Capella Education Company
) first quarter 2013 earnings of 70 cents a share surpassed the
Zacks Consensus Estimate of 62 cents by 12.9% on the back of
better-than-expected new enrollment growth. However, earnings
declined 14.6% from the year-ago quarter due to year-over-year
decreases in revenues and margins. Better-than-anticipated new
enrollment growth, however, could not offset the year-over-year
downward drift in earnings.
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Revenues and Enrollments in Detail
Quarterly revenues of $105.2 million went past the Zacks
Consensus Estimate of $104.0 million by 1.2%. However, revenues
slipped 3.8% from the year-ago levels due to total enrollment
decline. The top-line decline was however much narrower than
management's expectation of a 4.5% to 5.5% decline. Revenues
benefited from positive new enrollment growth.
Total active enrollment dropped 3.1% from the prior-year quarter
to 36,405 students, near the lower end of management's guidance
of a drop in the range of 3.0% and 4.0%. New enrollments grew
8.2% year over year, far exceeding management's expectation of a
5% increase. Enrollments benefited from high-single digit
increase in bachelor degree enrollment, better-than-expected
performance in Master's degree enrollment and stabilizing demand
for doctoral programs.
Total enrollments declined 5.7% for Ph.D./doctoral degrees and
7.2% for the Master's programs. Total enrollments for the
Bachelor's programs grew 6.2%, resulting in the fourth
consecutive quarter of increase. The Other segment jumped 27.9%
year over year.
Costs and Margins
Instructional cost of services decreased to $47.0 million in the
first quarter of 2013, down 2.9% year over year. However, as a
percentage of revenues, instructional cost of services increased
primarily due to higher bad debt expense and increased investment
in diversification initiatives and cohort retention efforts.
Operating income came down 15.1% to $15.2 million, whereas
operating margin contracted 200 basis points to 14.4% due to
higher bad debt expenses. However, operating margin exceeded
management's expected range of 12.0% to 13.0% on the back of
better-than-expected revenue performance and cost control
Outlook for 2Q13
For the second quarter of 2013, the company expects new
enrollments to remain flat sequentially. Total enrollment is
expected to dip 2% to 3% in the quarter. Revenues are expected to
decline in the range of 3% to 4% in the second quarter of 2013.
Operating margin is expected in the range of 13% to 14% for both
the second quarter 2013 and fiscal 2013.
Overall, we believe that Capella's brand-driven marketing
strategy as well as initiatives to improve learner success rates
bode well for the company's long-term growth. We are optimistic
about the company's steady increase in new enrollments. However,
the company is likely to take some time before posting positive
Capella Education Company currently carries a Zacks Rank #4
(Sell). Interestingly another education company,
Apollo Group, Inc.
) surpassed the top- and bottom-line estimates when it reported
its results for the second quarter of fiscal 2013 on Mar 25. We
believe that Apollo may have beaten the top- and bottom-line
estimates on the back of cost savings resulting from its
Education stocks such as
Xueda Education Group
) are currently performing well and are worth considering. Xueda
Education Group carries a Zacks Rank #1 (Strong Buy), whereas
DeVry holds a Zacks Rank #2 (Buy).