Another quarter, another dollar. Actually, investors in e-bill processor CheckFree (NASDAQ:CKFR) are probably hoping to see quite a few dollars noted on the company's net profits line when CheckFree reports earnings Tuesday afternoon.
According to Yahoo! Finance, CheckFree has beaten expectations in each of the past four quarters, turning in an average of about a 10% "surprise" to the upside. As for what we'll see tomorrow and how to interpret the numbers, a Fool needs to keep several things in mind. Let's run over them briefly to ensure you're up to speed when the numbers come out.
CheckFree reports its earnings in three flavors:
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GAAP net income, which are profits calculated according to generally accepted accounting principles.
- "Underlying earnings," which is CheckFree's name for the often (and often rightly) maligned "pro forma" version of earnings. These exclude various credits and charges that, in the company's view, investors should ignore because they are arguably aberrant and unlikely to repeat in the future. In fiscal Q4 2005, for example, the company subtracted out amortization of and impairments to goodwill, reorganization charges, and tax benefits in concluding that its "underlying earnings" should have been $36.5 million -- rather than the mere $11.9 million that it could report under GAAP.
- Free cash flow. This is the one to keep an eye on, because it shows how much cash the company actually generated in the quarter minus the amount it spent to keep its business running.
Analysts following CheckFree obediently follow the number that CheckFree tells them to: underlying earnings. So tomorrow, expect news on the company to focus on whether CheckFree met, hit, or missed a target of $205 million in revenue and $0.39 in underlying earnings. That's from the company's self-declared target of $205 million to $209 in revenue, and $0.37 to $0.39 per share in underlying earnings for the quarter.
Back in the real world, CheckFree expects its GAAP numbers to come in at $0.19 to $0.22 per share, but don't expect analysts to spend much time on that. For that matter, don't expect Fools to spend a lot of time on the GAAP numbers, either. While we may prefer GAAP standards for reporting over letting companies pick their own numbers, we'd rather watch the cash flow in. Tomorrow, therefore, we'll be looking to see whether the company can repeat last year's performance of growing free cash flow by 16%.
For a quarter-by-quarter recap of how CheckFree did last year, "check" out:
- CheckFree Balances Its Books
- CheckFree's Big Balance
- CheckFree Cashes In
- What's in CheckFree's Future?
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Fool contributor Rich Smith does not own shares of CheckFree.
