UPDATE: Apollo Group Pulls 2011 Views; Roils Education Sector
October 13 2010 - 6:35PM
Dow Jones News
Apollo Group Inc. (APOL) Wednesday evening made investors in
for-profit education stocks wish they hadn't gone back to school
this fall. It withdrew its fiscal-2011 guidance and predicted that
regulatory scrutiny and falling new enrollments at its University
of Phoenix will crimp results.
Its fiscal-fourth-quarter results slightly beat its guidance and
analysts' expectations, and included a $175.9 million write-down of
goodwill and other intangible assets at its BPP subsidiary thanks
to the recession in the U.K. The withdrawn guidance and the
potential for weakened future results sent a shudder through the
education sector, sending Apollo shares down sharply in late
Wednesday trading and giving a back-to-school haircut to the stocks
of at least seven of its peers.
Apollo said "challenges" the industry faces, including
"regulatory and other scrutiny" and "heightened media attention,
much of which has portrayed the sector in an unflattering light,"
will "adversely impact its operating metrics and financial
results." Management later called the recent media coverage
"incredibly negative."
It said it expects the decline in new degreed enrollment it saw
in the fourth quarter at its University of Phoenix to accelerate in
the first quarter, "resulting in a significant year-over-year
decline." For the first quarter, that drop in new degreed
enrollment could top 40%, and executives said growth may not return
until 2012.
The stock fell to a four-year low in August after the University
of Phoenix was featured in an undercover investigation by the U.S.
Government Accountability Office exposing questionable practices in
15 for-profit schools' student recruitment offices. The sector also
faces proposed new rules from the U.S. Department of Education that
would penalize individual programs for graduating students with
high debt loads.
The company has reported lower earnings in the previous two
quarters on litigation and other charges. It also has warned its
bottom line will be hurt as it expands an orientation program
expected to improve retention and loan-repayment rates as
unprepared prospective students are weeded out before enrolling.
The program, which had been in a pilot phase since last fall, will
be required starting Nov. 1 for all students entering with less
than a full year of credit beginning in the current quarter.
In a late Wednesday conference call to discuss its results,
Apollo said any final rules instituted by regulators look to come
after the November mid-term elections, and as such can't be
quantified today. Management said its goals are "aligned" with
those of regulators, and it is pleased regulators are taking the
time to consider "potential unintended consequences" of any such
new rules. A spokesman said executives wouldn't be available after
the call to further discuss the results.
Apollo also said it expects to double its capital expenditures
this fiscal year compared with fiscal 2010.
Not all the news was bleak. It said on the call that it repaid
$400 million, or nearly 70%, of its $584.4 million in debt
subsequent to the fiscal year's end. It also paid about $100
million to buy back about 2 million shares during the previous
quarter, paying an average price about where Apollo traded before
late Wednesday's announcement.
For the quarter ended Aug. 31, Apollo reported a profit of $41
million, or 28 cents a share, down from $91.5 million, or 59 cents
a share, a year earlier. The latest results included the BPP
intangibles write-down while last year's quarter included $95.4
million in charges. Excluding such items, earnings from continuing
operations rose to $1.31 a share from $1.10 and topped its and
analysts estimates by a penny. Revenue grew 17% to $1.26
billion.
Apollo was off 14.7% in after-hours trading at $42.22, putting
it 45% below the high it touched last October. The losses only
mounted as Apollo provided more details about its future on its
conference call.
Among other education stocks, Corinthian Colleges Inc. (COCO)
was down 5.8%, Career Education Corp. (CECO) was down 6.9%, ITT
Educational Services Inc. (ESI) was off 8.1%, DeVry Inc. (DV) was
off 5.1% and Strayer Education Inc. (STRA) was down 6.4%.
Bridgepoint Education Inc. (BPI) and Capella Education Co. (CPLA)
were off during most of late trading but the most recent trades
brought both back to unchanged from Wednesday's close, according to
Nasdaq.com.
Like many other for-profit educators, Apollo expanded quickly as
the recession put people out of jobs and back into classrooms, both
real and virtual. Degreed enrollment rose 6.3% in the most recent
period, but new enrollment declined almost 10% and it blamed the
decline in part on the delay in enrollment caused by its new, free
orientation program that's now required for new students lacking 24
transfer credits. Total degree enrollment stood at 470,800 at the
end of the quarter, as it added bachelors and doctoral candidates
at degreed enrollment, but saw fewer seek associates and masters
degrees.
-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171;
maxwell.murphy@dowjones.com
(Kathy Shwiff contributed to this article.)
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