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Capella Education Company’s (CPLA - Analyst Report) fourth-quarter 2013 earnings of 79 cents a share beat the Zacks Consensus Estimate of 76 cents by 3.9%. Earnings climbed 16.2% year over year due to operating margin growth.

Revenues and Enrollments in Detail

Quarterly revenues of $106.0 million were in line with the Zacks Consensus Estimate. Revenues inched down 0.9% from the year-ago levels due to a decline in total enrollment, partially offset by a 2.8% increase in tuition fee. The year-over-year decline was within the company’s guided range of 0.5% to 1.5% decline.

Total active enrollment dropped 2.5% from the prior-year quarter to 35,432 students, at the higher end of the expected range of 1.5% to 2.5% decline.  

In line with the company’s expected range of mid-to-high single-digit percentage decline, new enrollments declined 6.8% year over year due to weak enrollment in bachelor degree programs. New enrollments in Doctoral and Master’s programs increased during the quarter.  

Total enrollment declined 2.9% year over year for Ph.D/doctoral degrees and 4.3% year over year for the Master's programs. Total enrollment for the Bachelor’s programs grew 0.3%, marking the seventh consecutive quarter of increase. Total enrollment for the Other programs segment went up 6.9% year over year.

Costs and Margins

Operating income went up 10.6% year over year to $16.7 million, whereas operating margin increased 170 basis points (bps) to 15.8% due to disciplined cost management, lower depreciation and bad debt expense. Operating margin was toward the higher end of management's expected range of 15% to 16%.

Instructional cost of services of $45.9 million in the fourth quarter of 2013 decreased 7.1% year over year and remained flat sequentially, primarily due to lower bad debt expense. As a percentage of revenue, bad debt expense of 3.6% was down 120 basis points.   

Full Year 2013

Capella Education’s full year 2013 earnings of $2.80 a share beat the Zacks Consensus Estimate of $2.78 by 0.7%. Earnings climbed 1.5% from the year-ago quarter due to higher year-over-year operating margins.

In line with Zacks Consensus Estimate, revenues of $415.6 million inched down 1.5% from the year-ago levels due to a decline in average quarterly total enrollment.

First Quarter 2014 Outlook

For the first quarter 2014, the company expects new enrollments to increase slightly year over year. Total enrollment is expected to dip 1.5% to 2.5% in the quarter.

Revenues are expected to remain flat to down 1.0% year over year in the quarter. Operating margin is expected in the range of 14% to 15% for the first quarter.

2014 Outlook

The company expects total enrollment growth to turn positive in the latter half of 2014. The company expects to achieve moderate new enrollment growth and operating margin improvement in 2014.

Capella Education currently carries a Zacks Rank #3 (Hold). Some better-ranked companies from the education sector include Apollo Education Group, Inc. (APOL - Analyst Report), New Oriental Education & Technology Group Inc. (EDU - Snapshot Report) and TAL Education Group (XRS - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).


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