Strayer Education Inc. (STRA - Analyst Report) recently posted fourth quarter 2012 earnings of $1.47 per share, beating the Zacks Consensus Estimate of $1.44. Earnings were also better than the company’s expected range of $1.43 – $1.45. However, earnings plunged significantly by 36% from $2.30 reported in the year-ago period due to top-line decline.
Total revenue in the quarter dropped 9% from the comparable prior-year quarter to $141.9 million due to lower enrollments. Total revenue missed the Zacks Consensus Estimate of $145 million.
Quarter in Detail
Strayer University’s total enrollment for the 2012 winter term declined 5% to 47,926 students. Both new and continuing student enrollments went down 5% year over year.
Total number of campus-based students declined 6% to 42,802, whereas global online student enrollment went up 9% year over year to 5,124. Students taking full-time online classes went down 3% during the quarter.
The company’s convenient evening, weekend and online courses attract corporate alliances and community college articulation agreements. Investment in new campuses is an important part of the company’s growth strategy.
The company met its expectations of opening eight campuses during fiscal 2012. During the fourth quarter, Strayer opened one campus in Houston, Texas two in Missouri, one in Kansas City the other in St. Louis. With the eight campuses opened in 2012, Strayer University now has 100 campuses in 24 states and the District of Columbia.
Enrollment at mature campuses (74 in operation for more than 3 years) tumbled 9% to 38,943 whereas enrollment at new campuses (26 in operation for 3 years or less) grew 43% to 3,859.
Operating income in the quarter plummeted 37% to $28.7 million. The operating margin contracted 888 basis points to 20.2%. Bad debt expense as a percentage of revenues was 4.5% in the fourth quarter, up 10 basis points from the prior-year quarter.
Full Year Results
In 2012, earnings per share tumbled 35% to $5.76 from $8.88 in 2011. Earnings, however, beat the Zacks Consensus Estimate of $5.74.
Net sales decreased 10% to $562.0 million due to lower enrollment. The revenue also missed the Zacks Consensus Estimate of $565.0 million.
Other Financial Details
Strayer Education ended the quarter with cash and cash equivalents of $47.5 million as of Dec 2012, up from $45.6 million as of Sep 2012.
Guidance for First Quarter 2013
Strayer Education expects first quarter 2013 earnings to lie in the range of $1.45 – $1.47 per share.
We are encouraged by Strayer’s strong brand position and its strategy of opening new campuses every year, both in new states and markets. Further, the company’s corporate alliances give it a competitive advantage and contribute significantly to growth.
On the flip side, the company continues to suffer from a difficult regulatory environment as well as weak student demand. We prefer to stay on the sidelines given its declining enrollment and weak guidance for 2013.
Most companies are working toward increasing the value of the programs and thus increasing employability of the students. For instance, Universal Technical Institute (UTI - Analyst Report), a leading provider of post secondary education in the fields of professional automotive, diesel, collision repair, motorcycle and marine technology, recently announced Chapparal Honda L&Mc Racing as part of its 2013 MMI Supercross Intern Program, under its Motorcycle Mechanics Institute.
Strayer Education Inc. carries a Zacks Rank #3 (Hold). However, some other companies in the sector that warrant a look include DeVry Inc. (DV - Analyst Report) and Grand Canyon Education, Inc. (LOPE - Snapshot Report), both of which carry a Zacks Rank #2 (Buy).