For-profit education company,
) recently announced a disappointing financial outlook for the
fourth quarter of 2012. The company also plans to cut 570 jobs.
Shares of this provider of diversified academic programs in the
fields of business, healthcare and technology plummeted on the
DeVry expects fourth quarter revenues to lie between $500
million and 510 million, representing both a year-over-year and
sequential decline at the mid-point. Preliminary revenues are also
below the Zacks Consensus expectation of $515 million. Operating
costs are expected to be in the range of $465 million to $475
Earnings are expected in the range of 43 cents to 46 cents, well
below the Zacks Consensus Estimate of 79 cents. Management cited
lower enrollments, higher scholarships at its largest subsidiary,
DeVry University, and higher-than-expected revenue decline in the
Advanced Academics segment as the reasons behind the revenue
Falling enrollments and higher-than-anticipated operating costs
led to the earnings miss. The company announced yet another
workforce reduction of 570 positions in response to continued
Student enrollments continue to fall due to persistent
unemployment, overall economic downturn and subsequent decline in
student demand (due to hesitancy to take on debt). Management
announced that new enrollments at DeVry University for the summer
term will decline 15% to 17% year over year.
However, the decline in new enrollment will moderate from the
20% drop witnessed during the spring term. Similarly, the
Carrington Colleges group is expected to see a 9% to 21% decline in
new summer enrollments, at least better than the 31% decline in the
In order to combat declining profits and student enrollment,
DeVry has undertaken a number of steps. The company is following a
strict cost control routine and is particularly looking to cut
costs at the DeVry University and Carrington Colleges. The company
has reduced its workforce, cut down on discretionary spending, and
has pursued many other short-term and long-term cost-saving
initiatives to align costs with student enrollments.
DeVry expects these initiatives to bring an additional $50
million in cost savings in fiscal 2013. In fact, operating costs at
the DeVry University and Carrington Colleges are expected to be
down in the first quarter of fiscal 2013, both on a year-over-year
and sequential basis. Costs are anticipated to be down for the full
year as well.
We currently have a Neutral recommendation on DeVry. The stock
carries a Zacks #3 Rank (a short-term Hold rating) near term.
We are disappointed with DeVry's fourth quarter preliminary
results. However, the company is, besides cost control, working on
brand building, driving long-term growth through strategic
acquisitions and diversifying into in-demand education programs.
Despite these efforts, we prefer to stay on the sidelines until we
witness significant enrollment recovery, a tall task for most
DEVRY INC (DV): Free Stock Analysis Report
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