Adtalem (ATGE) Misses Q4 Earnings Estimates, Increases Y/Y

Adtalem Global Education Inc.ATGE reported fourth-quarter fiscal 2018 results, with both the top and bottom lines missing the Zacks Consensus Estimate. While adjusted earnings (excluding special items) of 86 cents missed the consensus mark of 90 cents by 4.4%, revenues of $319.8 million missed the same by 9.1%. Shares of Adtalem declined more than 8% in yesterday's after-hour trading session following the earnings release.

Nonetheless, on a year-over-year basis, earnings increased 14.7%. Also, total revenues rose 1.5% from the year-ago figure backed by segmental growth in Medical and Healthcare, and Professional Education segments, partially offset by lower contribution from the Technology and Business segment.

Adtalem's total operating cost and expenses contracted 3.4% year over year to $254.6 million in the quarter. Operating income was $65.2 million, reflecting an increase of 25.9% from the prior-year quarter.

On a year-to-date basis, Adtalem has outperformed the industry it belongs to. The stock has gained around 32.6% against its industry's decline of 2.1% in the said period.

Streamlining of Portfolio

Investors should note that Adtalem had signed an agreement to transfer ownership of DeVry University to Cogswell Education LLC during the second quarter of 2018 and expects the completion of the same in early fiscal 2019. Also, during the fiscal fourth quarter of 2018, the company agreed to transfer ownership of Carrington College to San Joaquin Valley College, Inc., which is slated to close during mid fiscal 2019. These transactions would classify DeVry University and Carrington College as discontinued operations.

Adtalem Global Education Inc. Price, Consensus and EPS Surprise

Adtalem Global Education Inc. Price, Consensus and EPS Surprise | Adtalem Global Education Inc. Quote

Segment Details

Medical and Healthcare: In the fiscal fourth quarter, segmental revenues of $201 million increased 4.1% from the year-ago level, led by growth at Chamberlain University, and Medical and Veterinary schools.

Revenues from the Chamberlain University rose 2.7%, driven by higher new as well as total student enrollment. New student enrollment increased 3.1% and total student count grew 4.7% in the May 2018 session.

Meanwhile, new student enrollment grew 1% and total student enrollment increased 4.6% in the July 2018 session.

Revenues from Medical and Veterinary schools jumped 6% year over year. New student enrollment and total student enrollment increased 9% and 1.2%, respectively, in the May 2018 semester.

Adjusted operating income of the segment was $48.3 million, up 12.5% from the prior-year quarter.

Professional Education: The segment's revenues of $45.3 million were up 13.6% year over year, primarily driven by revenue growth at Association of Certified Anti-Money Laundering Specialists (ACAMS) and better performance at Becker Professional Education.

Adjusted operating income was $13 million, 17.3% higher than the prior-year period.

Technology and Business: The segment recorded revenues of $74.3 million, down 10.3% year over year. However, the top line inched up 0.9% on a constant-currency basis.

Adjusted operating income declined 23% year over year to $14.9 million.

Notably, the U.S. Traditional Postsecondary segment has been reclassified into Home Office and Other segment.

Liquidity & Cash Flow

As of Jun 30, 2018, Adtalem's cash and equivalents were $430.7 million, up from $240.4 million at the end of 2017.

Cash flow provided by operating activities totaled $239.2 million at the end of fiscal 2018, up from $230.9 million in fiscal 2017.

Fiscal 2018 Highlights

Revenues came in at $1,231.2 million, up 1.9% from fiscal 2017.

Adjusted earnings increased to $2.80 per share from $2.51 in fiscal 2017.

The company's total operating cost and expenses, before special items, declined 4.5% to $1,023.7 million in fiscal 2018. Operating income was $207.5 million in the quarter, suggesting an increase of 53.1% from fiscal 2017.

Total student enrollments from continuing operations decreased 1.9%. However, new student enrollments rose 2.3%.

Fiscal First-Quarter Guidance

Revenues are expected to grow approximately 1% year over year, primarily on the back of solid contribution from the Medical and Healthcare segment.

Operating cost before special items is expected at approximately 0-1%.

Fiscal 2019 Guidance

Total revenues are anticipated to grow 3-4% for the year.

Capital spending is expected in the range of $70-$75 million. The effective income tax rate for the fiscal is likely to be around 18-19%.

Zacks Rank & Stocks to Consider

Currently, Adtalem carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the industry are Strategic Education, Inc. STRA , Bridgepoint Education, Inc. BPI and RYB Education, Inc. RYB . While Strategic Education and Bridgepoint sport a Zacks Rank #1 (Strong Buy), RYB carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Strategic Education's earnings per share are expected to increase 44.8% in 2018.

Bridgepoint has an expected current-year earnings growth rate of 8.5%.

RYB is expected to register an EPS growth rate of 141.2% next year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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