It's been just over a month since for-profit educator Corinthian Colleges
Yesterday, the company reported more of the same, and investors were less than impressed. Unlike bored students, however, the marketplace doesn't just have to sit there and take what it's given, and it retaliated by knocking Corinthian's stock price down 3.6%. Over the past month, in fact, the company has already given back one-third of the gains garnered by its surprise 2004 results.
For its fiscal first quarter, Corinthian posted a 36% revenue rise alongside a 6% earnings decline. Not an attractive comparison. The reason for the lousy numbers is that last year, the company underwent a massive expansion in scale, aiming to keep up with the educational Joneses: from leader of the pact Apollo Group
Corinthian characterizes its expansion as an "investment in future growth" and readily acknowledges that it will take some time to turn its new acquisitions around. For the time being, though, they're taking a huge toll on Corinthian's margins, dropping its net margin from last year's 11.5% to 7.9%. But even if the company succeeds in bringing its new colleges up to par, the profits they generate may fail to impress. While it's true that last year, Corinthian pulled down 11.5% margins, over the past three years, its margins have averaged a more restrained 8.9%. If Corinthian had accomplished those margins this year, for example, it would have generated $20.4 million in profits, for a 5% year-on-year increase rather than a 6% decline.
Is +5% better than -6%? Sure. But it's not the kind of go-go profits growth that investors in the for-profit education sector have come to expect. That bodes ill for Corinthian's stock price.
One quarter's results can never give you the full story on a company. To learn more about Corinthian, read:
- Rich Smith's reviews of Corinthian's fiscal 2004 and Q3 2004 results.
- Jeff Hwang's review of the company from last year.
- A truly historical gem by Rick Munarriz, from back in 2000.
- Rich Duprey's contrarian (and perhaps prescient) take on this industry's legal woes.
Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.