What's a Fool to do with Textron (NYSE:TXT)?

From one perspective, the maker of Bell helicopters and Cessna business jets is not a bad-looking business. According to its 2009 earnings report, released Thursday, Textron generated $500 million in manufacturing free cash flow (which for clarity's sake, I define as operating cash flow minus capital expenditures) last year. By its own, more conservative definition, Textron projects free cash flow will range from $500 million to $550 million next year -- meaning actual free cash flow could exceed even that.

And Textron accomplished this in the face of the fiercest recession in recent memory, one that hobbled sales in the Industrial segment, and drained away more than 40% of Cessna's revenue stream. Despite these obstacles, Textron still managed to generate cash -- so bully for them.

For defense industry investors, Textron Systems holds special attraction as the home base for the Shadow UAV. When Textron tells us that "higher defense volumes" helped keep revenues growing at Textron Systems in the fourth quarter, I suspect it's Shadow they're talking about. The plane's so popular, that when the Pakistani government put in an order for a dozen flying robots to assist their efforts quelling Taliban activity along the Afghan border, it wasn't Boeing's (NYSE:BA) ScanEagle they asked for, or Honeywell's (NYSE:HON) flying coffee can. Not General Atomics' Predator or Northrop Grumman's (NYSE:NOC) Fire Scout -- but Textron's Shadow.

Fore-Shadowing
And yet, wild success though the Shadow might be, it's over-shadowed by Textron's dirty little secret: Textron isn't just a manufacturer; it's also a banker -- and not a very good one. I mean, I've got little love for JP Morgan Chase (NYSE:JPM), but at least those guys have some business being in banking -- and know how to earn a profit from it. In contrast, Textron -- like Caterpillar (NYSE:CAT) before it, and Harley-Davidson (NYSE:HOG) before that -- let itself be tempted by the lure of easy profits from playing a finance game it was ill-skilled to win, and got neutered in large part because its finance division just cannot figure out how to earn a profit in this economy.

So from my perspective, the best news in all of Textron's earnings report has to be the fact that over the last 12 months, it's managed to extricate itself from about 35% of its "managed receivables" (read "poorly managed receivables") business. Slowly but surely, Textron is dissociating itself from its mistakes of years past, and getting back to what it does well

Foolish takeaway
So what's a Fool to do with Textron? Cheer 'em on in the effort -- but until they get their financial problems worked out, cheer 'em from a distance.

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