Apollo Education Group, Inc.'s ( APOL ) adjusted earnings of 34 cents per share for the fourth quarter of fiscal 2014 beat the Zacks Consensus Estimate of 27 cents by about 26%. However, earnings declined 41.4% year over year due to weak revenues and softer margins. We believe that the earnings beat was driven by sequentially improving new student enrollment and lower taxes.
Adjusted earnings exclude special items such as restructuring and other charges, acquisition costs and contingent consideration charges, charges related to legal matters and benefit from a tax settlement.
Net revenue of $709.7 million lagged the Zacks Consensus Estimate of $725 million by 2%. Revenues also declined 15.2% from the prior-year quarter due to a decline in enrollments at the University of Phoenix.
Adjusted operating income declined 46% to $56.7 million. Adjusted effective tax rate is 33.7%, lower than 37.1% in the prior year quarter.
University of Phoenix - Revenues declined 21% year over year to $612.3 million at the UOP due to a 13.2% decline in total enrollment to 233,500 students. New enrollment at the UOP declined 5.9% year over year to 38,600 in the quarter. However, new enrollment improved sequentially, compared to a decline of 12.9% to 33,900 in the previous quarter.
Apollo's enrollments have been sluggish for many quarters due to regulatory challenges, changes and competition in the higher education industry. Enrollment trends throughout the industry have been affected by changing regulatory requirements, sluggish demand due to students' aversion to debt, robust competition and a volatile economy.
However, the starts decline was lower than the preceding three quarters' decline of 12.9%, 16.5% and 22.9%, in the third, second and first quarter of 2014 respectively, indicating that the company's branding, program diversification and student retention initiatives are gradually yielding results.
Apollo Global reported net revenue of $77.8 million in the fourth quarter of fiscal 2014, up 68% year over year due to revenues from Open Colleges, currency gains and improved enrollments in international markets. The newly acquired Open Colleges did well in the quarter and exceeded management's expectations.
The Other Schools segment reported revenues of $19.6 million in the fourth quarter of fiscal 2014, up 6% year over year.
Institute for Professional Development
During the fourth quarter 2014, Apollo Education Group sold the assets of Institute for Professional Development, due to its recent operating losses. This sale of assets resulted in an immaterial gain on sale.
Apollo Education Group's adjusted earnings of $2.46 per share for the fiscal 2014 beat the Zacks Consensus Estimate of $2.35 by about 5%. However, earnings declined 23% year over year due to weak revenues.
Net revenue of $3.0 million lagged the company's expected range of $3.04 to $3.06 billion by a wide margin. Revenues also declined 16.7% from the prior-year quarter due to a decline in enrollments at the University of Phoenix.
First Quarter 2015 Outlook
Management expects first quarter fiscal 2015 revenues in the range of $720 to $730 million. Operating income is expected to range between $70 and $75 million.
Fiscal 2015 Guidance
Management expects fiscal 2015 revenues in the range of $2.80 to $2.85 billion. Operating income is expected to range between $300 and $325 million.
Apollo Global carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the education industry worth considering include GP Strategies Corp. ( GPX ), Lincoln Educational Services Corp. ( LINC ) and Universal Technical Institute, Inc. ( UTI ). While GP Strategies sports a Zacks Rank #1 (Strong Buy), Lincoln Educational Services Corp. and Universal Technical Institute carry a Zacks Rank #2 (Buy).
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