2nd UPDATE: Apollo Group Profit Falls As New Enrollment Drops

Apollo Group Inc.'s (APOL) fiscal first-quarter earnings fell 2% as the owner of the University of Phoenix and other for-profit schools reported a sharp drop in new students.

The Phoenix-based company warned that new-student enrollment declines are continuing at the same pace--falling by about 40% from prior-year periods--in the current quarter, and overall enrollment declines will increase throughout the year. Chief Financial Officer Brian Swartz said the company is nearing an "inflection point," though predicted the exact timing of that turnaround is difficult.

"Given the magnitude of the changes we are making, the predictability of business has declined," Swartz said.

Apollo shares rose 6% to $38.10 in extended trading as the company reported better-than-expected per-share earnings, thanks in part to a reduction in shares outstanding and some tuition increases. Still, the stock pulled back from its early after-hours 10%-plus gain as investors digested the company's uninspiring forecast.

Apollo's results come after a rough day for the for-profit college sector. The schools' stocks tumbled broadly, with seven companies declining by double-digit percentages, after Strayer Education Inc. (STRA) announced new-student enrollment for its current winter term had fallen 20% from the prior year.

Monday, Apollo reported that new-student enrollment fell by 42.4%, and overall enrollment declined 3.8% to 438,100 at its flagship University of Phoenix. The company had warned last year that new enrollments could decline by more than 40% in the first fiscal period because of new programs that it was initiating to increase the quality of its student base.

Co-Chief Executive Greg Cappelli said it was still to soon to draw conclusions from the orientation and other strategic initiatives, but "we are pleased with the early results."

The orientation program was responsible for about one-quarter of the new-student enrollment declines, Swartz said on a conference call late Monday, though he said an overhaul of the admissions advising system also took its toll.

Apollo and its peers are facing new regulatory hurdles as the U.S. Department of Education prepares to implement a series of rules related to recruiter compensation, state authorization of programs and a number of other topics.

Cappelli said on the call that the company is in "a period of transition" as it adjusts to "a volatile time within the education sector."

For the quarter ended Nov. 30, Apollo reported a profit of $235.4 million, down from $240.1 million a year earlier. On a per-share basis, profit rose to $1.61 from $1.54 as the number of shares outstanding decreased 6%. Excluding items such as restructuring costs and a tax benefit, per-share earnings rose to $1.63 from $1.47, above the average analyst estimate of $1.35 on Thomson Reuters.

Revenue rose 5.4% to $1.33 billion, beating the average analyst forecast of $1.26 billion, helped by what the company called "selective" tuition increases at the University of Phoenix.

-By Melissa Korn, Dow Jones Newswires; 212-416-2271; melissa.korn@dowjones.com

--Nathan Becker contributed to this article.

Apollo Education Group, Inc. (NASDAQ:APOL)
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