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For-Profit Education Industry Falters

Posted on Monday, Jan 14th 2013

During the past year, online education services provider Apollo Group (NASDAQ:APOL) has seen its stock fall more than 67%. Even though the company outperformed market expectations, according to the recent quarterly result announcement, worries about student enrollment continued to pull their stock down as it touched 52-week lows. For-profit education companies enjoyed a boom when the recession first hit as people began to upgrade their skills. But the continued depressed economy, tighter federal norms on educational institutions and student loan financing and reduced consumer spending patterns have hurt the sector. Apollo hasn’t been spared.

Apollo Group’s Financials
Apollo’s Q1 revenues fell 8% over the year to $1.1 billion compared with analyst estimates of $1.03 billion for the quarter. EPS at $1.22 was ahead of the market’s projected earnings of $0.90 per share but declined from the previous year’s $1.26.

Over the past quarter, Apollo has been focusing on controlling costs. Last October it announced plans to cut 800 jobs and shut down 25 campuses across the country.

During the quarter, degreed enrollment for the University of Phoenix fell 14% to 319,700 students. New enrollment at the University fell 15% over the year to 54,100.

For the current year, Apollo projects revenues of $3.65 billion-$3.75 billion with adjusted operating income of $500 million-$550 million.

Apollo’s Recent Initiatives
To counter declining student enrollment, Apollo announced a series of new offerings. It launched new tools that come with features to help students plan their career and academic paths. A tool called the “Tuition Estimator” helps students work out financial plans to pay for their degrees and helps them better understand debt service implications. The “My Career Plan” tool helps students to create roadmaps and personalized development plans for their course curricula.

The company is also building and expanding relationships with more than 2,000 companies to better meet students’ education needs. It is developing curricula in partnership with organizations that are focused on core skills and competencies.

Apollo is also diversifying operations, and as part of this process, it will soon launch a new executive education program called Innovator’s Accelerator. The program is aims to teach innovation with the help of key professors such as Clay Christensen, Jeff Dyer, and Hal Gregersen. Christensen has been called the leading management thinker of the world and is the authority on disruptive innovation. Dyer and Gregersen are the co-authors of the book “The Innovator’s DNA.”

Apollo’s stock is trading at $19.21 with a market capitalization of $2.16 billion. It touched a 52-week high of $58.29 in January 2012.

DeVry’s Financials
DeVry University (NYES:DV) faces similar market conditions. Though its quarterly results surpassed market expectations, prospects look bleak. Q1 revenues of $482.7 million were ahead of the Street’s target of $481 million. EPS of $0.49 was also ahead of the market’s targeted $0.31.

Unlike Apollo, DeVry has witnessed strong enrollment in its nursing school. Enrollment in the business, technology and management school segment fell 9.4% over the year, but the medical and healthcare segment saw enrollment grow 20.2% at the Chamberlain College of Nursing and 2.1% at DeVry Medical International.

DeVry Expands Nursing School
Driven by increased demand for its nursing school, DeVry is partnering with the honor society of nursing of, Sigma Theta Tau International. Sigma Theta Tau is a nonprofit organization that works with nurses worldwide. The partnership will help DeVry to establish a Center for Excellence in Nursing Education to provide career guidance and resources to help nurse educators.

DeVry’s stock is trading at $23.90 with a market capitalization of $1.52 billion. It touched a 52-week high of $42.37 in January 2012.

According to report by the National Center for Education Statistics, overall college enrollment fell by 0.2% in the fall 2011 owing to the continuing recession. But the impact was felt the most by for-profit colleges, which saw enrollment fall 2.8% over the year. The industry has also reacted unfavorably to the recent re-election of President Obama, who has not favored for-profit education by promoting acts such as the Gainful Employment Act. According to the act, for schools to qualify for federal student aid, they have to ensure that a minimum of 35% of their students repay loans and that loan payments constitute up to 30% of the former student’s discretionary income or 12% of their annual income. Market reports show that nearly 18% of for-profit institutions fail this test and have had to tighten up to retain funding. During the elections, candidate Mitt Romney had labelled for-profit colleges innovators. Given the outcome of the election, the industry will have have to focus on rationalizing operations by cutting employment and diversifying their curricula and organization partnerships to increase revenues.

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