When nearly every stock you've ever heard of gains 2.6% (on average) in one day, while another stock plunges 14% in value, it's safe to say something bad happened to that other stock.
In the case of blue-collar, for-profit educator Universal Technical Institute (NYSE:UTI), something did happen. Shares fell off a cliff just as soon as trading resumed after yesterday's Q4 2007 earning release. Contrarian that I am, I'd love to argue that the sell-off was overdone, but I agree with Mr. Market on this one.
Quarterly sales slid twice as far as analysts had predicted, down 2% to $87 million, as students failed to show up in the necessary droves. UTI had to increase scholarships and tuition discounts to attract the few students who did show up. As a result, the company booked an operating loss for the quarter, bringing the year's operating margin down 500 basis points from last year to 6.7%. As of today, using the trailing twelve months, the only for-profit educator with worse operating margins is Corinthian Colleges (NASDAQ:COCO). Some -- Apollo Group (NASDAQ:APOL), ITT (NYSE:ESI), or Strayer (NASDAQ:STRA) to name a few -- manage to outperform UTI with double-digit operating margins; others, such as Career Education (NASDAQ:CECO), with single-digit margins.
Sound the alarm
Worse than the numbers themselves, however, is what they may fortell of UTI's future. As I warned might be the case in our pre-earnings Foolish Forecast, UTI's anemic sales results were exacerbated by a raft of special charges. As a result, the company fell into the red this quarter, losing $0.05 per share on the bottom line.
As an absolute number, that's bad enough. But it also places UTI in a bit of a bind, because the terms of its revolving credit agreement with Wells Fargo (NYSE:WFC) require that UTI not lose money (on a net basis, let alone operating) in any two consecutive quarters. Having lost money already in Q4, UTI is now halfway to breaching the terms of its credit agreement.
Foolish takeaway
CEO Kimberly McWaters opined on Tuesday that UTI has "implemented a number of very important changes ... [but as] with any significant organizational change effort, time and persistence are required to realize the full benefit." Problem is, time is running out.
You know our opinion about Universal Technical (hint: It's no longer part of our Hidden Gems portfolio). But what do Wall Street's finest think about the firm? Find out in:
- This Just In: Upgrades and Downgrades, October 22, 2007 edition
- This Just In: Upgrades and Downgrades, August 15, 2007 edition
- This Just In: Upgrades & Downgrades, February 9, 2007 edition
