Strayer Education, Inc.
) third-quarter 2013 results were mixed, beating the Zacks
Consensus Estimate for earnings while meeting the same for
revenues. However, what caught the investors' eye was a bold
restructuring plan - including job cuts and site closures - and
an aggressive cut in tuition fees. The news negatively impacted
the share price of this for-profit education company.
Third-quarter earnings of 30 cents per share beat the Zacks
Consensus Estimate of 5 cents due to lower share count. However,
earnings declined 17% year over year due to weak top-line
performance and sluggish margins.
Total revenue in the quarter fell 11% from the comparable
prior-year quarter to $110 million due to continued weak
enrollment trends. Total revenue was in line with the Zacks
Consensus Estimate of $110 million.
StrayerUniversity's total enrollment declined 17% to 43,192
students for the fall term due to decline in both continuing
student enrollments and new student enrollment. Continuing
student enrollments went down 12% while new enrollments declined
23%. Apart from a difficult industry environment, enrollments
this quarter were hurt by government shutdown. Strayer has been
witnessing weak enrollment trends due to continued unemployment,
overall economic downturn and subsequent decline in student
demand. Total enrolments are expected to decline in double digits
in fiscal 2014.
According to management, the weakness in the unaffiliated
undergraduate segment is the primary factor behind the declining
enrollments. In order to address the concern, the board of
trustees approved an approximate 20% cut in Strayer's
undergraduate tuition costs. The initiative is expected to
improve college affordability and its value proposition, and
thus, attract cost-conscious students. The new tuition costs will
be effective from Jan 1, 2014 and are expected to hurt revenue
per student in 2014 though it might improve enrollments
Operating income in the quarter decreased 26% to $62.8
million. Despite lower costs in the quarter, operating margin
contracted 370 basis points to 16.5% due to top-line weakness.
Bad debt expense as a percentage of revenues was 4.5% in the
third quarter, higher than 4.2% in the year-ago quarter.
Other Financial Details
Strayer Education ended the quarter with cash and cash
equivalents of $85.2 million as of Sep 30, 2013 compared with
$67.5 million as of Jun 30, 2013.
In the quarter, the company did not repurchase any stocks. As
of Sep 30, 2013, the company had $70 million worth of stocks left
under its share repurchase authorization which can now be bought
back until Dec 31, 2014. In the past few quarters, the
company has made significant share repurchases, resulting in a 7%
decline in shares outstanding in the quarter.
New Cost Reduction Plan
In order to address its weak enrollment trends, the company
announced an aggressive cost reduction plan. The plan includes
closing down of 20 physical locations (mainly in Upper Midwest
region) by the end of 2014 and reducing workforce by 20% (which
would affect 5% of the student population). The plan will be
implemented in the fourth quarter and will result in a one-time
restructuring charge of $45 million-$55 million, to be recorded
in the same quarter. Importantly, the initiatives are expected to
result in annual cost savings of $50 million beginning 2014.
Other Stocks to Consider
Strayer currently carries a Zacks Rank #5 (Strong Sell).
Better-placed stocks in the education sector include
ITT Educational Services Inc.
New Oriental Education & Technology Group
Xueda Education Group
). All the companies carry a Zacks Rank #1 (Strong Buy).
NEW ORIENTAL ED (EDU): Free Stock Analysis
ITT EDUCATIONAL (ESI): Free Stock Analysis
STRAYER EDUC (STRA): Free Stock Analysis
XUEDA EDUC-ADR (XUE): Free Stock Analysis
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