Objectively speaking, Universal Technical Institute (NYSE:UTI) has had a miserable year, posting lower earnings than last year in every quarter to date. Its performance was bad enough that we finally decided to take a hatchet to this turkey, axing it from the Motley Fool Hidden Gems portfolio.

But relative to analyst expectations, the for-profit educator has done pretty well -- beating estimates in each of the first three fiscal quarters of 2007. Can it keep up at least this relative outperformance in its last quarterly report of the year? Fourth-quarter earnings are due out after the market closes Tuesday.

What analysts say:

  • Buy, sell, or waffle? Nine analysts still study UTI, down one from last quarter. Three rate the stock a buy, two others a hold, and four say "sell."
  • Revenues. On average, they're looking for sales to slide less than 1% to $88.3 million.
  • Earnings. Profits are predicted to shed a couple of pennies, and land at $0.14 per share.

What management says:
UTI continues to struggle against a declining tide of cash flow. So far this year, the firm has amassed $12 million in negative free cash flow. To ensure it stays solvent, management is taking steps to free up cash where it can.

For example, last month UTI announced the sale-and-leaseback of its 10th and final campus, located in Norwood, Mass. The building and land brought in $33 million in cash, but will cost the firm $0.9 million through the associated loss of a state investment tax credit. Together with previously announced layoffs, UTI will incur a total of about $0.13 per share in one-time charges to earnings in Q4. Alas, that eats up essentially all of the profits that analysts expected it to earn.

What management does:
Steadily deteriorating profit margins are contributing to the cash crunch, continuing to fall across the board. UTI may not be as bad off as Corinthian (NASDAQ:COCO), Career Education (NASDAQ:CECO), or Lincoln Tech (NASDAQ:LINC) in this regard, but it's a far cry from such super-profitable operators as Apollo Group (NASDAQ:APOL) or Strayer (NASDAQ:STRA).

Margins

3/06

6/06

9/06

12/06

3/07

6/07

Gross

52.2%

51.1%

50.2%

49.6%

49.2%

49.0%

Operating

16.4%

14.3%

12.1%

10.3%

9.3%

9.3%

Net

10.6%

9.4%

7.9%

6.8%

6.2%

6.0%

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:
I mentioned that the $0.13 in charges could eat up "essentially all" of UTI's profits. If I'm being too optimistic, though, and the charges eat up literally all of the profits, there's one more thing Fools should know.

UTI amended its revolving credit agreement with Wells Fargo (NYSE:WFC) in October, gaining a $30 million line of credit to tide it over until its cash crunch subsides. But under the agreement, UTI can fall into breach in several ways, including failing to earn "Net income after taxes for any two consecutive fiscal quarters of not less than $0.00 for such consecutive quarters." Recording a loss in Q4 would start the clock ticking, making it even more important for UTI to earn a profit in fiscal Q1 2008. Let's hope management finds a way to dodge the first bullet on Tuesday, in order to avoid the second bullet three months from now.

You know our opinion about Universal Technical, what with its ejection from our Hidden Gems portfolio. But what do Wall Street's finest think about the firm? Find out in:

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.