For-profit educator Lincoln Educational (NASDAQ:LINC) reports Q2 2007 earnings results on Tuesday. 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? Half a dozen analysts follow Lincoln. Two say to buy, and the rest vote hold.
  • Revenues. On average, they're looking for 4% sales growth to $78.3 million.
  • Earnings. None of the analysts seems to have posited an earnings number.

What management says:
Breaking news here, folks. Yesterday, Lincoln Tech announced the closure of three of its campuses where "financial results have not achieved the Company's expectations." Lincoln Technical Institute in Plymouth Meeting, Pa., and the Lincoln College of Technology locations in Norcross, Ga., and Henderson, N.V., are all slated for closure.

As a result of the shutdowns, Lincoln Tech will be recording a $0.07-pre-tax charge for asset impairment, as well as not-yet-quantified "additional charges" for "lease termination costs, early contracts termination costs and employee retention costs."

I'd suggest that investors get ready to see a hit to revenues from students who do not transfer to other Lincoln-branded schools. Because the closures were just announced, they won't affect Tuesday's Q2 numbers. Do, however, expect that they will affect guidance. Even worse for investors, expect that the magnitude of the effect on guidance will be vague on Tuesday. Management warned on Thursday that it "cannot reasonably estimate the amount of such charges," and I doubt that the five days between the closure announcement and the earnings release will be enough time for them to crunch the numbers and firm up the damage assessment.

What management does:
Will the closures of underperforming schools help to stem the tide of eroding profit margins shown below? Fools can only hope. But in the near term, we have to prepare ourselves to see net profit margins continue to fall, and perhaps even plunge into the red, as restructuring charges come home to roost.

Margins

12/05

3/06

6/06

9/06

12/06

3/07

Gross

59.5%

59.1%

59%

58.5%

57.5%

56.7%

Operating

11.5%

12.1%

12.1%

11.6%

9.3%

7%

Net

6.3%

6.8%

7%

5.8%

4.8%

3.4%
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:
Things aren't looking good at Lincoln Tech these days. Reviewing the margin trends above, you can see that, at present, the firm is running almost dead last in profitability compared to its peers. In fact, at last report, only Corinthian Colleges (NASDAQ:COCO) sported a worse operating margin than Lincoln Tech. Everybody else -- from DeVry (NYSE:DV) and Universal Technical Institute (NYSE:UTI), which, like Lincoln Tech, sport single-digit operating margins, to Apollo Group (NASDAQ:APOL) and ITT (NYSE:ESI), with margins firmly ensconced in the 20s, to profit leader Strayer (NASDAQ:STRA) and its 30% operating margin -- has Lincoln beat hands-down.

Worst of all, things will quite likely get worse before they get better. We saw Career Education go the school-closure route nearly one year ago, yet its operating margins are sliding still today.

Unless Lincoln produces some unlooked-for extra credit in Tuesday's news, investors are best advised to take a pass on this stock.

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Fool contributor Rich Smith does not own shares of any company named above. Get your free refresher course in The Motley Fool's disclosure policy right here.