Earnings Scorecard: UTI - Analyst Blog
Macro-economic headwinds, regulatory issues and lower students' enrollment continue to weigh upon Universal Technical Institute Inc. ( UTI ) that went on to post lower-than-expected first-quarter 2012 results.
Street analysts have had time to ponder over the company's scores. In the paragraphs that follow, we cover the recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock.
Last Quarter Synopsis
Universal Technical reported its first quarter financial results on February 2, 2012. The quarterly earnings of 16 cents a share was way below the Zacks Consensus Estimate of 27 cents, and dropped significantly from 42 cents earned in the prior-year quarter.
Net revenue for the quarter declined 9.4% to $106.4 million from the prior-year quarter, and came marginally ahead of the Zacks Consensus Estimate of $105 million. The fall in revenue reflects a decrease in average undergraduate full-time student enrollment, partially offset by a rise in tuition fees.
The educational institute, which provides professional automotive, diesel, collision repair, motorcycle and marine programs, reported that average undergraduate full-time enrollment dropped 10.7% to 18,300 in the first quarter of 2012, after falling 11.3% in the fourth quarter of 2011.
Student starts for the quarter remained flat at 3,300 compared with the prior-year quarter, reflecting an improvement over a decline of 14.5% and 32.5% witnessed in the fourth quarter and the third quarter of 2011, respectively.
The company reported a 4% year-over-year fall in the number of student applications received, which however reflected a significant improvement from a decline of 8% experienced in the fourth quarter of 2011.
(Read our full coverage on this earnings report: Lower Enrollment Weighs on UTI )
Agreement of Estimate Revisions
The agreement of estimate revisions indicates that majority of the analysts were unidirectional following Universal Technical's first-quarter 2012 results.
In the last seven days, five out of eight analysts covering the stock lowered their estimates for the second quarter of 2012. For the third quarter, four analysts trimmed their estimates.
For fiscal 2012 and 2013, six analysts revised their estimates downward in the last seven days.
What Drives Estimate Revision
Clearly, a negative sentiment is palpable among analysts, who remain pessimistic on Universal Technical's performance. Following the earnings release, the Zacks Consensus Estimate has been depicting a downfall with analysts remaining bearish on the stock.
Analysts were also not impressed with Universal Technical's cautious stance about its performance in fiscal 2012. While the company expects the new student starts to improve in the second half of the year, the company warned that during the second quarter it could drop in the high single-digit to low double-digit from the prior-year period and will also fall sequentially.
Management alarmed that average number of students for fiscal 2012 will drop at a low-teens rate, and will consequently result in a mid to high single-digit revenue decline.
Magnitude of Estimate Revisions
The magnitude of estimate revisions by the analysts is clearly reflected through changes in the Zacks Consensus Estimates.
The Zacks Consensus Estimates for the second and third quarters of 2012 moved down by 7 cents to 10 cents and 12 cents, respectively, in the last 7 days.
For fiscal 2012, the Zacks Consensus Estimates dropped 21 cents to 67 cents in the last 7 days. For fiscal 2013, the Zacks Consensus Estimates slid 20 cents to 69 cents.
Universal Technical's leading position in providing technical education to aspiring automotive professionals and its business model of working closely with leading original equipment manufacturers provide the company a competitive advantage. However, the regulation proposed by the Department of Education is weighing upon student enrollments.
To counter the sluggishness currently witnessed in the student enrollment, amid the turbulent environment and regulatory pressure, the company is pushing hard to manage costs effectively, trying means to improve marketing efficiencies and is focusing on launching new curriculum. Further, to unlock its brand value, the company is coming up with a new tag line and will be using UTI School logo.
Universal Technical further intends to bring its current and potential students under the spectrum of proprietary loan program by increasing its accessibility, and enhance the count of need-based scholarships in fiscal 2012.
Currently, we are maintaining our long-term Neutral rating on the stock. However, Universal Technical, which competes with Corinthian Colleges Inc. ( COCO ) and Lincoln Educational Services Corporation ( LINC ), holds Zacks #4 Rank that translates into a short-term Sell recommendation, and well define the waning economy, tough regulatory environment and falling enrollments, which are adversely impacting the top and bottom-line results.
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