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UTI Beats EPS; 2013 View Worsens - Analyst Blog
2/1/2013 10:20:00 AM
Universal Technical Institute, Inc's ( UTI ) first quarter fiscal 2013 adjusted earnings of 14 cents per share beat the Zacks Consensus Estimate of 8 cents by 75.0%.
We believe the earnings beat came on the back of lower operating costs in the quarter as the company is pushing hard to manage costs effectively amid macro weakness and regulatory pressures, to counter the sluggish student enrollment environment.
Quarterly earnings, however, declined 22.2% from the prior-year quarter earnings of 18 cents due to lower-than-expected revenue.
Net revenue for the quarter declined 7.5% to $98.4 million from the prior-year quarter due to decline in enrollments. Revenues were almost in line with the Zacks Consensus Estimate of $99.0 million. Revenues excluded $5.8 million related to unrecognized proprietary student loans.
Quarter in Detail
The mechanical training institute reported a 9.8% decline in average undergraduate full-time enrollment to 16,500 in the first quarter. New student starts also declined more than 18% to 2,700 due to a shortfall in show rate.
Enrollment has been trending down consistently over the past few quarters as a result of persistent macroeconomic headwinds, reluctance in taking on debt and continued challenges in obtaining student financing. Moreover, the company is finding it difficult to covert its high volume of enquiries into new student starts. Management expects the tough market environment to continue in fiscal 2013 as well.
Revenue per student improved 3.5% in the quarter due to an extra earning day in the quarter and a tuition fee increase.
Universal Technical's earnings before interest, taxes, depreciation, and amortization (EBITDA) in the quarter declined 13.6% to $12.1 million. Operating income declined 17.8 to $6.0 million in the quarter, whereas operating margin shriveled 80 basis points to 6.1%. Despite advertising and compensation expenses going down, operating income declined due to lower top-line growth and higher fixed costs. Advertising expenses declined 20% in the quarter as the company is trying to lower as well as better align its marketing investments.
We note however, that both enrollment decline and profits were better than the last quarter.
2013 Outlook Worsened
The company expects revenue to dip in the high single digits in 2013, worsening from the prior expectation of a mid-single digit decline, given the mid-to-high single digit decline in new student starts. The outlook for new student stats is also lower than prior expectations of remaining flat year over year. The company expects new student starts to decline in the next two quarters before showing some improvement in the fourth quarter.
Initiatives to Improve
In order to improve student population and market share, Universal Technical is shifting focus from its prior marketing strategy of generating higher volume of student inquiry to improving the number of new student starts. The company hopes to improve its new student starts at a lower cost by simplifying work and reducing waste, while at the same time attracting students who are likely to have a successful career at Universal Technical.
It is also modifying programs according to the needs of the employers, thus providing relevant training that leads to quality student outcomes; thereby offering more value. Universal Technical is also making its loan programs more accessible to students and also easing some eligibility restrictions. Alongside, Universal Technical is working toward controlling costs to better align it with lower enrollments.
However, these efforts will take time to show effective results, which combined with worsening market environment and the difficulty in converting enquiries to enrollments will take a toll on new student starts.
The company expects overall contraction in the operating margin and lower net income from the prior-year levels.
Other Financial Details
Universal Technical ended the first quarter with cash and cash equivalents of $89.3 million compared with $101.7 million at the end of fourth quarter 2012. In the quarter, the company paid a dividend of 10 cents per share.
Universal Technical provides professional automotive, diesel, collision repair, motorcycle and marine programs. The company works closely with leading original equipment manufacturers (OEM) in the automotive, diesel, motorcycle and marine industries such as, Ford Motor Co. ( F ), Honda Motor Co., Ltd. ( HMC ), Harley Davidson, Inc. ( HOG ) and many more. Universal Technical carries a Zacks Rank #4 (Sell).
FORD MOTOR CO (F): Free Stock Analysis Report
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HARLEY-DAVIDSON (HOG): Free Stock Analysis Report
UNIVL TECH INST (UTI): Free Stock Analysis Report
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