Now here's an earnings report that should get analysts' attention. All year round, Thomson (NYSE:TOC) gets to play the role of intermediary between analysts and investors, collating the professionals' opinions on who will report earning what. Tomorrow, though, Thomson's own earnings will go under the microscope. Let's take a moment before the big day to consider which numbers are worth looking at, and what they might mean.

Wall Street Wisdom:

  • General consensus. Fifteen analysts follow Thomson, with six of them rating the company a buy and the other nine calling it a hold.
  • Revenues. Analysts expect Thomson to report only modest revenue growth versus Q4 2004. The target is for a 5% improvement, to $2.45 billion.
  • Earnings. In contrast, profits are expected to leap 12% to $0.55 per share.

Margin watch:
Thomson's a big ship as companies go, sporting a $23 billion market cap. Despite its trying to steer itself into the non-bound-book (non-book-bound?) future of electronic publishing, the changes have been slow in arriving on the firm's income statement. Thomson's gross, operating, and net margins haven't changed much at all over the past 18 months.

Margins %

6/04

9/04

12/04

3/05

6/05

9/05

Gross

27.6

27.8

27.5

27.4

27.4

27.2

Op.

16.2

16.5

16.3

16.3

16.3

16.4

Net

11.8

12.2

12.5

12.9

13.9

13.1
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish forensics:
The real story at Thomson isn't necessarily found in the firm's accounting profits, but in its free cash flow. The company itself highlighted this fact, claiming that it will report "strong" free cash flow for the full year. But year to date, the firm has generated only $803 million in free cash flow, giving it a run rate of nearly $1.1 billion for 2005.

$803 million isn't that much better than the $676 million in net profits that the company has posted so far this year, nor would $1.1 billion in free cash flow qualify as particularly "strong." Last year, the firm generated $1.2 billion, after all, so we're really looking at the possibility of a year-over-year decline in free cash flow. Unless cash generation surged in Q4, therefore, 2005 will probably have to go down in the record books as a pretty weak year for Thomson.

Fool contributor Rich Smith does not own shares of Thomson.