Apollo Group Inc.
) reported adjusted earnings (excluding special items) of 34
cents per share in the second quarter of fiscal 2013, surpassing
the Zacks Consensus Estimate of 18 cents by 88.9%. However, lower
revenues and higher marketing and advertising expenses resulted
in a 40.4% decline from the prior-year earnings of 57 cents per
Apollo Group reported net revenue of $834.4 million in the second
quarter of fiscal 2013, beating the Zacks Consensus Estimate of
$821 million by 1.6%. Revenues, however, declined 13.3% from the
prior-year quarter due to decline in enrollment at the University
We believe that Apollo may have beat the top- and bottom-line
estimates on the back of cost savings resulting from APOL's
University of Phoenix
- Revenues declined 14.6% at the University of Phoenix to $756.5
million due to decline in enrollments. The University reported a
decline of 15.5% in degreed enrollment to 300,800 students in the
second quarter of fiscal 2013. New enrollment (or new degreed
enrollment) at University of Phoenix declined 20.1% from the
prior-year quarter to 38,900.
The decline was due to changing regulatory requirements, robust
competition and a volatile economy. Apollo Group has been
witnessing persistent decline in enrollment due to the weak
macroeconomic environment and subsequent decline in demand for
education (due to the hesitancy over taking a loan) in the U.S.
The company's Associates Degree revenues in the second quarter of
2013 were $187.8 million, down 23.6%; Bachelor's Degree revenues
were $463.5 million, down 10.2%, Master's Degree revenues were
$132.5 million, down 11% and Doctoral Degree revenues were $17.1
million, down 18.2%.
Revenue per student was flat year over year, owing to tuition
pricing increase. In the quarter, higher student discounts and
grants reduced revenues by almost $5 million. In the quarter,
discounts were 7.0% of revenues, lower than the company's
expectation of 10%.
The company reported declines in all operating expenses,
excepting marketing costs during the quarter, driven by the
company's restructuring efforts, including significant layoffs
and campus closings, to turnaround its business.
Instructional and student advisory cost was $383.7 million in
second quarter 2013, down 9.8% year over year due to lower
variable costs associated with low enrollment. As a percentage of
net revenue, this cost grew 180 basis points (bps).
The company incurred marketing expenses of $173.3 million in
second quarter of 2013, up 9.0% year over year. Marketing
expenses rose due to higher advertising expenses resulting from
non-Internet brand building.
Admission advisory expenses declined 32.7% to $68.2 million
compared with the prior-year figure due to lower admission
advisory headcount. As a percentage of net revenue, this cost
declined 240 bps due to the company restructuring efforts.
Apollo's general and administrative (G&A) expenses declined
3.3% to $81.2 million in the second quarter of fiscal 2013 due to
low share-based compensation spending. Bad debt expenses
declined 100 basis points to 2.2% of total revenue in the second
quarter due to lower enrollments in University of Phoenix.
The company maintained its previously provided fiscal 2013 net
revenue guidance in a range of $3.65 to $3.75 billion. Adjusted
operating income is expected in a range of $500.0 to $550.0
million in fiscal 2013. Revenue per student is expected to range
from negative 1% to 2% for the remainder of fiscal 2013 as Apollo
will offer higher discounts this year.
Apollo Group carries a Zacks Rank #4 (Sell).
Education stocks such as
Xueda Education Group
Grand Canyon Education, Inc.
) are currently performing well and are worth considering. Xueda
Education Group carries a Zacks Rank #1 (Strong Buy), whereas
Grand Canyon Education and DeVry both hold a Zacks Rank #2
APOLLO GROUP (APOL): Free Stock Analysis
DEVRY INC (DV): Free Stock Analysis Report
GRAND CANYON ED (LOPE): Free Stock Analysis
XUEDA EDUC-ADR (XUE): Free Stock Analysis
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