Apollo Group Inc.
(
APOL
), one of the world's largest private education providers, reported
earnings of $1.28 per share for first-quarter 2012, which beat the
Zacks Consensus Estimate of $1.18. However, quarterly earnings were
down 21.5% from the prior-period earnings of $1.63 primarily due to
fall in Degreed Enrollments.
On a reported basis, including one-time items, earnings came in
at $1.14 a share compared with earnings per share of $1.61 in the
prior-year quarter.
Apollo delivered total revenue of $1,178.7 million during the
quarter, down 11.1% from the year-ago quarter. The decline was due
to lower enrollments at the University of Phoenix, partially offset
by selective tuition price increases and better student retention
rates. However, total revenue came ahead of the Zacks Consensus
Estimate of $1,159 million.
Degreed Enrolment at University of Phoenix dropped 14.8% to
373,100 primarily due to a slump in New Degreed Enrollment during
fiscal 2011. As per the company, operational initiatives
implemented to support students and improve educational outcome
resulted in a decline in New Degreed Enrolment during the previous
fiscal. However, during first-quarter 2012, New Degreed Enrollment
registered a growth of 12.7% from the prior-year period.
Further Analysis
Instructional and student advisory cost inched up 0.2% to $456.8
million during the quarter. As a percentage of net revenue, cost
grew 450 basis points to 38.8%, primarily due to the company's
continuous effort to invest for improvising students' educational
outcome.
Marketing expenses inched down 0.2% to $165.8 million. However,
a reduction in interest net revenue led to a decline in marketing
expenses as a percentage of net revenue by 160 basis points to
14.1% from the prior period.
Admission advisory expenses declined 10.9% to $101.4 million
compared with the prior-period figure, but remained consistent as a
percentage of net revenue. Benefits from lower admissions advisory
headcounts were offset by increased employee compensation
costs.
Apollo's general and administrative expenses plunged 5.8% to
$79.9 million. However, it increased by 40 basis points to 6.8% as
a percentage of net revenue, primarily due to increased
compensation expenses.
Apollo's bad debt expenses for University of Phoenix decreased
by 26.9% during the quarter to $41.6 million. As a percentage of
revenue, it came in at 3.5%, representing a decrease of 80 basis
points from 4.3% reported in the prior-year quarter. A decrease in
gross accounts receivable attributable to the implementation of
university orientation coupled with a fall in Degreed Enrollment at
University of Phoenix and shift in mix of student from Associates
to Bachelors degree program led to the decline in bad debt
expense.
On a reported basis, operating income for the quarter came in at
$264.5 million compared with an operating income of $407.1 million
a year ago. Operating margin contracted 830 basis points to 22.4%
due to a fall in revenue.
Excluding one-time items, i.e. goodwill and other intangibles
impairment charges, restructuring and other charges and litigation
charges, operating income declined to $286.8 million from $411.8
million in the prior-year quarter. Operating margin contracted 670
basis points to 24.3%.
Financial Position
Apollo ended the quarter with cash and cash equivalents of $1.20
billion compared with $1.57 billion as of August 31, 2011. The
decrease in cash was primarily impacted by increased capital
expenditure including Carnegie acquisition, debt repayments and
share buyback, which were partially offset by cash generated from
operations. At the end of quarter, the company's total outstanding
debt stood at $114.3 million compared with $599 million as of
August 31, 2011. During the quarter, Apollo repaid $500 million of
its borrowings.
During the reported quarter, Apollo repurchased shares worth
$78.2 million, representing 1.7 million shares at an average price
of $45.84 per share. Moreover, subsequent to the first-quarter end
to December 31, the company made an additional expenditure of
$128.3 million toward repurchasing 2.6 million shares at an average
price of $49.71 per share. At the end of the quarter, the company
was left with approximately $293.5 million under its current $500
million share repurchase authorization. Apollo ended the quarter
with shareholders' equity of $1,323.7 million.
Guidance
Apollo provided a positive outlook as the company registered an
encouraging growth in New Degreed Enrollment in the quarter after a
dull fiscal 2011.Besides, trends showed an improvement in admission
advisor effectiveness. Hence, the company now expects net revenue
in the range of $4.10-$4.30 billion in fiscal 2012 instead of $4.10
- $4.20 billion forecasted earlier. However, Apollo has lowered its
upper end operating income expectation for fiscal 2012 to $655 -
$750 million from $655 - 780 million.
Our Take
Apollo Group is the industry leader in the U.S. private
education services sector. The company has an experience of more
than 35 years in the education industry and possesses one of the
most powerful brands, University of Phoenix, in the sector. This
provides a hard-to-replicate competitive advantage to the company
and bolsters its leading position in the market.
Moreover, in a drive to boost students' retention, Apollo Group
has recently acquired the Downtown based math curricula publisher,
Carnegie Learning. The acquisition is expected to add 7 cents to 9
cents per share to Apollo's earnings in fiscal 2012.
However, intense competition from other companies offering
postsecondary education, such as
DeVry Inc.
(
DV
),
Strayer Education Inc.
(
STRA
) and
Career Education Corp.
(
CECO
) and stringent regulation by federal authorities remain matters of
concern.
Apollo retains a Zacks #3 Rank, which translates into a
short-term 'Hold' rating. Our long-term recommendation on the stock
remains 'Neutral'.
APOLLO GROUP (
APOL
): Free Stock Analysis Report
CAREER EDU CORP (
CECO
): Free Stock Analysis Report
DEVRY INC (
DV
): Free Stock Analysis Report
STRAYER EDUC (
STRA
): Free Stock Analysis Report
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