2nd UPDATE: Apollo Group Swings To 2Q Profit On Higher Enrollment
March 31 2009 - 7:28PM
Dow Jones News
Apollo Group Inc. (APOL) swung to a fiscal second-quarter profit
on higher enrollment as well as a prior-year litigation charge.
However, shares recently fell about 5.66% to $73.95 in
after-hours trading from the Tuesday close of $78.33, despite the
results topping Wall Street's expectations.
In the conference call, some analysts raised concerns about the
company's bad debt expense, which increased to 4.1% in the fiscal
second quarter, from 3.8% a year ago.
The company attributed some of the increase to the difficulty in
collecting payments from drop-out students given the tougher
economy, and said it was possible that is bad-debt expense could
continue to increase in the near term.
"We are trying to manage that as best as we can," said Brian
Swartz, the company's newly promoted Chief Financial Officer, in
the company's earnings call.
Still, Signal Hill analyst Trace Urdan says the bad-debt expense
increase shouldn't be ringing any alarm bells just yet, as Apollo's
4.1% is still right around the mean for-profit education group.
"I'm not too worried," Urdan said.
In general, for-profit educators such as Apollo generally have
benefited from the slumping economy, as rising unemployment has
prompted increased interest in retraining and continued
education.
In addition, Apollo has boosted marketing efforts and
repositioned its brand, added degree programs with broad appeal and
hired more enrollment counselors, investments its executives said
would continue moving forward.
"We are pleased with the growth in revenue and enrollments in
our second quarter and we believe we are continuing to benefit from
investments we are making in key academic and operational areas,"
said Chief Executive Charles B. Edelstein in a statement.
Some have also worried the slumping economy could cause some
companies to reduce corporate tuition reimbursement, which provides
about one-fifth of Apollo's annual revenue. But the company hasn't
yet observed any significant slowdown, its executives said in the
earnings call.
For the quarter ended Feb. 28, the operator of the University of
Phoenix reported net income of $125.3 million, or 77 cents a share,
compared with a net loss of $32 million, or 19 cents a share, a
year earlier.
The prior-year quarter's results included a $168.4 million
pretax charge for estimated damages stemming from a securities
class-action lawsuit. That charge was later reversed after a
federal judge overturned a securities-fraud verdict that could have
forced the company to pay out as much as $280 million.
Revenue climbed to $876.1 million from $693.6 million.
Analysts' estimates were for earnings of 65 cents a share on
revenue of $865.5 million, according to a poll by Thomson
Reuters.
Degreed enrollment grew 20% to 397,700 at the University of
Phoenix, the nation's largest private university, and new degreed
enrollment climbed 23%.
New degreed enrollment trailed the 25.6% boost seen in the
fiscal first quarter, but the company's management previously said
it didn't expect enrollment increases to continue at the same
significant clip.
Instructional costs and services grew 14% while selling and
promotional expenses increased 12%. General and administrative
expenses climbed 29%.
The company also announced Tuesday promotions for several
executives. Chief Financial Officer Joseph L. D'Amico was named to
the new position of chief operating officer and will be replaced as
finance chief by Chief Accounting Officer Brian L. Swartz.
Controller Gregory J. Iverson will become chief accounting
officer.
Apollo's stock price soared 95% in the past year but has fallen
18% from its 52-week high in January, at least in part due to some
short-selling activity in the for-profit education sector.
-By Kelly Nolan; Dow Jones Newswires; 201-938-4049;
kelly.nolan@dowjones.com
(Kathy Shwiff contributed to this report)