Capella Education Company
) fourth quarter 2012 earnings of 73 cents a share missed the
Zacks Consensus Estimate by a penny as well as were down 16.4%
from the year-ago quarter due to year-over-year decline in
revenues and margins. Better-than-anticipated new enrollment
growth could not offset the downward drift in earnings.
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Revenues and Enrollments in Detail
Quarterly revenues of $107.0 million went past the Zacks
Consensus Estimate of $106.0 million by 0.9%. However, revenues
slipped 2.7% from the year-ago levels. The top-line decline was
much narrower than management's expectation of a 3.5% to 4.5%
decline. Revenues benefited from positive new enrollment growth.
Total active enrollment dropped 3.6% from the prior-year quarter
to 36,329 students, lower than management's guidance of a drop in
the range of 4.0% and 5.0% due to new enrollment growth. New
enrollment grew 0.6% year over year despite tough market
conditions, driven by improving demand for Bachelor's and
Master's. However, new enrollment growth was slightly better than
management's expectation of flattish growth.
Total enrollments declined 5.1% for Ph.D./doctoral degrees and
8.5% for the Master's programs. Total enrollments for the
Bachelor's programs grew 3.7% resulting in the third consecutive
quarter of increase. However, the Other segment jumped 66.4% year
Costs and Margins
Instructional cost of services increased to $49.4 million in the
fourth quarter of 2012, up 7.2% year over year primarily due to
increased bad debt expense and increased investment in technology
and depreciation. Marketing and promotional costs decreased 5.1%
year over year to $24.3 million due to alignment of the cost
structures with the marketing strategies.
Operating income came down 20.1% to $15.1 million, whereas
operating margin contracted 310 basis points to 14.1% due to
higher bad debt expenses. Operating margin was in line with
management's expected range of 13.5% to 14.5%.
Capella Education Company reported full year 2012 earnings of
$2.76 a share, lagging the Zacks Consensus Estimate of $2.81.
Earnings were also down 18.8% from the year-ago earnings of $3.40
due to year-over-year decline in revenues and margins.
Revenues of $421.9 million slipped 1.9% from the year-ago levels
due to a 4.1% decline in average quarterly total enrollment.
First Quarter 2013 Outlook
The company expects new enrollment for Capella University to rise
5%. Masters and Bachelors new enrollment is expected to perform
well, whereas new enrollment of doctoral programs is expected to
remain weak in the first quarter of 2013. Total enrollment is
expected to decline 3% to 4% from the prior-year quarter, which
is expected to result in 4.5% to 5.5% decline in total revenue.
Revenue per student is expected to decline 2% due to grants and
change in mix.
Operating margin is expected to be in the range of 12.0% to
13.0%, down from 16.4% in the prior-year quarter due to decline
in total enrollments.
Sluggish macroeconomic conditions and low employment levels have
been taking a toll on private education companies by adversely
effecting enrollment. In order to improve overall enrollment
growth and increase efficiencies, Capella Education is moving
away from a direct marketing aggregator channel to a brand-driven
marketing strategy to build greater awareness and preference for
Capella. The company is also working to build brand awareness for
its university through mass media, social media and strategic
relationships with employers.
Most companies are working toward increasing the value of the
programs and thus increasing employability of the students. For
Universal Technical Institute
), a leading provider of post secondary education in the fields
of professional automotive, diesel, collision repair, motorcycle
and marine, recently announced Chapparal Honda L&Mc Racing as
part of its 2013 MMI Supercross Intern Program, under its
Motorcycle Mechanics Institute.
Capella Education Company carries a Zacks Rank #4 (Sell).
However, some other companies in the sector that warrant a look
Grand Canyon Education, Inc.
), both of which carry a Zacks Rank #2 (Buy).