Education Companies: Still Dealing With Low Enrollment

The post-secondary education industry continues to suffer the consequences of the financial crisis, and the best way to see this is through the low enrollment levels all across the country. Sluggish demand due to reluctance in taking loans and continued challenges in obtaining student financing, changing regulatory requirements, increased price sensitivity, and affordability concerns are some of the reasons why enrollment has dropped.

Given these circumstances, let's see how Universal Technical Institute (NYSE: UTI  ) , Capella Education (NASDAQ: CPLA  ) , and DeVry  (NYSE: DV  ) are performing.

Good quarter, weak guidance
Capella Education is a provider of online post-secondary education focusing on public service leadership, behavioral health, and human services among others.

Despite the 1.4% year-over-year decline in enrollment this third quarter, better than expected top-line growth and operating margins are offering hope. In fact, revenue grew 1.4% to $100.7 million, and the top-line exceeded management's expectations thanks to better student start, and improvements in tuition as well.

Although the results were relatively decent, Capella's guidance for next quarter was not. You should expect a 1.5% to 2.5% decline in total enrollment compared to last year. Apparently, mid-career professionals are apprehensive of going back to school due to a difficult macroeconomic environment.

Bad quarter
DeVry is a global provider of education with a network of institutions and a wide array of programs.

Its first quarter brought a 57.7% year-over-year decline in adjusted earnings-per-share pushed by higher operating expenses. Nonetheless, DeVry's medical and health care segments grew 11% over prior year, but were not enough to offset the 6% decline in revenue. Enrollment shortfall, especially at the struggling flagship DeVry University is mainly responsible for the weak performance.

However, the institution still offers long-term value thanks to its diversified portfolio of quality programs, strategic acquisitions, and a debt-free balance sheet. This remains a competitive advantage against many of its peers.

In addition, its health care and international businesses remain strong, showing a 36% revenue growth in Brazil versus the prior year. Its Chamberlain College of Nursing is solid with total students increasing 30.2% to 15,690, and online students growing 47.4% to 2,005.

Still struggling
Universal Technical Institute, specializes in offering programs in the fields of professional automotive, diesel, collision repair, and marine.

Fourth-quarter earnings declined 36.4% driven by a 5.4% drop in revenue and weak margins. But, like most companies in the industry, the overall issue here is the decline in enrollments.

The company's tight relationships with 25 leading original equipment manufacturers, or OEMs, and after-market retailers, give it a competitive advantage when it comes to attracting aspiring automotive professionals. These OEMs sometimes even sponsor equipment for students, reducing costs as well as capital investments for the institution.

Universal Technical is making efforts to improve enrollments by increasing the number of scholarships and making small increases in its tuition. Nonetheless, according to the company's guidance, new student starts are expected to drop in the first quarter of 2014, worse than previously expected.

Final thoughts
Next quarter will be more challenging for Capella. Although its fundamentals remain solid, it's hard to see any opportunity for growth in the near term. Despite the company's competitive advantage, it would be wise to remain on the sidelines with DeVry until you see sustained enrollment growth.

Universal Technical's specialization should help it remain competitive against its peers. Its efforts to increase enrollments should be realized soon, but until then, it should be looked at cautiously.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2805128, ~/Articles/ArticleHandler.aspx, 4/16/2014 12:50:33 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement