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ITT Educational Services Inc.' (ESI - Snapshot Report) earnings of $1.33 per share in the first quarter of 2013 surpassed the Zacks Consensus Estimate of $1.28 by 3.9%. However, earnings declined 44.1% from the year-ago earnings of $2.38 per share. The double-digit decline in revenues took a toll on the bottom line.
Quarterly revenues totaled $287.7 million, down 15.8% from the prior-year quarter due to weak enrollments. However, total revenue surpassed the Zacks Consensus Estimate of $276 million by 4.2%.
ITT Educational reported total enrollment of 61,039 students for first quarter of 2013, down 14.2% year over year. New enrollments also witnessed a drop of 3.6% to 17,412 students in the quarter due to the weak performance of criminal justice, electronics and network administration programs. The company’s revenue per student increased 1.0% from the prior-year quarter to $4,712.
During the quarter, student persistence rates declined 90 basis points (bps) to 71.5% due to a 17.8% dip in the number of continuing students. Student persistence rate is calculated by dividing the number of continuing students in any academic term by total student enrollment in the immediately preceding academic term.
The company reported operating earnings of $52.7 million in the first quarter of 2013, down 47.6% from the prior-year quarter due to a weak top line and higher bad debt expenses. Operating margin dipped 1,110 bps to 18.3%.
Cost of educational services in first quarter of 2013 came in at $125.2 million, down 7.2% year over year, owing to decline in compensation costs and course supplies expenses due to reduced student enrollment. However, as a percentage of revenues, cost of educational services increased 400 bps to 43.5% owing to a decline in revenues, rise in bad debt expenses and media advertising cost, partially offset by a decline in compensation expenses and other scholarship related expenditure.
Student services and administrative (SSA) expenses remained flat at $106.3 million in the first quarter of 2013. However, as a percentage of revenues, SSA expenses increased 580 bps to 36.9% owing to lower revenues and higher bad debt expenses.
Fiscal 2013 Outlook
For 2013, the company maintained its prior guidance. Earnings per share are expected in the range of $3.50 – $4.00. The company expects new student enrollment growth in the range of (5.0%) – 5%. Revenue per student in 2013 is expected to decline in the range of (6.0%) to (4.0%). The company intends to introduce new associate degree programs in software development technology, industrial engineering technology, medical assistance and administration at some of the campuses in the Jun and Sept 2013 academic session.
The company expects earnings before interest, taxes, depreciation and amortization (EBITDA) to range between $165 million to $190 million in fiscal 2013.
ITT Educational Services carries a Zacks Rank #4 (Sell). Interestingly another education company, Apollo Group, Inc. (APOL - Analyst Report) surpassed the top- and bottom-line estimates when it reported its results for the second quarter of fiscal 2013 on Mar 25. We believe that Apollo may have beaten the top- and bottom-line estimates on the back of cost savings resulting from its restructuring efforts.
Education stocks such as New Oriental Education & Technology Group (EDU - Snapshot Report) and Xueda Education Group (XUE - Snapshot Report) are currently performing well and are worth considering. Xueda Education Group carries a Zacks Rank #1 (Strong Buy), whereas New Oriental Education & Technology Group holds a Zacks Rank #2 (Buy).