After delivering solid results in the first two quarters of
fiscal 2013, DeVry, Inc.'s ( DV ) third-quarter
results were somewhat disappointing. The company beat earnings but
missed on revenues as the improving new enrolment trends seen in
the past two quarters could not be sustained. However, the company
did increase its cost savings target.
DeVry's third-quarter fiscal 2013 adjusted earnings of 90 cents
per share beat the Zacks Consensus Estimate of 83 cents by 8.3%.
Lower operating expenses drove the earnings beat for this
for-profit education company despite the top-line decline.
Earnings, however, declined 10% from the prior-year quarter due to
lower year-over-year revenues. Adjusted earnings exclude charges
for restructuring related to severance and real estate
Revenues and Enrollments
DeVry's quarterly net sales fell 5.9% year over year to $509
million largely due to poor enrollment results at its flagship
DeVry University. Revenues also missed the Zacks Consensus Estimate
of $517 million.
Top-line increase of 15.5% at its growth institutions like
Chamberlain, Ross, Becker and DeVry Brasil was partially offset by
14.5% revenue decline at its transition institutions like DeVry
University, Advanced Academics and Carrington.
The company's total post-secondary enrollments across all its
programs were down 6.7% from the prior-year quarter. DeVry has been
witnessing persistent enrollment declines as a result of overall
economic downturn and lack of student confidence. Further,
modifications made to the business to comply with new regulations
have been hurting enrollment growth. In fact, enrollments have
declined across the entire higher education system in 2012 in the
U.S. New enrollments also declined 6.4% in the quarter, much weaker
than positive growth of 5.6% in the second quarter.
In order to revive enrollment growth, the company is working on
its marketing efforts to build brand awareness; building
relationships with high schools, community colleges, corporations,
and government/military institutions; improving its technology; and
improving affordability through scholarships and pricing. As part
of its turnaround plan, DeVry has also undertaken cost-saving
initiatives like workforce reduction and curbed discretionary
spending in order to combat declining profits and student
enrolments. DeVry is also making targeted investments to drive
future growth like opening new campuses, diversifying into new high
demand education programs and investing in its faculty.
Costs Going Down
Operating costs (excluding restructuring charges) declined 2.7%
year over year to $433.1 million in the third quarter, owing to
DeVry's cost saving initiatives. DeVry also reduced volume related
variable costs due to lower enrollments.
Cost of educational services decreased 1.3% and student services
and administrative expense declined 4.5% in the quarter. While
operating costs declined 9.7% at the transition institutions (due
to cost reduction initiatives), it increased 13% at the growing
Business, Technology and Management segment :
This segment includes operations of the company's largest
subsidiary, DeVry University, which offers both graduate and
undergraduate courses. The segment recorded revenues of $283.5
million, down 16.3% year over year due to a decline in both
undergraduate and graduate enrollments.
The university's graduate course takers declined 18.4% for the
March session. Total undergraduate student enrollments declined
16.5% for the March session. Enrollments continued to be hurt by
cyclical weakness and a continued challenging environment. New
undergraduate student enrollment declined 21.2% for the March
session, which was worse than that for the November and January
sessions. The online course takers (both graduate and
undergraduate) decreased 10.6% for the March session.
Adjusted segment earnings declined 45.2% in the quarter to $35.4
million due to top-line and enrollment declines and resulting
Medical and Healthcare segment : The segment
consists of Ross University Medical and Veterinary Schools,
American University of the Caribbean (AUC), Chamberlain College of
Nursing and Carrington Colleges.
The segment reported revenues of $175.1 million, up 9.1% year
over year driven by solid new enrollment growth in all the
segments. Enrollments for DeVry Medical International, which
includes Ross University and AUC, were not discussed.
Overall, the medical institutions gained from the higher demand
for medical doctors and veterinarians as well as the company's
efforts to boost enrollment, which resulted in better quality
enquiries and improved conversion and retention rates.
Total enrollments increased 17.0% at the Chamberlain College of
Nursing and 8.8% at the Carrington Colleges Group.
New student enrollments increased 17.5% at the Carrington
Colleges Group and 15.9% at the Chamberlain College of Nursing.
Carrington Colleges' new enrollments have shown double-digit
increases in all the quarters of fiscal 2013 after witnessing
declines during the downturn. The impressive enrollment growth at
Carrington Colleges was achieved due to higher quality enquiries
and conversion rates at the college, which resulted from improved
recruitment efforts and new branding initiatives. Importantly,
management does not expect large enrollment growth at Carrington in
the upcoming quarters. Enrollment growth is expected to be positive
but increase only modestly as year-ago comparisons become
The enrollment growth rates discussed above are for the March
term for the Chamberlain College of Nursing and for the 3 months
ending Mar 31 for Carrington Colleges group.
Adjusted segment earnings were $35.7 million, up 37.4% year over
year, driven by revenue growth and cost savings from turnaround
K-12 and Professional Education segment : The
segment includes professional exam review and training operations
of Becker Professional Review, DeVry Brasil and Advanced
The segment recorded revenues of $51.2 million, up 23.3% year
over year largely driven by 60.5% revenue growth at DeVry Brasil.
DeVry Brasil gained from acquisitions made in the recent past.
Total enrollments grew 7.2% and new student starts increased 2.0%
at DeVry Brasil for the March term.
The segment operating income improved 19.0% in the quarter to
$8.6 million driven by significant operating leverage at DeVry
Brasil and Becker.
Fiscal 2013 Outlook
Total operating costs are expected to decline in the range of
1%-2% year over year in fiscal 2013, due to significant cost
management at its transition institutions like DeVry University and
The company is following a strict cost-control routine and is
particularly looking to combat escalating costs at the DeVry
University and Carrington Colleges. Cost controls at these
institutions are expected to result in additional cost savings of
$100 million in fiscal 2013, higher than prior expectations of $80
million. In fact, the cost savings target has now been increased
for three consecutive quarters.
For fourth-quarter 2013, DeVry expects costs to be down year
over year but up sequentially due to increased costs related to new
campus openings. Moreover, costs will decline only modestly in the
transition institutions on a sequential basis.
DeVry carries a Zacks Rank #2 (Buy). Other stocks in the
education industry that are currently performing well and have a
bright outlook include Xueda Education Group ( CEDU ) - Zacks Rank #1
(Strong Buy), ChinaEdu Corporation ( LINC ) - Zacks Rank #2
(Buy) and New Oriental Education & Technology
Group ( EDU
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