CORRECT (3/29): UPDATE: Apollo Swings To 2Q Loss
July 01 2011 - 6:58PM
Dow Jones News
Apollo Group Inc. (APOL) swung to a fiscal second-quarter loss
as it again wrote down part of the value of its British school,
BPP, and enrollment declines continued.
Shares tumbled 9.7% to $38.25 premarket as enrollment figures
came in below some analysts' expectations and the company's
long-term guidance looked bleak.
Apollo, which operates the University of Phoenix, projected
full-year revenue of $4.65 billion to $4.75 billion, bracketing
Wall Street's $4.68 million forecast, and operating income of $1.15
billion to $1.2 billion, in line with analysts' $1.15 billion
forecast. However, the company sees fiscal 2012 revenue coming in
at $4 billion to $4.25 billion, below analysts' $4.5 billion
forecast, and operating income of $675 million to $800 million,
compared with analysts' $1.08 billion estimate.
"We expect declines in new enrollments that we're experiencing
in 2011 to be felt more in our financial results in 2012," co-Chief
Executive Chas Edelstein said in a conference call Tuesday.
The company has seen its bottom line hurt in recent periods by a
shrinking student body and higher student support and marketing
expenses. The company tightened admissions standards after it and
peers were criticized for lax practices and poor student-loan
repayment rates. The schools now face higher advertising costs,
too, as they compete to attract high-quality students who stand a
chance of completing the programs.
Apollo said Tuesday that degreed enrollment at University of
Phoenix dropped 12% to 405,300 in the latest quarter, as
new-student starts plunged 45%.
So far in the third fiscal quarter, Apollo said on the
conference call, new-student enrollment declines are in line with
those reported in the first half of the fiscal year. However, the
company does expect to return to new-student enrollment growth in
fiscal 2012.
The BPP segment, which focuses on legal and business education,
has been affected "significantly, adversely" by economic weakness
in the U.K., co-Chief Executive Greg Cappelli said on the call. The
company's $219.9 million write-down was its second in three
quarters; it booked a $175.9 million asset impairment charge in the
fiscal fourth quarter. Apollo, along with Carlyle Group, bought BPP
for $607 million in summer 2009.
Despite the current weakness, Cappelli said, "We do remain very
optimistic about the opportunity for BPP." Cappelli said the
company sees other opportunities for international expansion as
well, specifically in India and Latin America.
For the period ended Feb. 28, Apollo reported a loss of $64
million, or 45 cents a share, compared with a year-earlier profit
of $92.6 million, or 60 cents a share. Excluding the BPP writedown
and estimated litigation losses, earnings from continuing
operations dipped to 83 cents from 84 cents. Revenue slid 2% to
$1.05 billion, as select tuition increases offset some of the
enrollment decline.
Analysts polled by Thomson Reuters most recently predicted
earnings of 69 cents on $1.03 billion in revenue.
Expenses jumped 19% amid the writedown and higher marketing
costs. Operating margin declined 140 basis points to 18.9%.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271;
melissa.korn@dowjones.com
--Matt Jarzemsky contributed to this article.
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