"Big ships turn slowly," as the old maxim goes. Judging from Princeton Review's
The news out of the company, a Motley Fool Hidden Gems recommendation, can't exactly be called good, but it is encouraging. Let's, er, review the results:
- Q2 revenue grew (I got an A-plus in Rhyming 101) by 8.6% to $39.5 million.
- Gross margins rose 590 basis points to 66.3% for the quarter.
- Operating profit margin reached 2.1%, up 150 basis points.
Which means that -- you guessed it -- Princeton improved both from the first quarter and year over year. Compared with the operating losses posted in both those periods, Princeton's now sitting pretty on tiny, but positive, profits.
Credit this achievement to two out of three Princeton units:
- The flagship test prep business, which turned in nearly 13% sales growth on 23% operating margins, and
- Supplementary Educational Services, which more than doubled its sales on 19% operating margins.
Even Princeton's class clown, the K-12 division, didn't do entirely badly. While revenue dropped 38%, at least this unit earned a small operating profit -- and posted a respectable 9% margin, to boot.
What's particularly interesting about these numbers is that in each case, they're superior to the 7.3% operating profit that Princeton rival The Washington Post
On the down side, run-of-the-mill investors still haven't seen any benefit. Preferred dividends ate up all of Princeton's profits, leaving common-share holders with a $0.03 per-share loss for the quarter ($0.08 so far this year). They've also seen their stake in the company diluted by an 18% increase in the share count since last year.
That said, CEO Michael Perik has promised to return the company to "profitability and positive cash flow." While the ship has been slow in turning, it's clearly steering in the right direction.
Princeton Review is a Motley Fool Hidden Gems selection. Pearson is an Income Investor pick. The McGraw-Hill Companies is an Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.