DOW JONES NEWSWIRES
Apollo Group Inc.'s (APOL) fiscal fourth-quarter profit slumped
60% as the for-profit education company recorded one-time charges
for a litigation settlement and a write-off for other assets, which
offset a big jump in revenue and higher enrollment numbers.
But shares dropped 15% to $62.10 in after-hours trading, as the
company said the Securities and Exchange Commission has launched an
informal inquiry into its revenue-recognition practices. The stock
is down almost 5% so far this year through Tuesday's close and has
slumped this year on some concerns about proposed government
reforms that could affect things such as incentive-compensation
practices for enrollment counselors.
Apollo's increased focus on associate's degrees over the past
few years aligned nicely with the downturn, as the unemployed and
underemployed look to retrain and retool. But with job losses
seeming to slow, some have said the current rate of sequential
growth could be difficult to maintain.
The company, which is in settlement talks to resolve a
student-recruiting lawsuit, said Tuesday it recorded a pretax
charge of $80.5 million in the quarter to cover losses tied to the
case. The lawsuit--brought in 2003 by two enrollment counselors at
the University of Phoenix--alleges violations of federal education
law under the False Claims Act. One analyst has suggested that only
a settlement above $500 million would cut meaningfully into the
company's investment plan and weigh on the stock. Apollo has
requested a stay of court proceedings, and the case is scheduled
for trial early next year.
For the quarter ended Aug. 31, the operator of the University of
Phoenix, which offers both all-online and traditional classes,
reported earnings of $91.5 million, or 59 cents a share, down from
$229.6 million, or $1.43 a share, a year earlier. Excluding the
litigation settlement, write-off for information-technology assets
and other items, earnings rose to $1.06 a share from 75 cents.
Revenue increased 29% to $1.08 billion.
Analysts polled by Thomson Reuters projected per-share earnings
of $1.04 on revenue of $1.03 billion.
Degreed enrollment grew 22% to 443,000 at the University of
Phoenix, the nation's largest private university, and new degreed
enrollment climbed 23%.
Instructional costs and services grew 25% while selling and
promotional expenses increased 18%.
As for the SEC probe, the company said the scope and duration of
the inquiry can't be determined at this time and it intends to
cooperate with the agency.
-By Lauren Pollock, Dow Jones Newswires; 212-416-2356;
lauren.pollock@dowjones.com