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Universal Technical's Q3 Earnings In Line, Starts Drop 24%

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Universal Technical Institute, Inc.’s  (UTI - Free Report) third-quarter fiscal 2014 adjusted earnings of 1 cent per share matched the Zacks Consensus Estimate as well as the year-ago figure. Earnings per share were close to the company’s expectation of a breakeven in the quarter.  


Net revenue of $91.3 million increased 0.4% from the prior-year quarter due to an increase in tuition rate and industry training revenue, partially offset by a decline in enrollments. However, revenues slightly lagged the Zacks Consensus Estimate of $92 million by 0.8%.

Quarter in Detail

The mechanical training institute reported a 2.9% decline in average undergraduate full-time enrollment to 13,400 in the third quarter. Student starts declined 24% to 1,900 in the quarter. Universal Technical’s enrollments have been trending down consistently over the past few quarters as a result of macroeconomic headwinds; sluggish demand due to reluctance in taking loans and continued challenges in obtaining student financing; changing regulatory requirements; increased price sensitivity and affordability concerns and increased competition.

However, revenue per student improved 3.2% in the quarter as registration fee doubled in the third quarter of 2014, which resulted in a 27% decline in new student applications. However, the company justified that higher registration fees will generate better quality applications. The company expects applications to decline in the upcoming two quarters.

Operating income of $1.1 million in the third quarter increased 120% from the prior-year quarter. Operating margin rose 70 basis points to 1.2% during the quarter. Solid cost control and increased tuition per student drove the increase in operating income and margin in the quarter.

Fiscal 2014 Outlook

Management expects starts to decline in mid-single digits in the fourth quarter of fiscal 2014 compared to the year-ago level due to difficult economic and regulatory concerns

Universal Technical carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

However, some other education companies are doing well. DeVry Education Group Inc. , Grand Canyon Education Inc. (LOPE - Free Report) and Capella Education Company (CPLA - Free Report) , all carry a Zacks Rank #2 (Buy).

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