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Why Is Universal Technical (UTI) Down 3.6% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Universal Technical Institute Inc (UTI - Free Report) . Shares have lost about 3.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Universal Technical Posts Wider-Than-Expected Q3 Loss

Universal Technical reported wider-than-expected loss in the third quarter of fiscal 2017, primarily because of sluggish enrollments.

The company’s adjusted loss of $0.21 per share in the quarter was wider than the Zacks Consensus Estimate of a loss of $0.16 by 31.3%. In the year-ago quarter, the company had posted loss per share of $0.20.

Revenues & Enrollment

Revenues of $76.3 million in the third quarter fell 7.3% from the prior-year quarter’s $82.3 million. Apart from that, students participating in the company’s proprietary loan program amounting $4.0 million in the third quarter 2017, compared with $4.2 million in the prior-year quarter.

Universal Technical reported a rough 10% drop in average undergraduate full-time enrollments in the quarter. However, total starts increased 12.5% from the year-ago quarter. After sluggish enrollments for several quarters, the company started offering new courses in Avondale and also initiated need-based institutional grant. Since the initiative is still in its early stages, it needs further modification to find the right balance between the costs of the grants with the contributions from increased enrollment.

Operating Highlights

Operating expenses contracted 11% to $79.0 million on lower compensation expenses and improved operating efficiencies following the implementation of the Financial Improvement Plan.

The company reported operating loss of $2.8 million in the quarter as compared with an operating loss of $5.5 million in the prior-year quarter. The improvement mirrors significant cost reductions and an increase of $1.1 million in operating income from the Long Beach campus.

Earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $2.1 million, as against a loss of $0.6 million in the prior-year quarter.

Financials

The company had cash and cash equivalents and investments of $84.5 million as of Jun 30, 2017, compared with $120.7 million as of Sep 30, 2016. The decline can be attributed to collateral requirements for surety bonds renewed in the second quarter of fiscal 2017 and changes in working capital.

FY17 Guidance

Universal Technical revised its outlook for student starts growth for the remaining of fiscal 2017, projecting a decline of mid-to-high-single digits for the full year (as compared to the prior guidance of high-single digit decline).

The average student population is likely to decline low double digits from the fiscal 2016 level.

Revenues are expected to be down in the mid-to-high single digits in fiscal 2017.

Universal Technical expects its Financial Improvement Plan to generate annualized cost savings at the high end of the $30 million to $40 million range, same as the previous guidance.

Capital expenditures are expected to be approximately $10.5 million to $11.5 million for the year ending Sep 30, 2017, compared with $10.0 million to $11.0 million projected earlier.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter. In the past month, the consensus estimate has shifted up by 250% due to these changes.

VGM Scores

At this time, the stock has a poor Growth Score of F, however its Momentum is doing a bit better with a D. Meanwhile, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is solely suitable for value investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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