Apollo Group, Inc
(
APOL
) reported adjusted earnings of $1.20 per share in the third
quarter of fiscal 2012, comfortably surpassing the Zacks Consensus
Estimate of 96 cents. However, lower revenues led to a 17%
downslide in earnings from the prior- year earnings of $1.45 per
share.
The company reported earnings of $1.13 per share in the third
quarter of fiscal 2012, down 25.17% y/y.
Total Revenue
Apollo delivered total revenue (comprising tuition and fees for
educational services) of $1.13 billion during the third quarter of
fiscal 2012, down 8.5% from the year ago quarter due to 9.1%
decline in net revenues from the University of Phoenix. The net
revenue from the University of Phoenix dropped due to lower
enrollment, partially offset by favorable changes in tuition price
and other fees.
However, total revenue breezed past the Zacks Consensus Estimate of
$1.12 billion.
Quarter in Detail
Revenues declined at the University of Phoenix in the third quarter
of fiscal 2012 due to a 13.1% decrease in degreed enrollment to
346,300 students from 398,400 in the third quarter of fiscal 2011.
New enrollment (also called new degreed enrollment) was 51,500,
down 8.0%, or 5.3% adjusting for available start dates, from 56,000
in the third quarter of fiscal 2011.
Instructional and student advisory cost inched up 2.6% to $470.1
million during the third quarter of fiscal 2012. As a percentage of
net revenue, cost grew 450 basis points (bps) due to the company's
continuous effort to improve its services (especially technology)
in order to enhance students' educational outcomes.
Marketing expenses (include advertising cost and cost incurred to
establish relationships with employers and community colleges)
declined 1.3% to $158.9 million in the third quarter of fiscal
2012. Admission advisory expenses declined 4.6% to $95.3 million
compared with the prior-year figure, but increased 30 bps as a
percentage of net revenue. Benefits from lower admissions advisory
headcounts were offset by increased employee compensation costs.
Apollo's general and administrative (G&A) expenses grew 0.3% to
$88.1 million in the third quarter of fiscal 2012, which is a
growth of 70 bps as a percentage of net revenue. Bad debt expenses
declined 9.7% to $35.4 million in the third quarter of 2012, due to
lower enrollments in University of Phoenix.
The company reported operating income of $225.6 million in the
third quarter of 2012, down 34.9% y/y. Adjusted operating margin
declined 720 basis points to 21% in the quarter.
Balance Sheet
As of May 31, 2012, Apollo had cash and cash equivalents of $602.1
million compared to $1.57 billion as of August 31, 2011. The
decline in cash and cash equivalents was due to share repurchases,
capital expenses, payments on borrowings and the acquisition of
Carnegie Learning during the quarter.
During the reported quarter, Apollo repurchased approximately 9.0
million shares worth $329.0 million. Moreover, subsequent to
quarter end, on May 31, 2012 the company made an additional
expenditure of $15.0 million toward repurchasing 0.5 million
shares. The company is thus left with $48.5 million under its
current $500 million share repurchase authorization.
The company substantially reduced its outstanding debt levels from
the end of the previous fiscal year. The company's total
outstanding debt (including short and long term) stood at $126.0
million as of May 31, 2012 compared with $599.0 million as of
August 31, 2012.
Fiscal 2012 Outlook
At the third quarter conference call, the company maintained the
previously provided revenue guidance of $4.2- $4.3 billion and
adjusted operating income guidance of $700-$740 million for fiscal
2012. The company expects enrollment to decline in the fourth
quarter of fiscal 2012.
Fiscal 2012 share-based compensation is expected to come in a band
of $80 million. The tax rate is expected to be 42% for fiscal 2012.
The company believes that G&A expenses will increase in the
fourth quarter of fiscal 2012, compared to the third quarter of
fiscal 2012. The advertising cost is expected to be down for
fiscal 2012, though the advertising cost is expected to increase
seasonally in the fourth quarter of fiscal 2012.The company expects
fiscal 2012 bad debt as a percentage of revenue to decline, due to
encouraging collection rates.
We are optimistic about Apollo Group's dominant market position as
well as its continuous efforts to improve services, and thereby
student experience and outcomes. During the quarter the company
initiated Phoenix Career Services, which offers an online career
portal to students, in order to support students' outcome.
However, the declines in enrollment trends in the second and third
quarter of fiscal 2012 as well as the expected deterioration in the
fourth quarter of 2012 remain matters of concern. We therefore,
prefer to remain on the sidelines until we get further clarity on
future enrollment trends.
We currently have a Neutral recommendation on Apollo Group. The
stock carries a Zacks #3 Rank (a short-term 'Hold' rating). One of
its peers,
DeVry Inc.
(
DV
) presently retains a Zacks #4 Rank, which translates into a short
term Sell rating.
Based in Phoenix Arizona, Apollo Group Inc. is a leading private
education service provider in the U.S. and has been in the
education business for more than 35 years. Apollo Group offers
innovative and distinctive educational programs and services for
the undergraduate, masters and doctoral level, both online and
on-campus.
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