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Healthcare Biz Helps DeVry Beat Q4 Earnings, Lags Revenues

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DeVry Education Group Inc. announced mixed fourth-quarter fiscal 2014 results beating the Zacks Consensus Estimate for earnings but marginally missing the same for revenues.

Though the quarter was not as strong as the previous two, results were nevertheless decent as strong enrollment in the healthcare and international segments continued to mitigate the challenging environment for the flagship DeVry University.

Adjusted earnings (excluding re-structuring costs) of 73 cents per share beat the Zacks Consensus Estimate of 70 cents by 4.3% in the quarter. Moreover, earnings increased 35.2% from the prior-year quarter due to a positive top-line increase, lower costs and a lower tax rate.


Revenues and Enrollments

DeVry’s quarterly net sales grew 1.1% year over year to $485.1 million in line with management’s expectations of delivering modestly positive growth in the quarter. DeVry’s consolidated business saw positive revenue growth for the first time in 12 quarters.

Once again, the relatively strong growth in the healthcare, professional and international businesses was offset by continued revenue decline at DeVry University, which accounts for half of the company’s revenues. However, revenues marginally missed the Zacks Consensus Estimate of $488 million.

The company’s total post-secondary enrollments across all its programs were up 2.1% driven by double-digit enrollment increase at the Chamberlain College of Nursing and improved enrollment trends at Carrington Colleges. Total enrollments improved sequentially from 1.7% in the third quarter. New enrollments grew 8.1% in the quarter.

Costs Decreased

Operating costs (excluding restructuring charges) decreased 3% year over year to $426 million in the fourth quarter as cost declines at the transition institutions (due to cost reduction initiatives) were offset by cost increases at the growing institutions (Chamberlain, Ross, Becker and DeVry Brasil) due to costs incurred for new programs and campus expansions.

Segment Discussion

Business, Technology and Management: This segment includes operations of the company’s largest subsidiary, DeVry University, which offers both graduate and undergraduate courses.

The segment recorded revenues of $215.8 million, down 13.1% year over year, due to lower enrollments. DeVry University has been witnessing enrollment declines for the past few quarters as a result of overall economic downturn and lack of student confidence, which has reduced demand.

In the quarter, the company reported adjusted operating income of $3.2 million comparing favorably to loss of $0.9 million last year due to solid expense management. The company is following a strict cost-control routine at DeVry University and lowered costs by nearly $100 million in fiscal 2014.

In fiscal 2015, management expects revenues to decline year over year in the BTM segment. Moreover, additional cost savings are expected to be $70 million for the segment.

Medical and Healthcare: The segment consists of Ross University Medical and Veterinary Schools, AUC, Chamberlain College of Nursing and Carrington

The segment reported revenues of $198.2 million, up 15.7% year over year, driven by growing demand and campus expansions.

Revenues at DeVry Medical International (DMI - which includes Ross University and AUC) grew 7% driven by enrollment growth. At Chamberlain College of Nursing, revenues grew 34% driven by solid enrollment growth owing to strong demand for its masters and doctoral programs. At Carrington Colleges, revenues grew 5% driven by improved student starts.

Segment operating income improved 26.4% in the quarter to $35.7 million due to narrower losses as a result of turnaround efforts at Carrington and a solid increase in Chamberlain’s post licensure programs.

With strong growth experienced in the last two years, management believes the medical and healthcare segment is poised to increase organic revenues and operating income at a double-digit pace over the next three to five years.

International and Professional Education: The segment includes professional exam review and training operations of Becker Professional Review and DeVry Brasil.

The segment recorded revenues of $72.1 million, 18.9% year over year driven by top-line growth at both DeVry Brasil and Becker. DeVry Brasil revenues grew 31% helped largely by the Facid acquisition completed last year. Becker Professional Education’s revenues increased 5% year over year driven by higher sales of its CPA exam preparation program. Enrollment data for DeVry Brasil was not available.

The segment operating income increased 19.6% to $21.1 million due to top-line growth.

Annual Results

In fiscal 2014, DeVry witnessed a 2% decline in revenues to $1.92 billion, in line with the Zacks Consensus Estimate. Adjusted earnings (excluding one-time items) were $2.62 per share, down 8.4% from the prior year. Earnings beat the Zacks Consensus Estimate of $2.58 by 1.6%.

First-Quarter Fiscal 2015 Outlook

For the first quarter of fiscal 2015, the company expects revenue growth from all the institutions except DeVry University. Revenue growth is expected to be modestly positive in the quarter similar to the fourth quarter of 2014. The company expects operating cost to increase year over year due to investments in the growth institutions.

Other Stocks to Consider

DeVry carries a Zacks Rank #2 (Buy). Other stocks in the education industry which have the same Zacks Rank as DeVry are Capella Education Company (CPLA - Free Report) , Strayer Education, Inc. (STRA - Free Report) , and Grand Canyon Education Inc. (LOPE - Free Report) .

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