APOL Apollo Education Grp., Inc.

DeVry Inc. (DV), a world leader in providing educational services, registered sluggish first quarter 2012 earnings of 83 cents per share that declined by 19.4% from $1.03 per share posted in the year-ago period. Earnings also lagged the Zacks Consensus Estimate of 96 cents by 13.54%.

Management ascribed that deteriorating economic conditions and rising unemployment have negatively impacted the results. Moreover, the new regulations associated with the education system have posed as the headwind. However, DeVry continues to perform and focus on academic quality and strong execution of diversification strategy.

Consolidated Revenue and Margins

DeVry’s quarterly net sales fell 0.5% to $519.0 million compared with $521.4 million in the prior-year period. Sales also lagged the Zacks Sales Estimate of $526 million.

Operating cost and expenses also climbed to $439.2 million compared with $409.6 million a year ago.

As a result, operating income declined sharply to $79.9 million in the quarter, compared with $111.8 million in the year-ago period.

Total graduate coursetakers at DeVry University, including its Keller Graduate School of Management, climbed 2.3% to 23,937 in the first quarter of 2012, despite the difficult job markets. 

In the DeVry Medical International segment, including Ross University School of Medicine, Ross University School of Veterinary Medicine and the American University of the Caribbean School of Medicine (“AUC”), new students increased by 22.9% to 853 for the September 2011 term. In addition, total students increased 6.3% to 6,082 in the same term.

However, AUC’s new student enrollment for the September 2011 term declined to 192 students versus 204 in the prior-year period. AUC’s total student enrollment for the September term was 1,226 students in 2011 and 1,156 students in 2010.

Further, DeVry got State approval of its two new Chamberlain College of Nursing locations and approval from the Illinois Board of Higher Education for a doctorate of nursing practitioner program.

At Carrington Colleges, DeVry has implemented a new centralized contact center that will create a faster and more efficient response to the central students.

In the International, K-12, and Professional Education Segment, Becker Professional Education continues to expand its international platform, and integrate ATC International. It has also signed an agreement with GE China. For DeVry Basil, new students climbed 29.2% to 3,033 for the September 2011 term, while total students increased 17.8% to 14,099 in the same term.

Other Financial Updates

DeVry exited the year with cash and cash equivalents of $322.9 million at September 30, 2011, down from $447.1 million at June 30, 2011 and $451.0 million at the end of September 30, 2010. Operating cash flows were $186.6 million in the first quarter of 2012, owing to strong working capital management. DeVry spent $33.8 million as capital expenditure.

During the first quarter of fiscal 2012, DeVry repurchased 1,007,207 shares of its common stock at $44.13 per share. The company completed its sixth stock repurchase program of approximately $44.5 million during the quarter.

Acquisition

During the reported quarter, the company  completed the acquisition of the American University of the Caribbean (AUC). AUC is a leading international provider of medical degrees with a campus based in St. Maarten. The acquisition has further positioned DeVry as the leader in international medical education.

Though 2012 has started at a slow pace, we believe it is going to continue in the first half of the year, given the impact of the enrollment deceleration and tougher year-over-year comparisons. However, we expect the second half of 2012 to improve on the back of improved enrollment at DeVry University undergrad and Carrington.

We are encouraged as DeVry is a leading provider of post-secondary educational services in North America. Moreover, the company has a rich experience of working for more than 75 years in the education industry and enjoys the privilege of having reputed institutions like DeVry University and Ross University in its portfolio. The company is also taking initiatives to expand its revenue streams through strategic acquisitions.

However, risks relating to regulatory matters, vulnerability to seasonal fluctuations and high dependence on government aid programs are matters of concern.

DeVry, which competes with Apollo Group Inc (APOL), maintains a Neutral rating on a long-term basis. Currently, DeVry holds a Zacks #4 Rank, which is equivalent to a short-term Sell rating.

 
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