Strayer Education, Inc.
) fourth-quarter 2013 adjusted earnings of $1.32 per share
surpassed the Zacks Consensus Estimate of 98 cents by 34.7%. We
believe that the earnings beat was due to lower share count
resulting from the significant share repurchases from the prior
quarters. However, earnings declined 10.2% from the year-ago
level of $1.47 due to weak top-line performance and sluggish
Total revenue in the quarter fell 13% from the comparable
prior-year quarter to $124.1 million due to continued weak
enrollment trends, partially offset by increase in revenue per
student. Total revenue beat the Zacks Consensus Estimate of $119
million by 4.1%.
Revenue per student increased 5% during the quarter, owing to
higher student retention rate and phasing out of the previous
scholarships program. However, the company expects revenue per
students to decline in each of the quarters of 2014, as more
undergraduate students enroll in lower tuition programs.
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Strayer University's total enrollment declined 14% to 41,098
students for the winter term due to a decline in both continuing
student enrollments and new student enrollment.
Continuing student enrollments went down 17% while new
enrollments declined 2%. Enrollment of new undergraduate students
declined 7% while graduate enrollments rose 15% year over year.
Strayer has been witnessing weak enrollment trends due to
continued unemployment, overall economic downturn and subsequent
decline in student demand. Total enrollments are expected to
decline in double digits in fiscal 2014.
Adjusted operating income in the quarter was $24.6 million.
Despite lower costs in the quarter, operating margin contracted
40 basis points to 19.8% due to top-line weakness. Bad debt
expense as a percentage of revenues was 4.8% in the fourth
quarter, higher than 4.5% in the year-ago quarter.
Other Financial Details
Strayer Education ended the quarter with cash and cash
equivalents of $47.5 million as of Dec 31, 2013, compared with
$85.2 million as of Sep 30, 2013.
In the fourth quarter of 2013, the company did not repurchase any
shares. As of Dec 31, 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, however, the company made significant share
repurchases, resulting in a 7% decline in shares outstanding in
New Cost Reduction Plan
In order to address its weak enrollment trends, the company
implemented an aggressive cost reduction plan during the quarter.
The company closed down 20 physical locations (mainly in the
Upper Midwest region) and reduced its workforce (which would
affect 5% of the student population) in the quarter. The plan
resulted in a one-time restructuring charge of $55 million.
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 #3 (Hold). Some
better-ranked stocks in the education sector include
Apollo Educational Group Inc.
New Oriental Education & Technology Group
Xueda Education Group
). All the companies have a Zacks Rank #2 (Buy).