American Public Education, Inc.
) third-quarter 2013 earnings of 61 cents per share beat the
Zacks Consensus Estimate of 55 cents by 10.9%. Earnings also
exceeded management's expected range of 52 cents to 56 cents a
share. Earnings increased 1.7% driven by solid revenue growth and
better-than-expected enrollment trends.
Operating income for the quarter was flat year over year at
$17.5 million as cost savings from the ePress initiative and
lower bad debts were offset by higher selling/promotional and
instructional costs. Selling and promotional (S&M) expense as
a percentage of revenues increased 90 basis points (bps) to 19.6%
of revenues due to American Public's increased online marketing
efforts. Instructional costs and services increased 20 bps to
34.4% of revenues due to a greater use of adjunct faculty.
Further, American Public's fraud prevention initiatives have
been effective in reducing enrollment of students who abuse
funds, thereby reducing bad debt expenses. Bad debt ratio
declined 30 bps in the quarter to 4.1%.
Revenues and Enrollment Details
Total revenue grew 6% year on year to $81.8 million, beating
the company's expected growth range of flat to up 4%. Revenues
also beat the Zacks Consensus Estimate of $80.0 million by 2.3%.
The top-line beat was driven by better-than-expected enrollment
trends in the quarter.
Total enrollment increased 2% year over year to 105,200,
better than the company's guidance of its remaining flat. New
student enrollments declined 8% to 22,100, better than
management's expectation of a decline of 11% to 15%.
In the quarter, net enrollments of students using Title IV
funds decreased approximately 1% year over year. Enrollments of
students using cash or other source decreased approximately 10%
in the quarter. On the other hand, net enrollments of students
using FSA benefits increased 2% year over year, and net course
registrations by students using veterans benefits were up 22%
year over year.
Fourth-Quarter 2013 Outlook Soft
Enrollments in the fourth quarter have been adversely impacted
by the temporary suspension of the Title IV funds in the U.S. due
to hurdles from the government shutdown in October.
Considering these factors, American Public expects revenues to
decline in the range of 5%-9%. Management also expects
fourth-quarter 2013 total enrollments to decline in the range of
3%-7%. New student enrollments are expected to decline in the
range of 5% to 9%. Management further projects fourth-quarter
2013 earnings between 50 cents to 54 cents, which marks a
year-over-year decline of 27%-32%. The earnings guidance also
fell short of the Zacks Consensus Estimate of 68 cents. S&M
ratio for the fourth quarter is anticipated to be above the
long-term goal of 20% of revenues as a result of
lower-than-expected revenues in October and November.
Hondros Acquisition Closed
On November 1, American Public closed its previously announced
agreement to acquire Ohio-based National Education Seminars,
Inc., also known as Hondros College (Nursing Programs), for
approximately $45 million.
The acquisition is in line with the company's long-term
strategic plan of focusing on quality education, improving
student retention and enhancing the quality of health, science
and technology programs. Management believes that the acquisition
will further consolidate the company's position in the
healthcare, nursing and public education sector.
Other Stocks to Consider
American Public carries a Zacks Rank #3 (Hold). Better-placed
stocks in the education sector include
ITT Educational Services Inc.
New Oriental Education & Technology Group
Xueda Education Group
). All of these carry a Zacks Rank #1 (Strong Buy).
AMER PUB EDUCAT (APEI): Free Stock Analysis
NEW ORIENTAL ED (EDU): Free Stock Analysis
ITT EDUCATIONAL (ESI): Free Stock Analysis
XUEDA EDUC-ADR (XUE): Free Stock Analysis
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