Universal Technical Institute, Inc
) first-quarter fiscal 2014 adjusted earnings of 7 cents per
share lagged the Zacks Consensus Estimate of 11 cents by 36%.
Earnings also declined 50.0% year over year due to lower
revenues, weak margins and higher taxes.
Net revenue of $97.0 million declined 1.4% from the prior-year
quarter due to a decline in enrollments. However, revenues beat
the Zacks Consensus Estimate of $94 million by 3.2%.
Quarter in Detail
The mechanical training institute reported 6.7% decline in
average undergraduate full-time enrollment to 15,400 in the first
quarter. Revenue per student improved 5.7% in the quarter, better
than 1.5% in the fourth quarter of 2013.
As expected, student starts (new student enrollments) declined
18.5% to 2,200 in the quarter, after growing slightly in the past
two quarters. This quarter, one less start date and lower show
rates hurt starts.
Enrollments have been trending down consistently over the past
few quarters as a result of macroeconomic headwinds; sluggish
demand due to reluctance in taking loans and continued challenges
in obtaining student financing; changing regulatory requirements;
increased price sensitivity and affordability concerns and
Though these macro challenges continue, the improving
auto/transportation market is in turn increasing the demand for
skilled auto technicians. Accordingly, the company witnessed
positive growth in student applications and the quality of
student inquiries for the third quarter in a row.
Total new applications improved 3% in the quarter with growth
seen across all channels - high school, adult and military. High
school applications grew 3%, adults grew more than 5% while
military applications went up more than 4% in the quarter.
However, conversion rates from applications to new students
have been below management's expectations which is leading to
lower show rates and thus hurting starts.
Operating margin declined 300 basis points (bps) from the
prior-year quarter to 3.1% due to lower revenues and higher
operating costs. Advertising expenses, as a percentage of
revenues, increased 50 bps in the quarter to 8.5% due to
competitive market pressures.
Fiscal 2014 Outloo
In the second quarter, management expects starts to improve in
a high single-digit rate. In fact, management expects starts to
remain positive over the next six months; expecting it to grow in
a low single-digit rate over the remaining nine months of the
In order to drive new student growth, Universal Technical is
making several marketing/advertising investments and offering
scholarships to improve the value proposition and affordability
of its programs. Universal Technicalis improving its marketing
efficiency by generating higher-quality inquiries using a new
media-mix model. It is also developing new marketing materials
which are designed to help potential students and their families
understand the true cost and the value of a UTI education.
The efforts to improve affordability through scholarships
will, however, hurt revenue per student. Management, thus,
believes that in 2014 "it could be challenging to meet or exceed
last year's revenue and operating results". Previously,
management was expecting low single-digit revenue growth in
Other Stocks to Consider
Universal Technical carries a Zacks Rank #3 (Hold). Other
better-ranked stocks in the education industry include
Apollo Education Group, Inc.
Bridgepoint Education, Inc.
New Oriental Education & Technology Group
). All these have a Zacks Rank #2 (Buy).
APOLLO GROUP (APOL): Free Stock Analysis
BRIDGEPOINT EDU (BPI): Free Stock Analysis
NEW ORIENTAL ED (EDU): Free Stock Analysis
UNIVL TECH INST (UTI): Free Stock Analysis
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