School's out for the summer, but a for-profit educator's work is never done. Laureate Education (NASDAQ:LAUR) reports fiscal Q2 2006 earning tomorrow morning.

What analysts say:

  • Buy, sell, or waffle? 11 analysts study Laureate. Eight give the stock a buy, and three a hold.
  • Revenues. Analysts expect to see revenues rise 34% to $292.8 million in tomorrow's news.
  • Earnings. And for profits per share are expected to shoot up 58% to hit $0.68 per share.

What management says:
Laureate hasn't said much of interest (not that it's filed with the SEC, at least) since reporting its Q1 2006 earnings back in May. Because we've already gone through that news in detail, I won't rehash it here. Rather, I'll use this space to fill in the one blank that Laureate left missing from its May announcement: the hole in its earnings release where the firm's cash flow statement should have been.

Investors had to wait two weeks for Laureate to file its 10-Q, which included said statement. Once it arrived, this is what it showed: $64.1 million in operating cash flow and $32 million in capital expenditures, for a total of $32.1 million in free cash flow for the quarter. For the record, that's about 5% better than in the year-ago quarter (Q1 2005).

Now, a single quarter's cash flow results are nothing to base an opinion on -- free cash flow tends to swing wildly out of focus when examined with anything but a long-term lens. Still, in tomorrow's news, investors will probably want to see something closer to the strong double-digit growth that Laureate has been achieving in sales and GAAP earnings.

What management does:
As for whether it will materialize, though, I haven't a clue. For in Laureate's case, margins seem to flap around in the wind just as wildly as does free cash flow -- it's not at all easy to discern a trend here. True, over the last 18 months, rolling gross, operating, and net margins are all lower today than they were a year and a half ago, suggesting a downward trend in profitability. But as recently as two quarters ago, Laureate was posting gross margins just as strong as those it took in back in December 2004, and its operating margins were actually higher.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

18.3

16.9

17.3

16.9

18.3

17.6

Op.

15

13.6

14.3

13.8

15.4

14.6

Net

9.7

9.4

8.9

8.6

8.6

7.8

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:
Much as I'd love to tell you what to expect out of Laureate tomorrow, I'm at a loss as to where the company is heading. As for where I'd like to see it headed, well, there are three things I'd be looking for were I invested in the stock.

First, I'd want to see the rolling margins start moving consistently upwards. Wall Street loves consistency, and if Laureate can establish a clear trend to the upside, I'd expect this to result in larger multiples-to-earnings being accorded the stock. Second, free cash flow. Even without much year-over-year growth, Laureate generated plenty of it in Q1 2006. As long as the company keeps on generating cash profits to back up its accounting profits, it's got a future. Third and finally, I'd like to see the company take the shareholder-friendly step of beginning to publish its cash flow statements as part of its quarterly earnings releases. There's simply no good reason not to.

Competitors:

  • Apollo Group (NASDAQ:APOL)
  • Career Education (NASDAQ:CECO)
  • Corinthian Colleges (NASDAQ:COCO)
  • DeVry (NYSE:DV)
  • ITT Educational Services (NYSE:ESI)
  • Strayer (NASDAQ:STRA)

Want to learn more about the for-profit education industry? Get the inside scoop from former Apollo Group CEO Todd Nelson. Read our interview with him here.

And for more on Laureate in particular, take another look at our write-up of its earnings report from last quarter.

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