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Universal Technical’s (UTI - Analyst Report) fourth quarter 2012 adjusted earnings of 11 cents per share lagged the Zacks Consensus Estimate of 13 cents by 15.4%. Quarterly earnings also declined 43.5% from the prior-year quarter earnings of 23 cents per share due to lower-than-expected revenue and contraction in margins.
Net revenue for the quarter declined 9.0% to $101.3 million from the prior-year quarter due to double-digit decline in average undergraduate full time student enrollment. Revenues also missed the Zacks Consensus Estimate of $105 million by 3.5%. Revenue excluded $4.0 million related to unrecognized proprietary student loans.
Quarter in Detail
The educational institute, which provides professional automotive, diesel, collision repair, motorcycle and marine programs, reported a 10.1% decline in average undergraduate full-time enrollment to 15,600 in the fourth quarter of 2012, owing to macroeconomic headwinds and continued challenges in obtaining student financing.
Universal Technical’s earnings before interest, taxes, depreciation, and amortization (EBITDA) in the quarter tumbled 48.1% to $8.4 million. Operating income plunged to $2.3 million from $9.6 million in the year-ago period, whereas operating margin shriveled 640 basis points to 2.2%. The decline in operating income was due to lower top-line growth.
The company reported fiscal 2012 earnings of 36 cents per diluted share, down 67% from the prior year. Earnings also lagged the Zacks Consensus estimate of 41 cents by 12.2%. Revenue for fiscal 2012 was $413.6 million, down 8.5% from the prior year quarter.
The company expects revenue to dip low to mid single digit in 2013, given the expected average student population decline at a mid to high single digit rate. The company expects overall contraction of operating margin and lower net income from the prior year levels.
The company expects new student starts to decline in the first half of 2013. Numbers may improve during the remainder of fiscal 2013. As such, new student starts are expected to remain flat year over year. However, the company expects the number of applications to increase in fiscal 2013.
Other Financial Details
Universal Technical ended the fourth quarter with cash and cash equivalents of $101.7 million compared with $109.6 million at the end of the third quarter of 2012. In the quarter, the company paid a dividend of 10 cents per share.
Enrollment has been trending down consistently over the past few quarters as a result of macroeconomic headwinds and continued challenges in obtaining student financing. Amidst the macroeconomic uncertainties and regulatory pressures, the company is pushing hard to manage costs effectively to counter the sluggish student enrollment environment. We prefer to wait and see if the company’s efforts result in a rebound in the near term.
We currently have a ‘Neutral’ recommendation on Universal Technical over the long term. The stock carries a Zacks #4 Rank that translates into a short-term ‘Sell’ rating.
However, a peer of Universal Technical, DeVry Inc. (DV - Analyst Report) carries a Zacks #2 Rank that translates into a short-term ‘Buy’ rating, owing to its better-than-expected new enrollment growth at healthcare institutions and sequential improvement in new enrollments at the flagship DeVry University.