Apollo's 3Q Earnings Beat, Revs Miss - Analyst Blog

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Apollo Group Inc. ( APOL ) reported adjusted earnings (excluding special items) of $1.05 per share in the third quarter of fiscal 2013, surpassing the Zacks Consensus Estimate of 85 cents by 98.8%. However, lower revenues due to weak enrollment resulted in an 11.0% decline from the year-ago quarter earnings of $1.18 per share.  

Apollo Group reported net revenue of $946.8 million in the third quarter of fiscal 2013, falling short of the Zacks Consensus Estimate of $963 million by 1.7%. Revenues declined 15.6% from the prior-year quarter due to decline in enrollment at the University of Phoenix.

We believe that Apollo may have beaten the bottom line estimate on the back of cost savings resulting from its restructuring efforts.   


Its subsidiary, University of Phoenix , offers bachelor's, master's and doctoral programs in the U.S., the District of Columbia and Puerto Rico. It also offers online programs to students across the globe. The University has been accredited by The Higher Learning Commission of the North Central Association of Colleges and Schools and also holds other programmatic accreditations.  

Revenues declined 16.3% at the University of Phoenix to $846.5 million in the third quarter 2013 due to decline in enrollments and increase in discounts and grants. The University reported a decline of 17.0% in degreed enrollment to 287,500 students in third quarter 2013. New enrollment (or new degreed enrollment) at University of Phoenix declined 24.5% from the prior-year quarter to 38,900 in third quarter 2013. 

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.  

During third quarter 2013, the company's Associates Degree revenues were $205.2 million, (down 23.9%) Bachelor's Degree revenues were $529.9 million (down 11.8%), Master's Degree revenues were $152.9 million (down 10.1%) and Doctoral Degree revenues were $19.8 million (down 15.0%).

Apollo Global reported net revenue of $87.4 million in third quarter 2013, down 1.1% year over year.

The Other Schools segment includes revenues from Institute for Professional Development (IPD) and The College for Financial Planning Institutes Corporation (CFFP). The segment reported revenues of $12.9 million in the third quarter of 2013, down 41.9% year over year, due to decline in revenues at IPD.

On a reported basis, operating income declined 40.4% to $132.0 million in the third quarter of 2013. Operating margin declined 580 basis points to 13.9% in the quarter. Adjusted operating margin declined 720 basis points to 21%. Instructional and student advisory cost was $393.4 million in third quarter 2013, down 15.6% year over year. Costs declined as a result of lower enrollments.

The company incurred marketing expenses of $156.9 million in the third quarter of 2013, down 1.1% year over year, due to decline in advertising expenses. However, as a percentage of revenues, marketing expenses increased 250 basis points.

The company reported declines in all operating expenses during the quarter, driven by lower enrollment and the company's restructuring efforts to turn around its business, including significant layoffs and campus closings. However, as a percentage of revenues, expenses increased due to drastic decline in revenue.

Outlook

The company tightened its previously provided fiscal 2013 net revenue guidance to a range of $3.65 - $3.70 billion versus $3.65 to $3.75 billion guided previously. Adjusted operating income for 2013 is expected in the range of $525 - $550 million compared with the earlier guided range of $500.0 to $550.0. The company has also increased its savings target to at least $400 million through 2014, of which $300 million is expected to be realized in fiscal 2013.

Apollo Group carries a Zacks Rank #3 (Hold).

Education stocks such as ATA, Inc. ( ATAI ), New Oriental Education & Technology Group ( EDU ) and Grand Canyon Education, Inc. ( LOPE ) are currently performing well and are worth considering. ATA carries a Zacks Rank #1 (Strong Buy), whereas New Oriental Education & Technology Group and Grand Canyon Education hold a Zacks Rank #2 (Buy).



APOLLO GROUP (APOL): Free Stock Analysis Report

ATA INC-ADR (ATAI): Free Stock Analysis Report

NEW ORIENTAL ED (EDU): Free Stock Analysis Report

GRAND CANYON ED (LOPE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: APOL , ATAI , EDU , IPD , LOPE

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