For-profit educator Corinthian Colleges (NASDAQ:COCO) reports fiscal second-quarter 2007 earnings results tomorrow 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? Seventeen analysts follow Corinthian. Only one of them rates it a buy, however. Thirteen more say hold, and three advise selling.
  • Revenues. On average, they expect to see flat revenues of $244.2 million.
  • Earnings. Profits are predicted to fall 17% to $0.10 per share.

What management says:
Corinthian had a pretty lousy fiscal Q1. Rather than rehash the misery in detail, I'll just point you to the write-up. Briefly, though, the bad news included free cash flow drying up almost entirely, operating costs rising, and confirmation that the firm engaged in stock options backdating.

Perhaps related to all of this (perhaps not), the big post-Q1 news came in December, when Corinthian co-founder and former CEO David Moore announced his resignation as chairman of the board to become a "mere" board member. Moore has been replaced by outside director Terry Hartshorn in the chairman's, er, chair.

What management does:
The phrase "do me a favor -- don't do me any favors" comes to mind at this point. Hartshorn is now responsible for the board's efforts to help CEO Jack Massimino right a seriously listing ship. Over the past six quarters, rolling operating and net margins have been headed down.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

44.4%

43.6%

43.3%

42.8%

43.1%

42.8%

Operating

11.7%

10.1%

8.7%

7.3%

6.7%

5.7%

Net

6.1%

5.2%

4.3%

3.6%

4.3%

3.7%
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:
Some two months ago, while acknowledging Corinthian's significant problems, I praised the firm for nonetheless keeping the cash flowing in the door. A few days later, Corinthian responded by shutting the doors on this cash flow-based bull thesis.

Today, I want to give the firm one more chance to redeem itself, because I still don't see the problems as insurmountable: over the past six months, Corinthian's sales fell only 2% year over year. Operating costs rose roughly 6% in connection with the firm's "Operation IGNITE!" marketing and financial aid revamp. Not exactly what we want to see, but not terrifying numbers by any means.

Where the real trouble appears at Corinthian is on its balance sheet, where we've watched accounts receivable more than double year over year, even as sales headed the other way (again, down just 2%). It's hard to generate free cash flow when your receivables are piling up. But the solution should be an easy fix for Corinthian: collect the bills. If there's one thing I want to see in tomorrow's news, that will be it.

Related companies:

  • Apollo Group
  • Career Education (NASDAQ:CECO)
  • DeVry (NYSE:DV)
  • Laureate (NASDAQ:LAUR)
  • Strayer
  • Universal Technical Institute (NYSE:UTI)

What did we expect out of Corinthian last quarter, and what did it produce? Find out in:

Universal Technical Institute is a Motley Fool Hidden Gems recommendation. If you're interested in small-cap companies with great potential, take a free 30-day trial to Hidden Gems.

Fool contributor Rich Smith does not own shares of any company named above.