Capella Education Company ( CPLA )
reported second quarter 2012 earnings of 85 cents a share,
surpassing the Zacks Consensus Estimate of 64 cents. Better than
expected revenues boosted earnings. However, the second quarter
earnings were down 14% from the year-ago quarter due to decline in
top-line and margin.
CAPELLA EDUCATN (CPLA): Free Stock Analysis
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Revenue in Detail
Quarterly revenues of $106.2 million exceeded the Zacks Consensus
Estimate of $105.0 million. Revenue fell a marginal 0.2% from the
year-ago levels. The top-line decline was lower than management's
expectation of a dip in the range of 1% to 2%. Revenues benefited
from the lower than expected decline in active enrollment coupled
with stronger-than-expected growth in enrollment and improved
Total active enrollment dropped 4.6% over the prior-year quarter
to 36,336 students, lower than management's guidance of a drop in
the range of 6%-7%. New enrollment declined 6.0% year over year due
to tough market conditions. Management had expected new enrollments
to decline in high single digits for the second quarter of
Total enrollments declined 2.8% for Ph.D./doctoral degrees, 11.7%
for the Master's programs and grew 3.0% for the Bachelor's
programs. The Other segment, however, grew 164.3% year over year
driven by an increased emphasis on certificate programs.
Costs and Margins
Instructional cost of services increased to $45 million in the
second quarter of 2012, up 6% year over year primarily due to the
company's strategic initiatives and increased impairment and
depreciation charges. General and administrative expenses also
increased to $10.4 million, up 13% year over year, spurred by
higher bad debt expenses.
Adjusted operating income came down to $18.1 million from $23.9
million a year ago, whereas operating margin contracted 550 basis
points to 17%, due to higher brand-building related marketing
Other Financial Details
Capella ended the quarter with cash, cash equivalents, and
marketable securities of $123.7 versus $128.5 million at the end of
the previous quarter.
During the quarter, the company repurchased 0.39 million shares,
for a cost of $12.5 million and has $34.2 million at its disposal
under the current share repurchase authorization.
Management expects a 3.5%-4.5% year-on-year decline in revenues
for the third quarter of 2012.Total enrollment is expected to
decline between 3.5% and 4.5%, while new enrollments are expected
to remain flat or grow slightly in the third quarter of 2012, due
to an improving employment market.
For the third quarter of 2012, Capella expects operating margin to
be in the range of 5% to 6%. The expected operating margin is down
from 14.5% in the prior-year quarter due to revenue decline and
higher investments in diversification, marketing and students
outcome. The operating margins for fiscal 2012 are expected to be
about 14% to 15%. Fiscal 2012 marketing expenses are expected to be
lower than the 2011 level.
The stock carries a Zacks #3 Rank (a short-term 'Hold'
Despite challenging market conditions the company's second quarter
2012 results remain encouraging. We are encouraged by
management's expectations of witnessing increased enrollments in
the second quarter.