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American Public's Q3 Earnings Beat, Outlook Remains Bleak

American Public Education, Inc.'sAPEI third-quarter earnings of 41 cents per share surpassed the Zacks Consensus Estimate of 38 cents by about 8%. Earnings were also at the high end of management's expected range of 36-41 cents.

Earnings per share, however, decreased 19.6% year over year due to soft revenues and a decline in margin.

American Public Education Inc. (APEI) - Earnings Surprise | FindTheCompany

Quarterly revenues, enrollment levels and earnings were impacted by persistent volatility and softness in enrollment of students using the Federal Student Aid (FSA) and Tuition Assistance (TA) program. Quarterly results were also hurt by increased competition among students and targeted advertising investments. Targeted advertising investments focus particularly on students with better eligibility for college education. Though it improves quality mix, enrollment gets hurt initially.

Revenues & Enrollment

Missing the Zacks Consensus Estimate of $78 million, total revenue came in at $76.3 million, reflecting a 9.9% year-over-year decline, which was well within the company's expected range of 11% and 7%.

Revenues decreased 10.4% at American Public University System (APUS) to $69.2 million due to declining enrollment trends.

Total enrollment at APUS decreased 6% year over year to 94,200 owing to a decline in enrollment of students using TA and FSA, a trend that has been continuing for the past few quarters. The decline was within the company expected range of 8% to 4% decline. However, new student enrollments (student starts) at APUS decreased 19% to 15,900, which was at the low end of the company's expected decline in the range of 23% to 19%.

Total enrollment and new enrollment of students using TA declined 3% and 7%, respectively, owing to lesser utilization of military tuition assistance benefits by active-duty military personnel. However, enrollment of students using TA improved sequentially.

New enrollment of students using FSA declined 35%. This decline was due to the implementation of new admission processes, more targeted advertising and severe competition in the market place.

Even as new enrollment of students using veteran benefits remained flat year over year total enrollment of students using veteran benefits increased 10% driven by solid reputation of AMU among military communities and higher retention rates of students using GI benefits.

Revenues at Hondros College of Nursing were $7.1 million, down 5.3% from the prior-year quarter. Hondros College revenues declined due to lower enrollment of students opting for the ADN program and a higher number of students opting for fewer total courses on a part-time basis.

Missing the company's expectations of a 5% increase, total enrollment at the newly acquired Hondros College Nursing Programs (HCON) rose 3% to 1,350 students. However, starts declined 5%, slightly better than the company's expectation of a 6% decline.

Operating margin for the quarter decreased 330 basis points to 13.9% owing to softer revenues at APUS.

Selling and promotional (S&P) expenses as a percentage of revenues improved 280 bps to 18.4% due to a sharper decline in S&P expenses compared to the decline in revenue.

Instructional costs and services increased 200 bps to 38.2% of revenues as a decline in these costs was offset by weaker revenues at APUS.

Bad debt expenses as a percentage of revenues improved 160 bps to 3.4% of revenues due to a favorable change in students mix.

Fourth-Quarter 2015 Outlook

The company expects fourth-quarter 2015 to continue being impacted by persistent volatility and softness in enrollment of students using FSA and TA, thereby impacting its revenues, enrollment levels and earnings per share.

Management expects fourth-quarter 2015 total enrollments at APUS to decrease in the range of 10% to 8%, while new enrollment are expected to decline between 22% and 19% year over year.

American Public expects revenues to decrease between 10% and 6%. Management further projects fourth-quarter 2015 adjusted earnings per share between 51 cents and 56 cents, much lower than 68 cents reported in the prior-year quarter. Management's guidance was however in line with Zacks Consensus Estimate of 53 cents.

Management also stated that new student enrollment at Hondros will decrease approximately 11% in fourth-quarter 2015. Total student enrollment at Hondros is expected to increase about 2% during the quarter.

American Public carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the education industry include New Oriental Education & Technology Group Inc. EDU , Grand Canyon Education, Inc. LOPE and TAL Education Group XRS . While New Oriental Education & Technology Group and TAL Education Group sport a Zacks Rank #1 (Strong Buy), Grand Canyon Education holds a Zacks Rank #2 (Buy).

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AMER PUB EDUCAT (APEI): Free Stock Analysis Report

NEW ORIENTAL ED (EDU): Free Stock Analysis Report

TAL EDUCATN-ADR (XRS): Free Stock Analysis Report

GRAND CANYON ED (LOPE): Free Stock Analysis Report

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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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