On Oct 9, we maintained a Neutral recommendation on the
for-profit education company,
Universal Technical Institute, Inc.
). Though the third-quarter fiscal 2013 results and enrollment
growth were better than expected, we await a more substantial
improvement in the enrollment trends.
Why the Reiteration?
Universal Technical's third-quarter fiscal 2013 earnings of 1
cent per share beat the Zacks Consensus Estimate of breakeven
earnings. We believe that better-than-anticipated student starts
and improved efficiencies led to the earnings beat. However,
earnings declined 75% year over year due to 8.7% shortfall in
Revenues went down due to a year-over-year decline in average
enrollments and new student starts. However, student starts
improved from the more than 15% shortfall seen in the previous
two quarters due to rising demand. Moreover, Universal
Technical's profits were also better than the past two quarters
as the company gained traction with its marketing and operational
Enrollment has been trending down consistently for this
leading provider of post-secondary education 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
auto/transportation market is rebounding which, combined with the
aging workforce, is increasing market demand for skilled auto
technicians. Accordingly, the company witnessed improved student
applications in the quarter.
The company is working toward improving its marketing
efficiency by generating higher-quality inquiries using a new
media-mix model. Universal Technical hopes to improve new student
starts at a lower cost by simplifying work. The strategy seems to
be working as student inquiries increased 8% despite the decrease
in advertising expenses. The quality of inquiries and conversion
rates have also improved year over year.
In addition to the marketing efforts, Universal Technical is
also modifying its programs according to the needs of the
employers, to provide relevant training that leads to quality
student outcomes, thereby offering more value. In Jul 2013,
United Technical announced plans to collaborate with
General Motors Co.
) to devise a new training program for UTI students at the
In addition, Universal Technical already works closely with
leading original equipment manufacturers in the automotive,
diesel, motorcycle and marine industries such as,
Ford Motor Co.
Honda Motor Co., Ltd.
), Harley Davidson, Inc. and many more.
The new student starts are expected to show some positive
growth over the next two quarters. However, we prefer to wait
until the company's efforts result in a substantial improvement
in enrollment trends. Moreover, macroeconomic uncertainties and
regulatory pressures remain overhangs.
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