UPDATE: ITT Educational Posts In-Line 4Q, Warns On 2011 Slowdown

ITT Educational Services Inc.'s (ESI) fourth-quarter profit rose 4.1% as revenue climbed more than expected, but new-student enrollments continued to decline and the company warned it expects those numbers to keep falling throughout 2011.

For-profit educators such as ITT Educational--which operates its namesake technical schools and offers degrees in fields such as electronics, information technology and industrial design--saw enrollments and earnings soar along with heightened unemployment. However, the schools are now preparing for a series of new regulations from the U.S. Department of Education related to recruiter compensation, graduate debt and other issues that could upend the industry. Hesitance by prospective students to take on extra debt has kept some at bay, and increased advertising costs are further hurting results.

Despite its weak forecast and comments on increasing cost, ITT's shares jumped 8.8% to $68.24 in recent trading as investors may have prepared for even weaker figures. Short sellers have argued that the worst may still be to come for the sector as the companies grapple with the new rules, but ITT noted in a conference call that it is incorporating at least some of the regulations' impact in its guidance.

The company provided "internal goals," saying it expects per-share earnings of $8.50 to $10.50 for 2011, well below Wall Street's $10.92 per-share forecast.

ITT said new-student enrollments dropped 9.4% in the fourth quarter, accelerating from the 3.9% year-over-year decline in the third quarter. Total enrollment increased 4.9% to 84,686.

The company said it expects year-on-year declines in every quarter of the current year, particularly as it goes up against difficult comparisons in the first half. With per-student revenue also expected to decline as students receive more scholarships, ITT said margins will contract this year.

ITT also warned that advertising expenditures will increase 20% in 2011 from the prior year as spot costs for traditional media outlets are rising from recession lows. The company is testing ways to better attract--and enroll--students at lower costs, such as internet and "other technologies," Chief Executive Kevin Modany said on a conference call with analysts. However, "It's going to take some time for us to get there."

For the fourth quarter, ITT Educational reported a profit of $97.5 million, or $3.14 a share, up from $93.6 million, or $2.56 a share, a year earlier. Revenue rose 9.5% to $410.1 million.

Analysts estimated earnings of $3.10 on revenue of $407 million, according to a poll by Thomson Reuters.

Operating margin slipped to 39.6% from 40.8%.

Meanwhile, other for-profit college stocks also saw a bump Thursday after Citizens for Responsibility and Ethics in Washington, known as CREW, released a series of e-mails showing that short-seller Steve Eisman and other opponents of the sector met and shared data with the Education Department as the controversial regulations were being crafted.

The rulemaking process "smelled a little dirtier than it did yesterday," William Blair analyst Brandon Dobell said.

However, Education Department spokesman Justin Hamilton said the agency has "talked to more members of the for-profit industry than to anyone else, and that's been throughout the process." He said the group that released the e-mails didn't request information on those interactions.

"We've been very transparent about the fact that we met with members of the for-profit industry and others," Hamilton said.

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

--Lauren Pollock and Jenny Roth contributed to this story.

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