Apollo Beats, Profits Fall - Analyst Blog
March 30 2011 - 5:30AM
Zacks
Apollo Group Inc. (APOL), one of the world’s
largest private education providers, reported earnings of 83 cents
per share, down 1.2% year over year, in the second quarter of
fiscal 2011. The results fell short of the year-ago earnings of 84
cents a share. However, earnings surpassed the Zacks Consensus
Estimate of 69 cents a share.
On a reported basis, including one-time items, loss came in at
45 cents a share compared with earnings per share of 60 cents a
share in the prior-year quarter.
The Phoenix based company earned a profit of $118.2 million from
continuing operations, an increase of $11.9 million from the
year-ago quarter. Including special items, net income dropped $28.6
million to $64.0 million.
Apollo delivered total revenue of $1,048.6 million during the
quarter, down 2.0% from the year-ago quarter attributable to lower
enrollments partially offset by selective tuition price increases
and better student retention rates. University of Phoenix Degreed
Enrolment dropped 11.6% to 405,300 primarily due to a fall of 44.9%
in New Degreed Enrollment. Additionally, BPP Holdings recorded a
$6.4 million drop in net revenue attributable to lower student
enrolment coupled with a negative impact of foreign exchange rate.
BPP Holdings, a U.K. based provider of education and training to
legal and finance professionals, was acquired by Apollo Global in
July 2009. Total revenue also surpassed the Zacks Consensus
Estimate of $1,027 million.
Instructional and student advisory cost increased to $421.6
million during the quarter from $415.4 million in the year-ago
quarter, primarily due to the company’s continuous effort to invest
so as to improve students’ educational outcome. This however
resulted in higher compensation.
Apollo’s bad debt expenses for University of Phoenix decreased
by $28.3 million during the quarter to $45.5 million. As a
percentage of revenue it came in at 4.3%, representing a decrease
of 260 basis points from 6.9% reported in the prior-year quarter. A
decrease in gross accounts receivable attributable to
implementation of university orientation coupled with a fall in New
Degreed Enrollment and improvement in student retention rates led
to the fall in bad debt expense.
Operating loss for the quarter came in at $23.0 million,
compared with an operating income of $172.9 million a year ago.
Excluding special charges, operating profit increased 12.4% to
$244.5 million. Operating margin expanded 30 basis points to
23.3%
Financial Position
Apollo ended the quarter with cash and cash equivalents of
$1,033.3 million as compared with $1,284.8 million as of August 31,
2010. The decrease in cash was primarily attributable to the
repayment of debt, increased capital expenditure, and an increase
in restricted cash and share buyback made by the company, partially
offset by an increase in cash from operation. Apollo repurchased
$75 million worth of shares and ended the quarter with
shareholders’ equity of $1,315.0 million. At the end of the
quarter, the company was left with $525 million under its current
share repurchase authorization. Total debt decreased by $393.4
million to $191.0 million during the quarter.
Guidance
The company expects net revenue in the range of $4.65–$4.75
billion in fiscal 2011 and operating income in a $1.15–$1.20
billion band. For fiscal 2012, net revenue is expected to be in the
range of $4 billion to $4.25 billion and operating income to come
in between $675 million and $800 million.
Competition
Apollo Group faces intense competition from other companies
offering postsecondary education, such as DeVry
Inc. (DV), Strayer Education Inc. (STRA)
and Career Education Corp. (CECO).
Apollo’s shares maintain a Zacks #3 Rank, which translates into
a short-term ‘Hold’ rating. Our long-term recommendation on the
stock remains ‘Neutral’.
APOLLO GROUP (APOL): Free Stock Analysis Report
CAREER EDU CORP (CECO): Free Stock Analysis Report
DEVRY INC (DV): Free Stock Analysis Report
STRAYER EDUC (STRA): Free Stock Analysis Report
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