UPDATE: Apollo Group 3Q Adjusted Profit Falls Less Than Expected

NEW YORK (Dow Jones)--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.

Still, shares jumped 6.4% to $46.47 after hours. Apollo's stock rose 2.9% in the past year, as of market close, after seeing sharp declines last summer and fall.

Expectations were 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%.

Still, executives reiterated their expectation for a return to 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.

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.

Revenue decreased 7.6% to $1.24 billion, with lower enrollments somewhat offset by higher course pricing.

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 largely kept its outlooks for the current and coming fiscal years untouched, though it said operating income this year would be at the low end of its previous target range, coming in at $1.15 billion to $1.2 billion Thursday.

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

Apollo Education Group, Inc. (NASDAQ:APOL)
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