Apollo Group, Inc.
) reported strong fourth-quarter fiscal 2013 results, beating the
Zacks Consensus Estimate for both revenues and earnings, even
though enrollment continued to decline. However, the fiscal 2014
revenue outlook fell short of Zacks' expectations.
Adjusted earnings (excluding special items) of 55 cents per
share in the fourth quarter of fiscal 2013 handily beat the Zacks
Consensus Estimate of 25 cents by 120%. In fact, Apollo Group's
earnings grew almost 6% year over year - the first quarterly
year-over-year increase for this for-profit education company in
more than two years. Strong cost cutting and the timing of
scholarship programs helped the company exceed profit
expectations in the fourth quarter.
Net revenue of $845 million also beat the Zacks Consensus
Estimate of $823 million by 2.7%. Revenues, however, declined
15.2% from the prior-year quarter due to decline in enrollments
at the University of Phoenix.
Apollo Group is consistently enhancing and expanding its
services/programs and investing in academic quality to improve
student experience and outcomes. Apollo's initiatives include
investments in adaptive learning and curriculum development as
well as introducing a new learning and service platform. The
company is also working to develop new programs and learning
systems and is continuously enhancing and expanding student
support service offerings. All these initiatives improve
retention rates. In addition, the company is offering more
discounts and scholarships to improve affordability and student
Moreover, the company's accelerated efforts to right-size its
business through significant layoffs and campus closings have
resulted in significant cost savings. Fixed costs declined $350
million in fiscal 2013, higher than the prior expectation of $300
million. The company expects further fixed cost savings of at
least $300 million in 2014.
We believe that Apollo's strategic and cost saving initiatives
helped it to deliver a surprisingly strong performance this
Enrollment Details and Margins
The University of Phoenix, Apollo's Flagship University,
reported an 18.1% decline in total enrollment to 269,000
students. New enrollment at the University declined 22.3% to
41,000 in the quarter.
Apollo's enrollments have been sluggish for many quarters.
Enrollment trends throughout the education industry have been
affected by changing regulatory requirements, sluggish demand due
to students' aversion to debt, robust competition and a volatile
Revenue per student increased 2% year over year, better than
company expectations of a decline of 1%-2%. Higher attendance
among students during the period and the timing of student
graduations increased the figure.
All the cost items declined in the quarter driven by savings
from the restructuring efforts and lower variable costs
associated with low enrollments.
Adjusted operating margin improved 190 bps in the quarter to
11.9% due to solid cost control efforts.
In fiscal 2013, the company witnessed a 23% decline in
revenues to $3.68 billion, slightly beating the Zacks Consensus
Estimate of $3.66 billion. Revenues were within management's
guidance range of $3.65 billion-$3.70 billion.
Adjusted earnings (excluding non-core items) were $3.16 per
share, which beat the Zacks Consensus Estimate of $2.86 by 10.5%.
Earnings declined 11.3% from the prior year.
Adjusted operating income was $601.4 million, beating the
guidance range of $525 million-$550 million.
Fiscal 2014 Guidance below Expectations
The company issued fiscal 2014 net revenue guidance of a range
of $2.95 billion-$3.05 billion. The top-line guidance represents
a decline from fiscal 2013 levels and also falls short of the
Zacks Consensus Estimate of $3.21 billion. Total enrollments are
expected to decline from 2013 levels to 230,000 students in
fiscal 2014. In fact, in the first quarter of fiscal 2014, new
enrollments are expected to decline at the same or higher rate
than the fourth quarter of 2013.
Revenue per student is expected to range from negative 2% to
4% for fiscal 2014 due to higher discounts. Discounts are
expected to account for 9% of revenues in 2014, slightly higher
than 8% in fiscal 2013.
Adjusted operating income is expected in the range of $375
million-$450 million. All cost items are expected to decline from
the 2013 levels in 2014.
Other Stocks to Consider
Apollo carries a Zacks Rank #3 (Hold). Some other schools that
are doing well and can be considered include
New Oriental Education & Technology Group
TAL Education Group
). All these companies carry a Zacks Rank #1 (Strong Buy).
APOLLO GROUP (APOL): Free Stock Analysis
DEVRY INC (DV): Free Stock Analysis Report
NEW ORIENTAL ED (EDU): Free Stock Analysis
TAL EDUCATN-ADR (XRS): Free Stock Analysis
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