ITT Educational Services's, Inc.
) adjusted earnings $1.83 per share came short of both the Zacks
Consensus Estimate of $1.89 and the year-ago earnings of $2.87
per share. However, on a GAAP basis, the company reported a loss
of 41 cents in fourth-quarter 2012. The weak top line took a toll
on the bottom line.
Quarterly revenues totaled $300.8 million, down 18.3% from the
prior-year quarter due to weak enrollments. Total revenue also
missed the Zacks Consensus Estimate of $314.0 million.
ITT Educational reported total enrollment of 61,059 students for
the fourth quarter, down 16.6% year over year. New enrollments
also witnessed a drop of 11.4% to 13,398 students in the quarter.
The company's revenue per student declined 1.4% from the
prior-year quarter to $4,582.
During the quarter, student persistence rates declined 80 basis
points (bps) to 72.6%, since the number of continuing students in
the quarter also dipped 18.0%. Student persistence is calculated
by dividing the number of continuing students in any academic
term by total student enrollment in the immediately preceding
The company reported operating loss of $16 million in the fourth
quarter of 2012, compared to earnings of $126.6 million in the
prior-year quarter, due to weak top line and higher bad debt
expenses. Operating margin plunged 3,970 bps to 5.3% the quarter.
Cost of educational services in the fourth quarter of 2012 came
in at $129.4 million, down 1.7% y/y, owing to decline in
compensation costs. However, as a percentage of revenues, cost of
educational services increased 730 bps to 43.0%, owing to a
decline in revenues.
Student services and administrative (SSA) expenses declined 14.1%
to $94.6 million in the fourth quarter of 2012. However, as a
percentage of revenues, student services and administrative (SSA)
expenses increased 150 bps to 31.4%, owing to lower revenues and
higher bad debt expenses.
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ITT Educational Services' fiscal 2012 adjusted earnings of $8.00
per share lagged the Zacks Consensus Estimate of $8.07 but
touched the company's guidance range of $8.00 to $8.10. Earnings
for the quarter dropped from the year-ago level of $11.13 due to
Revenues for full year 2012 totaled $1.29 billion, down 14.2%
from the year-ago period due to weak enrollments.
The company had 147 campuses in operation as of Dec 30, 2012.
Moreover, the company opened 6 new locations in 2012.
Fiscal 2013 Outlook
For 2013, the company expects EPS in the range of $3.50 - $4.00.
The company expects new student enrollment growth in the range of
Sluggish macroeconomic conditions and low employment levels have
been taking a toll on private education companies by adversely
affecting enrollment. As such, most companies are working toward
increasing the value of the programs and thus increasing
employability of the students. For instance,
Universal Technical Institute
), a leading provider of post secondary education in the fields
of professional automotive, diesel, collision repair, motorcycle
and marine, recently announced Chapparal Honda L&Mc Racing as
part of its 2013 MMI Supercross Intern Program, under its
Motorcycle Mechanics Institute.
However, ITT Educational Services has been witnessing declining
enrollment for past few quarters and despite its several
initiatives to revive enrollment growth, its outlook for the
upcoming quarters is not very encouraging.
ITT Educational Services carries a Zacks Rank #4 (Sell). However,
some other companies in the sector that warrant a look include
Lincoln Educational Services Corporation
Corinthian Colleges Inc.
), both of which carry a Zacks Rank #2 (Buy)