) first-quarter fiscal 2014 adjusted earnings of 22 cents per
share missed the Zacks Consensus Estimate of 23 cents by a penny.
Earnings also declined 57.7% from the prior-year quarter.
Slightly higher operating expenses led to the earnings decline
for this for-profit education company which offset the mild
top-line improvement in the quarter.
Adjusted earnings exclude restructuring charges (related to
workforce reduction and real estate optimization), gain from the
sale of assets and an impairment charge related to Advanced
Revenues and Enrollments
DeVry's quarterly net sales fell 6.0% year over year to $450.9
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's revenues. Revenues, however, beat the Zacks Consensus
Estimate of $446 million. We believe that the new student
enrollment improvement at DeVry University led to the better
revenues in the quarter.
Top-line improvement of 15.0% at its growth institutions like
Chamberlain, Ross, Becker and DeVry Brasil was partially offset
by 16.0% 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 4.4% 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
Costs Were Flat
Operating costs (excluding restructuring charges) were flat
year over year at $431.0 million in the first quarter. Cost
savings at transition institutions were overshadowed by increases
at growing institutions. While operating costs declined 7.0% at
the transition institutions (due to cost reduction initiatives),
they increased 17% at the growing institutions. Management had
anticipated higher costs in first-quarter 2014 at the
fourth-quarter 2013 conference call.
Cost of educational services increased almost 1%, driven by
the impact of the Facid acquisition (Jul 2013) and higher costs
to support enrollment growth at DeVry Medical International and
Chamberlain College of Nursing. Student services and
administrative expenses declined 1.0% in the quarter.
Business, Technology and Management
: This segment includes operations of the company's largest
subsidiary, DeVry University, which offers both graduate and
undergraduate courses. The segment recorded revenues of $232.3
million, down 18.4% year over year due to decline in both
undergraduate and graduate enrollments.
For the September session, total undergraduate student
enrollments, graduate course takers and online course takers
(both graduate and undergraduate) declined 16.1%, 18.8% and
Encouragingly, however, new undergraduate student enrollment
improved 0.1% for the September session, much better than
management's expectation of a decline in the mid-teens range. The
September starts were also much better than declines of 19.4% and
24.7% for the May and July sessions, respectively.
New scholarship programs and other operational initiatives
(like a tuition freeze for 2013-2014, strategic use of
scholarships) improved enrollment trends. Moreover, DeVry
University introduced a Career Catalyst scholarship of up to
$20,000 for eligible students enrolling for the September session
which also aided enrollments.
However, management expects the segment to continue to
struggle for the next few quarters as the operating environment
remains challenging. In fact, new enrollments are expected to
decline once again in the November session due to business
disruption related to a government shutdown in October.
The segment reported adjusted segment loss of $0.5 million in
the quarter, significantly lower than a gain of $25.6 million in
the prior-year quarter. Top-line and enrollment declines and
higher advertising expenses have led to the disappointing
results. The segment is expected to return to profitability in
the second quarter. In fiscal 2014, margins in the segment are
expected to be in the mid single-digit range.
Medical and Healthcare
: 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 $175.9 million, up 11.0% year
over year driven by growing demand for medical doctors and
Total enrollments increased 30.0% at the Chamberlain College
of Nursing for the September session. They increased 1.0% at the
Carrington Colleges Group for the three months ended Sep 30, 2013
and 4% at DeVry Medical International (which includes Ross
University and AUC) for the September term.
New student enrollments (online only) increased 47.4% at the
Chamberlain College of Nursing for the September session.
However, new enrollments declined 19.5% at the Carrington
Colleges for the three months ended Sep 30, 2013, but improved
5.7% at DeVry Medical for the September term.
Carrington Colleges' new enrollments have slowed down in the
past two quarters from the double-digit increases seen in the
first three quarters of fiscal 2013 as the company has suspended
recruitment for some non-core programs as part of its turnaround
efforts. Moreover, in the first quarter, the company had one less
session start compared to the year ago quarter which hurt
The segment operating income improved 4.2% in the quarter to
International and Professional Education
: The segment includes professional exam review and training
operations of Becker Professional Review and DeVry Brasil.
The segment recorded revenues of $43.7 million, up 18.3% year
over year, largely driven by top-line growth at both DeVry Brasil
and Becker. DeVry Brasil grew 36% in the quarter, gaining from
the recent acquisitions. Total enrollments grew 11.4% at DeVry
Brasil, while student starts declined 9.4%. Becker Professional
Education's revenues increased 3% year over year in the quarter
driven primarily by the addition of Falcon.
The segment operating income declined 67.8% to $1.1 billion
due to investments related to expansion and growth.
DeVry ended the quarter with cash and cash equivalents of
$311.6 million, up from $199.6 million at the end of the fourth
quarter of fiscal 2013. The company has no debt. The company
generated an operating cash flow of $140.0 million in the
Fiscal 2014 Outlook
Total scholarships for the company are expected to increase
30% in fiscal 2014 which though expected to boost enrollments,
will pressurize revenue per student. Carrington's revenues will
grow in the low single-digit range year over year while expenses
are expected to decline in the mid single-digit percentage range.
Accordingly, Carrington should deliver positive operating income
in fiscal 2014.
The company is following a strict cost-control routine and is
particularly looking to combat escalating costs at DeVry
University and Carrington Colleges. Management expects costs at
the transition institutions to decrease by a further $60 million
from fiscal 2013 levels.
The effective income tax rate from operations for fiscal 2014
is expected to be in the 15%-17% range (prior expectation was
13%-16%) in fiscal 2014.
Second-Quarter 2014 Outlook
Revenues are expected to grow at all institutions except DeVry
University in the second quarter. While total operating costs are
expected to increase slightly year over year, they will decline
on a sequential basis.
Other Stocks to Consider
DeVry carries a Zacks Rank #1 (Strong Buy). Some other schools
that are doing well and can be considered include
Xueda Education Group.
New Oriental Education & Technology Group
TAL Education Group
). While Xueda and New Oriental carry a Zacks Rank #1, TAL
Education carries a Zacks Rank #2 (Buy).
DEVRY INC (DV): Free Stock Analysis Report
NEW ORIENTAL ED (EDU): Free Stock Analysis
TAL EDUCATN-ADR (XRS): Free Stock Analysis
XUEDA EDUC-ADR (XUE): Free Stock Analysis
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