Foolish Forecast: Teflon Textron

Talk about a perfect 10. Thanks to last quarter's "earnings beat," industrial conglomerate Textron (NYSE: TXT) has officially outperformed Wall Street estimates for 10 straight quarters. But investors are never satisfied with past success, and on Thursday they'll be asking Textron, "What have you done for us lately?" Let's see what the first-quarter 2008 news might hold.

What analysts say:

• Buy, sell, or waffle? Ten analysts keep tabs on Textron. Nine of them rate it a buy, and only one votes hold.
• Revenue. On average, they're looking for sales to grow 17% to $3.5 billion.
• Earnings. Profits are predicted to rise 8% to $0.84 per share.

What management says:
Close, but no cigar. The open secret among investors today is that Textron will beat those numbers with a stick. On Friday, management preannounced earnings that will "exceed its previously forecasted range of $0.75 - $0.85 per share." So in other words, we're looking for $0.86 per share, minimum.

What management does:
Now for the (potentially) bad news. Last year, Textron booked $0.77 per share in profits. To match its projected revenue growth rate (Textron didn't specify whether its revenue was better than expected), the company will need to earn at least $0.90 per share. Otherwise, this quarter could mark the first case of profit-margin declines for Textron in more than a year.

Margins	9/06	12/06	3/07	6/07	9/07	12/07
Gross	25.9%	25.6%	25.8%	25.8%	26.0%	26.3%
Operating	12.4%	12.3%	12.8%	12.8%	13.3%	13.5%
Net	4.8%	5.2%	5.3%	6.3%	6.8%	6.9%

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:
As you can see, Textron has been on a winning streak lately, with margins increasing at all levels over the past year. In operating margin in particular, the company maintains its lead over all of its largest rivals -- United Technologies (NYSE: UTX), General Dynamics (NYSE: GD), Lockheed Martin (NYSE: LMT), and Boeing (NYSE: BA), in that order. So a slight decline in profits would hardly be a tragedy.

That's particularly true when you recall what lies behind the decline in profitability: Investment. Last quarter, Textron announced plans to develop a "large cabin, intercontinental Citation jet" this year. These development costs may curtail profitability in the near term, but they could ultimately better position Textron to compete with business jets such as General D's Gulfstream line, and the Hawker and Beechcraft airplanes formerly produced by Raytheon (NYSE: RTN), recently sold to Onex / Goldman Sachs (NYSE: GS). To this Fool's mind, that investment is worth a few basis points of operating margin.