Capella Education Company
) witnessed a 13.5% rise in its share prices as the company beat
both top and bottom-line estimates in the second quarter of 2014 on
the back of better-than-expected increase in new enrollment. This
education company has also projected a positive outlook for the
third quarter of 2014.
Capella Education Company - Earnings Surprise |
Capella's second-quarter 2014 earnings of 86 cents a share
surpassed the Zacks Consensus Estimate of 84 cents by 2.4%.
Earnings increased 3.6% year over year owing to an increase in
Revenues and Enrollments in Detail
Capella's quarterly revenues of $104.8 million beat the Zacks
Consensus Estimate of $104 million by 0.8%. Revenues inched up 1.1%
from the year-ago level as a 2.9% increase in tuition fee in Jul
2013 and double-digit improvement in student starts were partially
offset by unfavorable degree mix and softer total enrollment.
However, revenue exceeded the company's expectation of flat to up
Total active enrollment of 35,791 dropped 0.6% from the prior-year
quarter, which was slightly better than Capella's anticipation of
1.0% to 2.0% decline. During the second quarter of 2014, the
company reported positive total enrollment growth in master's
degree programs, especially driven by new enrollment of heath care
and business related programs.
The company also witnessed a 4% improvement in early cohort
persistence. Capella continues to expect doctoral programs to be
the last to achieve total enrollment growth as the duration of
these programs are the longest.
New enrollments rose 11.1% year over year due to new enrollments in
heath care and business related programs during the quarter. New
enrollments were well above Capella's expectation of mid-single
Costs and Margins
Operating income went up 4.0% year over year to $18.2 million.
Operating margin increased 50 basis points (bps) to 17.3%, which is
toward the higher end of the expected range of 16.5% to 17.5%.
Instructional cost of services of $45.5 million in the second
quarter of 2014 increased 1.3% year over year. As a percentage of
revenue, bad debt expense of 3.2% declined 10 basis points
sequentially and remained flat with the prior-year quarter
Third Quarter 2014 Outlook
Capella provided a positive outlook for the upcoming quarter. Total
enrollment is expected to rebound in the third quarter and
estimated to increase 1% to 2% on the back of an increase in new
enrollment increase and persistence rate. For the third quarter of
2014, the company expects new enrollments to increase at the same
growth rate as the second quarter of 2014.
Revenues are expected to increase 1.0% to 2.0% year over year in
the quarter on the back of solid new enrollments and average
tuition increase. The company intends to increase average tuition
fee by 2.5% from Jul 2014. Operating margin is expected in the
range of 10.5% to 11.5% for the third quarter compared with 10.4%
in the prior-year quarter.
The company expects positive growth rates in new enrollment, total
enrollment and revenue in 2014. Operating margin is expected to be
Capella Education currently carries a Zacks Rank #2 (Buy).
Two other education companies to report in this week are Strayer
Education Inc. (
) and Grand Canyon Education, Inc. (
). The Zacks Consensus Estimate for Strayer Education' and Grand
Canyon Education's earnings stand at $1.25 and 45 cents
DeVry Education Group Inc. (
) is a better-ranked stock in the education industry with a Zacks
Rank #1 (Strong Buy).
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