) fourth-quarter fiscal 2013 results were mixed. The company beat
earnings but delivered in-line revenues as the flagship DeVry
University continues to struggle. Moreover, management expects
weak enrollment trends and revenue decline at DeVry University to
outweigh further cost savings and growth in other institutions in
fiscal 2014 as well.
DeVry'sfourth-quarter fiscal 2013 adjusted earnings of 54
cents per share beat the Zacks Consensus Estimate of 41 cents by
31.7%. Lower operating expenses drove the earnings beat for this
for-profit education company despite the soft revenues. Earnings
also improved 3.8% from the prior-year quarter.
Adjusted earnings exclude charges for asset impairment and
restructuring (related to workforce reduction and real estate
consolidations) and a gain from the sale of assets.
Revenues and Enrollments
DeVry's quarterly net sales fell 4.4% year over year to $480
million as the relatively strong growth in the healthcare and
international businesses was offset by continued revenue decline
at the flagship DeVry University which accounts for half of the
company revenues. Revenues were in line with the Zacks Consensus
Estimate of $480 million.
Top-line increase of 18.0% at its growth institutions like
Chamberlain, Ross, Becker and DeVry Brasil was partially offset
by 15.0% decline in revenues at its transition institutions like
DeVry University and Carrington.
The company's total post-secondary enrollments across all its
programs were down 6.0% from the prior-year quarter. DeVry has
been witnessing persistent enrollment declines, mainly at its
flagship DeVry University, as a result of overall economic
downturn and lack of student confidence which has reduced demand.
In fact, enrollments have declined across the entire higher
education system in 2012 in the U.S.
Costs Going Down
Operating costs (excluding restructuring charges) declined
3.7% year over year to $438.0 million in the fourth quarter,
owing to DeVry's cost saving initiatives. DeVry also reduced
volume related variable costs due to lower enrollments.
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 $248.3
million, down 17.7% year over year due to a decline in both
undergraduate and graduate enrollments.
Total undergraduate student enrollments declined 18.7% for the
May session and 16.1% for the July session. Enrollments continued
to be hurt by cyclical weakness and a continued challenging
environment. New undergraduate student enrollment declined 19.4%
and 24.7% for the May and July sessions, respectively. The
university's graduate course takers declined 17.1% for the May
session and 18.0% for the July session. The online course takers
(both graduate and undergraduate) decreased 17.3% for the May
session and 2.2% for the July session.
The segment is expected to continue to struggle in fiscal
2014. New student enrollments for the September session are
expected to be better than July, though still down in the
In order to revive enrollment growth at DeVry University, 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 increase
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
The segment reported adjusted segment loss of $0.9 million in
the quarter, much narrower than a gain of $22.2 million in the
prior-year quarter. Top-line and enrollment declines and
resulting margin compression have led to the disappointing
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 $171.0 million, up 13.9% year
over year driven by growing demand for medical doctors and
Total enrollments increased 24.4% and 16.5% at the Chamberlain
College of Nursing for the May and July sessions, respectively.
They increased 9.6% at the Carrington Colleges Group for the
three months ended Jun 30, and declined 19.4% at DeVry Medical
International (which includes Ross University and AUC) for the
New student enrollments (online only) increased 42.1% and 5.9%
at the Chamberlain College of Nursing for the May and July
session, respectively. However, new enrollments declined 1.5% at
the Carrington Colleges for the three months ended Jun 30, and
2.4% at DeVry Medical for the May term.
As expected by management, Carrington Colleges' new
enrollments slowed down from the double-digit increases seen in
all the quarters of fiscal 2013 as the company has suspended
recruitment for some non-core programs as part of its turnaround
efforts. At Chamberlain, continued strong demand and new campus
openings drove the strong enrollment growth. Enrollments fell at
DeVry Medical because of an operational issue which has been
solved and enrollments are expected to pick up in the September
Adjusted segment earnings were $28.2 million, up 97.6% year
over year, driven by growing profits at Chamberlain and DeVry
Medical and narrowing loss at Carrington.
International and Professional Education segment
: The segment includes professional exam review and training
operations of Becker Professional Review and DeVry Brasil. DeVry
has decided to divest its underperforming Advanced Academics
business which was reclassified into discontinued operations in
The segment recorded revenues of $60.7 million, up 21.6% year
over year, largely driven by top-line growth at both DeVry Brasil
and Becker. DeVry Brasil grew 55% in the quarter, gaining from
acquisitions made in the recent past. Becker Professional
Education's revenues increased 4% in the quarter driven primarily
by the addition of Falcon.
The segment operating income improved 25.9% in the quarter to
$17.7 million driven by significant operating leverage at DeVry
Brasil and Becker.
In fiscal 2013, the company witnessed a 5.2% decline in
revenues to $1.96 billion, slightly missing the Zacks Consensus
Estimate of $1.98 billion. Adjusted earnings (excluding one-time
items) were $2.86 per share, down 14.6% from the prior year. The
company achieved more than $100 million in cost savings, beating
Fiscal 2014 Outlook
In fiscal 2014, revenues are expected to decline year over
year as revenue shortfall at DeVry University is expected to
offset growth at all other institutions.
The company is following a strict cost-control routine and is
particularly looking to combat escalating costs at the DeVry
University and Carrington Colleges. Management expects costs at
the transition institutions to decrease by a further $60 million
from fiscal 2013 levels. However, overall costs are expected to
be flat in fiscal 2014 (from 2013 levels) as cost savings at the
transition institutions are expected to be offset by cost
increases at the growing institutions.
DeVry carries a Zacks Rank #3 (Hold). Other stocks in the
education industry that are currently performing well include
Capella Education Co.
Grand Canyon Education, Inc.
TAL Education Group
). While Capella carries a Zacks Rank #1 (Strong Buy), the other
two stocks hold a Zacks Rank #2 (Buy).
CAPELLA EDUCATN (CPLA): Free Stock Analysis
DEVRY INC (DV): Free Stock Analysis Report
GRAND CANYON ED (LOPE): Free Stock Analysis
TAL EDUCATN-ADR (XRS): Free Stock Analysis
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