Tic-tac-toe, investors want to know: After beating analyst estimates in each of the last two quarters -- despite showing about a 26% decline in profits year over year -- can Universal Technical Institute (NYSE:UTI) make it three earnings beats in a row? The blue-collar, for-profit educator reports its fiscal Q3 numbers Tuesday afternoon.

What analysts say:

  • Buy, sell, or waffle? Ten analysts study UTI, but they're not happy about it. Only one rates the stock a buy, six more call it a hold, and three say "sell."
  • Revenue. On average, they're looking for sales to slide 4% to $87.5 million.
  • Earnings. Profits are predicted to fall once more, dropping 19% to $0.13 per share.

What management says:
I've written extensively and often about what I consider UTI's primary "issue." It keeps expanding capacity to teach students ... who aren't signing up to be taught. That appears to be a long-term theme at the company, which last quarter again reported "a decrease in average undergraduate student enrollment and an increase in tuition discounts."

Speaking out of both sides of its corporate mouth, however, UTI also described a 3% "net revenue increase" spurred by "higher tuition prices combined with the previously disclosed change in retake policy and a greater number of students taking two courses at the same time as compared to the prior year." Let's break that down, shall we? Higher tuition prices combined with an increase in tuition discounts? Does that remind anyone of the kind of advertising shenanigans that got Jos. A Bank in trouble with the New York Attorney General a couple years back?

The retake policy, and students doubling-up on their course load, sound to me like UTI is pulling more and more water from the same well. Meanwhile, the student drought continues.

What management does:
Little wonder, therefore, that margins continue to slide at UTI. The gross margin somehow managed to tick up last quarter, but operating and net margins? They're still making a beeline for the bottom.

Margins

12/05

3/06

6/06

9/06

12/06

3/07

Gross

53%

52.3%

51.2%

50.4%

49.8%

49.4%

Operating

17.8%

17%

15.2%

13.4%

11.8%

11%

Net

11.2%

10.6%

9.4%

7.9%

6.8%

6.2%
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:
Meanwhile, over at Motley Fool Hidden Gems, the ever-patient Tom Gardner -- Motley Fool co-founder and Hidden Gems co-advisor -- continues to tolerate both my own criticism of the company, and UTI's continuing efforts to turn itself around.

Hey, if Apollo Group (NASDAQ:APOL) and DeVry (NYSE:DV) can do it, forcing me to go from writing headlines like "DeVry's Demise" to "DeVry Revives" in the space of just one year, maybe UTI's not a lost cause after all. Then again, the trainwrecks at Career Education (NASDAQ:CECO), Corinthian Colleges (NASDAQ:COCO), and Lincoln Tech (NASDAQ:LINC) keep piling up.

In his most recent update, Tom writes:

The provider of automotive technical education suffers from a failed Field of Dreams performance. UTI has 'built it,' -- dramatically increasing its campus capacity -- but 'they' (new students) haven't come.... Reasons have ranged from lackluster lead generation to a poorly aimed marketing message to the economy being 'too good' -- with candidates unwilling to forego steady work to return to the life of a starving student.... If management can right the ship, I see at least 13% annual returns from today.

You can read the rest of Tom's analysis -- and Hidden Gems analyst Bill Barker's recent talk with CEO Kim McWaters -- just as soon as you sign up for a free, 30-day trial to Hidden Gems. C'mon. You know you want to hear how McWaters plans to turn the ship around, right? Click here to find out.

Got your biology down cold, but don't know much about UTI's history? Learn it here:

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.