Universal Technical Cuts Workforce

Universal Technical Institute Inc. ( UTI - Analyst Report ) , which provides professional automotive, diesel, collision repair, motorcycle and marine programs, recently announced a cut in its workforce.

The regulation proposed by the Department of Education is weighing upon student enrollments of the company. The rate of growth of average undergraduate full-time student enrollment decelerated to 3.3% during second-quarter 2011 from 8.5% in the previous quarter.

Moreover, total student starts for the quarter dropped 12.2%. Universal Technical Institute warned that enrollment of new students for fiscal 2011 will decrease from the prior year, thereby resulting in a low single-digit revenue growth.

Hence, to better align its cost structure with the student count, the company chopped 195 jobs. Currently, Universal Technical Institute Inc. has approximately 2,270 employees.

Universal Technical expects a charge of $4.3 million on its third quarter 2011 results relating to the layoffs. Moreover, the move will result in expense savings of $12.4 million in fiscal 2012.

Universal Technical’s programs are highly dependent on the health of the automobile sector, which was hit hard by the recent economic downturn. This is especially a matter of concern for Universal Technical as its prospective students may shift preferences to other sectors.

Further, the Department of Education could limit, suspend or terminate Universal Technical’s participation in Title IV programs for violations of the Higher Education Act or Title IV regulations, which may impact its revenue growth potential.

Moreover, Universal Technical faces intense competition from other companies offering postsecondary education, such as Lincoln Educational Services Corp. ( LINC - Snapshot Report ) and Corinthian Colleges Inc. ( COCO - Snapshot Report ) . Moreover, the company also competes with traditional two-year junior and community colleges. Consequently, this may dent the company’s sales and margins.

Currently, we have a long-term ‘Underperform’ rating on the stock. However, Universal Technical holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.