Three out of the last four quarters, Canadian auto parts maker Magna International (NYSE:MGA) has missed the earnings targets set for it by Wall Street. Not exactly the most auspicious record for a firm bidding for the storied Chrysler brand. Can the firm get its act together and start building a better rep this year? We'll find out on Thursday when Magna releases its Q1 2007 numbers.

What analysts say:

  • Buy, sell, or waffle? Nineteen analysts work to piece together Magna's numbers, ending up with three buy ratings and 16 holds.
  • Revenue. Analysts expect to see sales slide 1.4% to $5.93 billion.
  • Earnings. Profits are predicted to plunge 32% to $1.35 per share.

What management says:
Reporting its Q4 and full-year 2006 results back in February, Magna described a situation of rising sales but falling profits. Even as 2006 sales inched up 6% compared to 2005, profits fell off a cliff, with earnings per share down 19% year over year. There was good news to report as well, however. Specifically, with U.S. $1.6 billion in operating cash flow and only U.S. $793 million spent on capital expenditures, Magna's free cash flow totaled U.S. $803 million, about 52% higher than reported net income under GAAP.

Peering forward into fiscal 2007, Magna expects to see flat sales at best, and a decline of 5.4% at worst. Management did not provide guidance on either earnings or operating cash flow in its report, but it did confide that it expects to spend between $800 million and $850 million on capital expenditures.

What management does:
Needless to say, these kinds of results have not improved the trend of declining profitability that Magna evinced last year. After a relatively prosperous fiscal 2005, we've watched Magna's rolling gross, operating, and net margins all trend downwards for the last three quarters straight.

Margins

9/05

12/05

3/06

6/06

9/06

12/06

Gross

13.2%

13.1%

13.3%

13.2%

12.9%

12.3%

Operating

5.2%

4.8%

4.9%

4.6%

4.2%

3.5%

Net

3.2%

2.8%

2.9%

2.7%

2.5%

2.2%
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:
Key to the fiscal 2007 projections discussed above is the following caveat included in Magna's 2006 earnings report: "In our 2007 outlook we have assumed no significant acquisitions or divestitures." Yet as it turns out, Magna is, in fact, contemplating one very significant acquisition.  The big news erupting at Magna was that on April 13, management confirmed their interest in buying Chrysler away from Teutonic-American conglomerate DaimlerChrysler (NYSE:DCX), which has become disenchanted with its Yankee half. Actually, management was more cryptic than clear, though, musing publicly (in an SEC filing): "As DaimlerChrysler is one of its largest customers, Magna is seeking a full understanding of the situation regarding the future of the Chrysler Group, and any constructive role Magna may play in a potential transaction. There is no assurance that any transaction will result from Magna's current involvement."

No kidding? With everyone from GM (NYSE:GM) to Blackstone to Kirk Kerkorian -- jilted by GM and unable to woo Nissan (NASDAQ:NSANY) -- angling for a piece of Chrysler, there's no guarantee that Magna will win this contest. But one thing is certain. Investors tuning in to Magna's report Thursday will do so 95% in hopes of learning what's going on with the Daimler deal, and only 5% to hear more bad news about the auto parts industry.

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