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ITT Educational Beats Estimates


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ITT Educational Services Inc. (ESI - Snapshot Report), one of the leading providers of technology-based post-secondary degree programs in the U.S., reported fourth-quarter and full year 2011 results that outperformed the Zacks expectation.

ITT Educational’s fourth quarter earnings of $2.87 per share smoothly surpassed the Zacks Consensus Estimate of $2.31. However, earnings for the quarter dipped 8.6% compared to the year-ago quarter earnings of $3.14 per share.

For full-year 2011, the company’s earnings per share of $11.13 showed a significant rise from the Zacks Consensus Estimate of $10.56 while it dropped 0.4% from $11.17 earned for full-year 2010.

ITT Educational registered a 10.2% decline in revenue in the fourth quarter. Quarterly revenue totaled $368.3 million compared with $410.1 million in the prior-year quarter. Revenue for the full year was $1.5 billion, a decline of 6.0% from $1.6 billion in the year-ago period.

In fourth-quarter 2011, the company witnessed a 13.5% decline in total enrollment to 73,255 students compared with 84,686 students in the prior-year period. The overall decline in enrollment was mainly attributable to a 14.7% drop in new enrollment to 15,125 students due to an 80% decline in new student enrollment in the school of criminal justice. Revenue per student inched down 0.2% to $4,694 in the fourth quarter, while it declined 2.8% to $18,370 for the full year.

During the quarter, ITT Educational witnessed a 9.7% increase in advertising expenditures. The increase was, however, below the company’s estimated 15% to 20% increase for the fourth quarter. The better-than-expected result was mainly due to the company’s shift from using the low-cost less result oriented media or the expensive traditional media forms to alternative sources focused on producing higher rates of return.

This shift in media mix resulted in a decline in the number of probable students interested in the company's study programs. In the fourth quarter, the company also reduced the number of admission representatives by 22%. However, the media shift helped increase the rate of prospective students that transformed into new students.

Going forward, ITT Educational expects the number of admission representatives at the end of 2012 to be at the same level as at the end of 2011.

The company pointed out that its graduate employment metrics continue to suffer due to the slow economy and high unemployment rate. However, the company sees some hope of improvement as its graduate employment rate of 2011 employable graduates as of January 24, 2012, increased nearly 580 basis points from the year-ago period. Also, average annual salary of its 2011 employed graduates showed an improvement of 1% from last year.

On a further optimistic note, the company continues to expand geographically with five new ITT technical institutes started in Deerfield Beach, Florida; Grand Rapids, Michigan; Salem, Oregon; Overland Park, Kansas; and Indianapolis, Indiana, during the fourth quarter.

The company's nearest competitor Apollo Group Inc. (APOL - Analyst Report) recently reported its first-quarter 2012 earnings per share of $1.28, declining 21.5% from the prior-period earnings of $1.63. However, earnings surpassed the Zacks Consensus Estimate of $1.18 per share.

Currently, we have a long-term Neutral rating on ITT Educational. The stock holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.

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