Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of DeVry Education (NYSE:ATGE) fell 18% Friday after the for-profit educator reported lackluster earnings for its fiscal third quarter yesterday evening.
So what: DeVry's revenue fell 1% year-over-year to $489.8 million, with $0.70 in adjusted earnings per share coming in 20% lower than the year-ago quarter's result. Analysts had expected $496 million in revenue and $0.68 in EPS, so these results were somewhat of a mixed bag, particularly since management had forecast flat year-over-year revenue in its earlier guidance.
Management also issued weak guidance for the fourth quarter. Revenue is expected to fall by 1% to 2% from the year-ago quarter, while operating costs are expected to rise. Guidance thus anticipates roughly $477.8 million in fourth-quarter revenue, above the $467.5 million Wall Street had projected. However, CFO Timothy Wiggins also noted during DeVry's earnings call that up to 10% of programs now taught at DeVry University and Carrington College could fail the requirements of the government's latest Gainful Employment rules, which would have a substantial impact on the company during its 2016 fiscal year if compliance efforts are not successful.
Now what: It's no secret that Washington is no ally of the for-profit education sector, and DeVry's latest results bear this out. The company's international branch, DeVry Brasil, was undoubtedly the driver of enrollment growth with 78% more students enrolled there than were enrolled a year ago. This was more than enough to offset a 15% decline in enrollment at the company's flagship DeVry University.
However, tuition rates in Brazil are far lower and only produced $61.1 million in revenue for the company's International and Professional Education segment, compared to $203.8 million in revenue from the DeVry University segment comprising Business, Technology, and Management. DeVry Brasil counted 58,724 students on its roster during the third quarter, while DeVry University currently caters to 36,188 students, so it's easy to see that international growth won't be enough to offset DeVry's ongoing problems in the United States. It's hard to see DeVry returning to its former glory so long as the American political climate continues to emphasize educational opportunities that actually help students find jobs, rather than for-profit degree mills that have proven inadequate in the current highly competitive professional environment.