Aerospace superstar Lockheed Martin (NYSE:LMT) reports its fourth-quarter and full-year 2006 earnings results 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 keep Lockheed on their radar. Nine rate it a buy, a dozen say hold, and one says to sell it.
  • Revenues. On average, they're looking for 5% sales growth tomorrow, to $10.8 billion.
  • Earnings. Profits are predicted to rise 13% to $1.46 per share.

What management says:
If the analysts' projections for Thursday's news leave something to be desired, then it's perhaps worth pointing out how very well Lockheed has already done for itself this year. For Q3 earnings reported back in October, Lockheed said that through the first three quarters of this year it had grown its sales 7%, earnings 43%, and earnings per share 47% -- all in comparison to the first three quarters of 2005. Also impressive, if less so, was the fact that cash from operations outgrew sales, up 10% to just less than $3.5 billion.

Peering forward into 2007, however, it does appear that the growth train is about to stall. In providing his guidance three months ago, CEO Bob Stevens anticipated roughly 6% revenue growth this year, yielding 2% growth in profits per share (to as much as $5.60), and about $3.8 billion in operating cash flow -- 3% more than we're expected to see in Thursday's annual report.

What management does:
After taking a hit to gross margins in the September 2005 quarter, Lockheed has kept its rolling gross margins rising ever since. Meanwhile, rolling operating and net margins have been rising all along, with the effect that today, Lockheed earns about 45% more per dollar taken in than it did just 18 months ago.

Margins %

6/05

9/05

12/05

3/06

6/06

9/06

Gross

9.7

10.3

9.0

9.2

9.4

9.7

Op.

6.4

6.7

7.2

7.7

8.0

8.5

Net

4.2

4.4

4.9

5.4

5.6

6.1
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:
That greater profitability means that it won't take a lot of revenue growth to keep profits rising at Lockheed. Also helping profits: debt payments and buybacks. The firm generated roughly $3 billion in free cash flow through Q3 of this year. Of that, a full 70% was spent on paying down debt (which will free up for profits cash that would have been spent on interest payments going forward), and buying back shares (which will concentrate firmwide profits among fewer shares). If the company keeps on as it's been doing -- buying back shares at the rate of more than 33 million per annum -- it could conceivably retire as many as 8% of its shares year after year. At that rate, profits per share growth would ramp up right quick.

Of course, I don't think it's likely that Lockheed will really manage to do this. Historically, the firm runs heavily free cash-flow negative in its fiscal fourth quarters (speaking of which, look for negative free cash flow tomorrow), which would reduce the amount of shares it can afford to repurchase. But a Fool can dream.

Competitors:

  • Boeing (NYSE:BA)
  • Embraer (NYSE:ERJ)
  • Honeywell (NYSE:HON)
  • L-3 Communications (NYSE:LLL)
  • Northrop Grumman (NYSE:NOC)
  • Siemens (NYSE:SI)

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