ITT Educational's Weak Enrollment - Analyst Blog
ITT Educational Services, Inc .'s ( ESI ) third quarter 2012 earnings of $1.83 per share beat the Zacks Consensus Estimate of $1.75 by 4.6%. However, earnings for the quarter dropped 26.2% year over year due to lower revenue.
Quarterly revenue totaled $314.7 million, down 12.7% from the prior-year quarter due to weak enrollments. Total revenue also missed the Zacks Consensus Estimate of $316 million.
Quarter in Detail
The company witnessed a 17.1% year-over-year decline in total enrollment to 65,662 students. The overall decline in enrollment mainly resulted from a 15.8% drop in new enrollment to 19,298 students. New student enrollment witnessed a decline of 36% in Graphic Designs and criminal justice programs and a 12% drop in the drafting, network administration and electronics programs.
Of late, most of the education companies have been crippled by poor new enrollment growth. The company's closest competitor, Apollo Group Inc. ( APOL ) reported a decline in fourth -quarter enrollments at the University of Phoenix -- the company's wholly owned subsidiary -- which pulled down its total revenues for the quarter.
However, ITT Educational's revenue per student grew 3.5% from the prior-year quarter to $4,740 benefiting from enrollment increases in the electronics technology, business and healthcare-related programs in a number of institutes. Student persistence rates declined 170 basis points to 69.8% in the quarter since the number of continuing students in the quarter also dipped 17.7%.
During the quarter, ITT Educational witnessed a 17% decrease in advertising expenditures as management focused on improving efficiencies in the student enrollment processes by reducing expenses.
The company reduced its adjusted earnings per share guidance from the range of $8.00 to $9.00 to an adjusted range of $8.00 to $8.10, owing to volatile enrollment growth.
A peer of DeVry, Inc. ( DV ), ITT Educational Services carries a Zacks #4 Rank in the near term (Sell rating). We currently have a Neutral recommendation on ITT Educational Services.
We appreciate the company's continuous efforts to improve services and thereby student experience and outcomes. However, choppy enrollment trend and possibility of regulatory changes keep us on the sidelines.