I take no joy in saying this: I was right.
Last week, I penned a pretty pessimistic Foolish Forecast on the subject of Universal Technical Institute's
I did this reluctantly, too, because I see a real future for the company. In a world where the threat of outsourcing looms just 'round the corner of every successful job interview, a company that gives workers the skills they need to find jobs that cannot be outsourced -- mechanics, body shop repairmen, and similar blue-collar trades -- should find a guaranteed market for its services.
That said, there's no escaping the facts. With the sole exception of earnings that "beat estimates by a penny" (if you care about such things), the news was not encouraging:
• Revenues climbed 1%, as UTI halved the number of times students could "retake" courses for free and raised tuition prices, but the total student population dropped nearly 5%.
• Operating margins slipped 10 basis points to 6.7%, and the net declined 90 basis points to 4.5%.
• Cash burn continued to rise, bringing the firm's year-to-date negative free cash flow to nearly twice that of last year -- $12 million vs. $6.3 million for the first nine months of fiscal 2006.
Management does a rethink
If there was good news in the report (and believe me, I had to look hard to find it), I think it was this: The advertising campaign that UTI announced several months back, aimed at driving enrollment and capacity utilization up, appears to have been either scaled back or called off.
If you look at the firm's spending on selling, general, and administrative costs (SG&A) over the last nine months, you'll see they rose 9%, while achieving only 3% growth in revenue. What's more, as I read the reports, they're saying that most of this increase derived not from attracting new students, but from raising tuition on existing students.
If advertising isn't working, then the logical thing to do is stop spending money on it. And the way I read the numbers, the 1% decline in SG&A between last year's Q3 and this year's suggests that's just what UTI has done (although the firm's last round of layoffs may also be affecting this number). Now, if we can just get the school to stop expanding capacity for students who aren't there, and perhaps even to take a page from Career Education's
Got your biology down cold, but don't know much about UTI's history? Learn it here:
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