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In order to better align costs with lower student population, technical education provider Universal Technical Institute, Inc. recently announced that it has laid off 50 employees.

The workforce reduction is expected to generate cost savings of approximately $5 million in fiscal 2013 against charges of around $1.9 million. Following the layoffs, Universal Technical’s headcount will now become approximately 2,200 employees.

The company has been witnessing a decline in enrollments over the past few quarters due to continued unemployment, overall economic downturn and continued challenges in obtaining student financing. The competitive landscape is also intense. Universal Technical’s third quarter 2012 earnings and revenue declined sharply from prior-year quarter levels due to lower student population and flat student starts. Management warned that in the fourth quarter (ended September 30) too, student starts will decline slightly from the prior-year quarter.

Universal Technical is pushing hard to manage costs effectively, amidst the macroeconomic weakness and regulatory pressures, to counter the sluggish student enrollment environment. Universal Technical is honing its marketing efficiency and launching new curriculum. The company has made adjustments to its marketing strategies to generate higher quality student inquiry sources. It has shifted from lead aggregator marketing channels (like Internet) to the non-aggregator channels (like television), which are generating higher student enquiries though they are more expensive. Universal Technical further intends to make its loan programs more accessible to students and also ease some eligibility restrictions. The company has also increased the count of need-based scholarships to attract new students.

Universal Technical is also working toward controlling costs. As the company’s fixed cost structure is high due to frequent regulatory changes, its aim is to successfully manage its variable costs. In addition to workforce reductions, the company has modified compensation plans in response to the new regulations to align costs.

Our Recommendation

We currently have a Neutral recommendation on Universal Technical. The stock carries a Zacks #3 Rank (a short-term ‘Hold’ rating).

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