Continuing with the momentum of the first quarter,
) second quarter fiscal 2013 adjusted earnings of 87 cents per
share significantly beat the Zacks Consensus Estimate of 57 cents
by 53%. Lower operating expenses and positive new student
enrollment growth drove the earnings beat for this for-profit
education company. Earnings, however, declined 5% from the
prior-year quarter due to lower year-over-year revenue. Adjusted
earnings exclude charges for restructuring and impairment.
Continued progress on its performance improvement plan to
align costs, regain enrollment growth and make growth
investments, has helped the company beat expectations in both the
quarters of fiscal 2013; a turnaround from weak quarterly results
in fiscal 2012.
In order to combat declining profits and student enrolments,
DeVry has undertaken cost-saving initiatives like workforce
reduction and curbed discretionary spending. Additionally, 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; and improving
its technology. 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
DeVry's quarterly net sales fell 3.6% year over year to $505
million due to lower year- over-year enrollment growth. Revenues,
however, beat the Zacks Consensus Estimate of $497 million once
again, attributable to solid new and total student enrollment
growth at its healthcare institutions.
The company's total post secondary enrollments across all its
programs were down 5.4% 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.
However, the company witnessed solid new enrollment growth of
5.6%, largely driven by its healthcare institutions like
Chamberlain College of Nursing and Carrington Colleges.
Operating costs (excluding restructuring charges) declined
1.0% year over year to $430.0 million, owing to DeVry's cost
saving initiatives. DeVry is trying to reduce volume related
costs to better align them with declining enrollments. Cost of
educational services increased 1.0% and student services and
administrative expense declined 3.9% in the quarter.
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 $280.2
million, down 13.9% year over year due to a decline in both
undergraduate and graduate enrollments.
The university's graduate course takers declined 16.0% and
12.1% for the November and January terms, respectively. Total
undergraduate student enrollments declined 17.6% for the November
session and 14.9% for the January session. Enrollments continued
to be hurt by cyclical weakness in addition to adjustments
following workforce reductions, and Hurricane Sandy. New
undergraduate student enrollment declined 15.5% for the November
session, which encouragingly narrowed to a much lower shortfall
of 4.7% for the January session. The online course takers
decreased 11.7% in the November session and 9.9% in the January
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 $167.7 million, up 9.3% year
over year driven by solid new enrollment growth in all the
segments. DeVry Medical International includes Ross University
Overall the medical institutions gained from the higher demand
as well as company's efforts to boost enrollment, which resulted
in better quality enquiries and improved conversion and retention
Total enrollments increased 26.0% at the Chamberlain College
of Nursing, 4.9% at DeVry Medical International, and 0.4% at the
Carrington Colleges Group. Importantly, Carrington Colleges total
enrollments returned to positive growth after witnessing declines
during the downturn; in line with management's expectations. The
impressive enrollment growth at Carrington Colleges was achieved
due to solid progress in the company's turnaround performance
improvement plan. Management expects Carrington to continue to
achieve positive new enrollment growth in the second half of the
New student enrollments increased 0.3% at DeVry Medical
International, 12.7% at the Carrington Colleges Group and 87.8%
at the Chamberlain College of Nursing.
The enrollment growth rates discussed above are for January
term for the Chamberlain College of Nursing and DeVry Medical
International and for the 3 months ending Dec 30 for Carrington
K-12 and Professional Education segment
: The segment includes professional exam review and training
operations of Becker Professional Review, DeVry Brasil and
The segment recorded revenues of $57.3 million, up 27.4% year
over year driven by 69% revenue growth at DeVry Brasil and 6%
growth at Becker. Both DeVry Brasil and Becker gained from
acquisitions made in the recent past.
Fiscal 2012 was a tough year for DeVry. However, the company
looks forward to attractive earnings growth in the period
2014-2016 and considers 2013 as a transition period.
Total operating costs are expected to decline year over year
in fiscal 2013, better than prior expectations of an increase,
due to significant cost management at its transition institutions
like DeVry University and Carrington Colleges.
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 DeVry
University and Carrington are expected to result in additional
cost savings of $80 million in fiscal 2013, higher than prior
expectations of $60 million.
Third Quarter Outlook
For the third quarter 2013, DeVry expects costs to be higher
sequentially by about 3%-4% due to increased costs related to new
campus openings and realization of deferred expenses like
advertising from the first half.
DeVry carries a Zacks Rank #4 (Sell). We, however, cannot rule
out a rank upgrade in the near future, following the company's
solid results this quarter. Another education company that beat
Zacks Consensus expectations for both earnings and revenues this
Apollo Group, Inc.
). Apollo reported in mid Jan 2013.
Other stocks in the education industry that are currently
performing well and have a bright outlook include American Public
Education, Inc. (
) - Zacks Rank #1 (Strong Buy), and
Grand Canyon Education, Inc.
) - Zacks Rank #2 (Buy).
AMER PUB EDUCAT (APEI): Free Stock Analysis
APOLLO GROUP (APOL): Free Stock Analysis
DEVRY INC (DV): Free Stock Analysis Report
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