Test-prep company Princeton Review (NASDAQ:REVU) is due to take its Q1 2006 earnings test with Wall Street tomorrow morning. In the few hours remaining before test time, let's do a quick cramming session and review what we already know.
What analysts say:
- Buy, sell, or waffle? Exactly one analyst follows Princeton, rating the company a hold.
- Revenues. This analyst expects to see sales numbers slide 4% year over year tomorrow, to $32.1 million.
- Earnings. The quarterly loss is expected to quintuple to $0.05 per share.
What management says:
CEO John Katzman put a brave face on some pretty disheartening results in last quarter's earnings report. Describing fiscal 2004 as "a series of stumbles," he cited improved revenues and backlog developed in 2005 as providing a basis on which the firm can now "execute" in 2006. Katzman made three major promises back in March, to wit: 1) The firm's K-12 division will grow and be profitable in 2006, 2) the Test Prep unit will be "solidly profitable for the entire 2005-2006 school year," and 3) general and administrative expenses will decline in 2006.
What management does:
Q4 2004 was a miserable quarter for Princeton Review. On top of a $4.3 million operating loss, the firm stacked an $8.2 million impairment charge. As a result, Q4 2004 and the subsequent three quarters posted double-digit negative net margins on a rolling basis. Yet even after emerging from the effects of this "big bath" last quarter (Q4 2005), the firm remained solidly in the red, losing even more money on an operating basis than it had in Q4 2004.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
65.3 |
64.3 |
64.2 |
63.1 |
63.8 |
62 |
|
Op. |
1.6 |
(4.6) |
(3.3) |
(4.4) |
(3.2) |
(3.3) |
|
Net |
1.3 |
(26.7) |
(25) |
(25.5) |
(22.9) |
(2.7) |
One Fool says:
Princeton Review has thrown down the gauntlet in front of its critics (of which I have to admit I'm one.) But unless the firm helps us out by providing more detail than usual in its earnings releases, determining whether Princeton Review has met its goals as promised is going to take a bit of digging. In the past, earnings releases have not broken down the firm's operating costs by division. To determine which ones have achieved operating profitability, you'll need to dig into the SEC filings.
In the last 10-K, for example, on page 67, you can see that for full-year 2005, Test Prep was the company's only profitable division on an operating basis. Thus, it seems all Katzman has really promised for this portion of the business is that it will remain profitable in 2006. For K-12, in contrast, achieving operating profitability would be an improvement from last year's operating loss. For Admissions, profitability was not achieved in fiscal 2005, and no promise of fiscal 2006 profitability was made last quarter.
But there is one sign of improvement you can look for right away tomorrow: the possibility that Princeton Review might succeed in reining in general and administrative expenses. If that line item declines year over year, or at least doesn't rise faster than do firmwide sales, it should be safe to assume that the firm is making at least some progress toward its goals.
Competitors:
- McGraw-Hill (NYSE:MHP)
- Educate (NASDAQ:EEEE)
- The Washington Post (NYSE:WPO)
- Reed Elsevier (NASDAQ:ENL)
Customers:
- McGraw-Hill
- Plato Learning (NASDAQ:TUTR)
Fool contributor Rich Smith does not own shares of any company named above.
