Last Monday, I quoted Universal Technical Institute
Yet UTI -- a Hidden Gems selection -- spent $46.1 million this year on capital expenditures, of which about $5 million per quarter was "maintenance capex." With capex standing at $35.1 million last quarter, it seems UTI probably spent about $6 million to further expand its already underutilized capacity this quarter.
Is that bad?
I think so. Here's the dilemma at UTI, as I see it: The firm has certain fixed costs, but it cannot presently spread those costs among its full potential complement of students. There are, quite simply, too many unoccupied seats not generating revenues. UTI needs to fill those seats if it is to improve operating efficiency. Although it's working to better "utilize capacity" by increasing advertising spending, its continued capital expansion works at cross-purposes to the effort.
A better idea, it seems to me, would be for UTI to take a page from another industry that's made real progress in reducing its seats-to-customers ratio: the airlines. Historical money-losers like Continental
This idea isn't unique to the airline industry, either. Last month saw UTI peer Career Education
Read more about the airlines' turnaround in "Bin Laden Failed."