ITT Educational Services, Inc.
) second quarter 2012 earnings of $1.96 per share missed the Zacks
Consensus Estimate of $2.16 by 9.4%. The earnings for the quarter
also dropped 31.2% year over year due to lower revenue.
Quarterly revenue totaled $330 million, down 15.0% from prior-year
quarter due to weak enrollments. The total revenue also missed the
Zacks Consensus Estimate of $339 million.
Quarter in Detail
The company witnessed a 15.7% year-over-year decline in total
enrollment to 66,397 students. The overall decline in enrollment
mainly resulted from a 9.5% drop in new enrollment to 15,698
students, largely in the criminal justice and drafting/design
programs. New student enrollment witnessed a decline of 85% in
School of Criminal Justice and a 40% fall in the School of Drafting
Of late, most of the education companies have been crippled by poor
new enrollment growth. The company's closest competitors,
Apollo Group Inc.
), reported a decline in third-quarter enrollments at the
University of Phoenix -- the company's wholly owned subsidiary --
which pulled down its total revenues for the quarter.
However, ITT Educational's revenue per student grew 0.5% from the
prior-year quarter to $4,637 benefiting from enrollment increases
in the electronics technology, business and healthcare-related
programs in a number of institutes.
Student persistence rates declined 180 basis points to 71.3% in
the quarter since the number of continuing students in the quarter
also dipped 17.4%. Student persistence is calculated by dividing
the number of continuing students in any academic term by total
student enrollment in the preceding academic term.
During the quarter, ITT Educational witnessed a 2.9% decrease in
advertising expenditures as management focused on improving
efficiencies in the student enrollment processes by reducing
expenses. Bad debt expense increased 130 basis points to 5.2% as a
percentage of revenue due to a decline in funds available to
students from private educational loan programs and increase in
internal financing of the students.
The company continues to expand geographically and plans to start a
new campus by the end of 2012. During the second quarter of 2012,
the company started operations at the new ITT technical campus at
San Antonio, Texas. The company intends to open 8 to 10 new
locations during 2013.
In the quarter, share repurchase activity was aggressive with the
company repurchasing $928.5 million shares at a total cost of $61.3
million. The company has 7.8 million shares remaining under its
current repurchase authorization.
The company is optimistic that the enrollment trends would be
positive during the second half of the fiscal 2012.
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ITT EDUCATIONAL (ESI): Free Stock Analysis
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We currently have a Neutral recommendation on ITT Educational
Services, Inc. The stock carries a Zacks #3 Rank (a short-term Hold
Overall, we appreciate ITT Educational's focus on regional campus
expansion, program diversification, and the introduction of new
degree programs. However, the persistent declines in enrollment
trends remain matters of concern.