CORRECT (6/30): Apollo Group 3Q Adjusted Profit Falls Less Than Expected

Date : 07/01/2011 @ 7:00PM
Source : Dow Jones News
Stock : Apollo Education Grp., Inc. (APOL)
Quote : 9.995  0.0 (0.00%) @ 2:05AM

CORRECT (6/30): Apollo Group 3Q Adjusted Profit Falls Less Than Expected

Apollo Education Group, Inc. (NASDAQ:APOL)
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Apollo Group Inc.'s (APOL) fiscal third-quarter adjusted profit fell less-than-expected as expenses declined, but the for-profit college operator continued to see weak student enrollment.

Shares jumped after-hours when results were first released but turned negative as the company detailed on a conference call its new metric for tracking student retention and provided underwhelming guidance for the current quarter. The stock was recently trading down 0.3% to $43.55.

Expectations had been rather low for the company, which operates the online and brick-and-mortar University of Phoenix. Apollo, considered a bellwether for the sector because of its size and range of degree offerings, has seen enrollments tumble after overhauling its recruiting practice and instituting an orientation program to weed out students unlikely to graduate. The for-profit college sector has been moving to tighten admission standards amid public criticism over their graduates' debt loads and job prospects. Degreed enrollment at University of Phoenix fell 16% to 398,400 in the latest quarter, while new-student starts dropped 41%.

Fiscal fourth-quarter enrollment declines will likely be similar to those in the fiscal third quarter, Chief Financial Officer Brian Swartz said on a conference call. Still, Swartz said some trends, such as student retention, are improving, and Apollo reiterated its expectation for a return to new-student enrollment growth in fiscal 2012. The new admissions-officer payment policy will have its anniversary in September, and orientation will do so later in the fall, making year-over-year comparisons less painful.

While Apollo has been commended for its relative transparency, the retention measure unveiled Thursday was too confusing to be helpful for investors seeking to understand overall enrollment rates, said Amy Junker, an analyst at Robert W. Baird. "What would be more helpful would be [to] tell us what the graduation rates are."

Apollo's profitability has suffered recently from more than just its shrinking student body. Higher student-services expenses have taken their toll, as have the rising marketing costs that accompany a search for more qualified students. In the February quarter, Apollo swung into the red because of writedowns at its British school, BPP, which has struggled amid financial turmoil in the U.K.

Apollo Co-Chief Executive Greg Cappelli said in an interview that the company has been investing in online offerings at BPP and installed a new management team for Apollo Global earlier this year. "We're pleased with the direction they're taking Apollo Global," said Cappelli, who also serves as chairman of that unit.

For the quarter ended May 31, the company reported a profit of $212.4 million, or $1.51 a share, up from $179.3 million, or $1.18 a share, a year earlier. The latest results included a moderate charge related to a lawsuit and a tax benefit, while the previous year's results included larger charges and writedowns from the suit. Excluding items, earnings from continuing operations fell to $1.45 a share from $1.74. Apollo had 140.3 million shares outstanding in the latest period, compared with 152.3 million a year earlier.

Revenue decreased 7.6% to $1.24 billion, with lower enrollments somewhat offset by higher tuition. The company is benefiting from a shift toward more students pursuing higher-level degrees, too.

Analysts surveyed by Thomson Reuters predicted $1.33 a share on revenue of $1.2 billion.

Operating margin rose to 28% from 22.6% as admissions-advisor expenses dropped 14% and bad debt expense fell 46% on lower enrollment.

The company kept its outlooks for the current and coming fiscal years untouched.

-By Melissa Korn, Dow Jones Newswires; 212-416-2271;

--Joan E. Solsman contributed to this story

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