if the vehicle proves itself useful in the field, its mere entry into service means additional revenue for the firm. Soon enough, Textron will be selling replacement parts and repair services, and -- sadly but realistically -- replacing vehicles damaged or destroyed in combat.

Keep up to date on Textron and peers like General Dynamics, TRW, Embraer, and United Technologies in:

Fool contributor Rich Smith does not own shares of any company named above. Embraer is a Stock Advisor pick. The Fool has a disclosure policy.