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Adtalem's (ATGE) Q2 Earnings & Revenues Surpass Estimates

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Adtalem Global Education Inc. ATGE reported second-quarter fiscal 2020 results, with the top and the bottom lines beating the Zacks Consensus Estimate.

In the quarter under review, the company reported adjusted earnings of 57 cents per share, which topped the consensus mark of 54 cents by 5.6%. Earnings, however, remained flat year over year. Higher investments in marketing and student recruitment to boost enrollments and revenues have negatively impacted operating income as well as profits. However, growth of the RN to BSN program helped the company to offset the negatives.

Revenues & Operating Discussion

Revenues of $266.2 million topped the consensus mark of $262 million by 1.6%. The figure also increased 4.8% year over year. During the fiscal second quarter, enrollment of new and total students grew 2.6% and 0.3% year over year, respectively.

Adjusted operating income from continuing operations of $42.3 million declined 9.4% year over year.

Segment Details

Medical and Healthcare: Revenues in the segment rose 3.6% from the year-ago figure to $220.2 million. Chamberlain University’s revenues increased 2.7% year over year.

In the fiscal second quarter, new and total student enrollment increased 3.6% and 1.2% year over year, respectively, in Chamberlain. The upside was mainly driven by improved marketing and recruiting programs, mainly RN to BSN strategic partnerships, and the successful first class at its new San Antonio campus.

Medical and Veterinary schools’ revenues grew 4.8% year over year. Adjusted operating income during the quarter was $41.6 million, down 12.5% from the prior-year level. The decline was caused by elevated marketing-related expenses, increase in bad debt reserve and higher corporate allocation costs.

Financial Services: Revenues in the segment totaled $46 million, up 9.1% year over year. Revenues at Becker decreased 3.4% year over year and that of Association of Anti-Money Laundering Specialists dropped 9.9% from the year-ago quarter. Adjusted operating income declined 41% from the prior-year quarter to $5.7 million.

Liquidity & Cash Flow

As of Dec 31, 2019, Adtalem had cash and cash equivalents of $67.3 million compared with $208.3 million in the corresponding period of 2018. In the first six months of fiscal 2020, cash used in operating activities totaled $13.7 million compared with $23 million of cash provided by operating activities in the comparable year-ago period.

Fiscal 2020 View

Total revenues are projected to increase 5-7% year over year. Moreover, adjusted earnings per share are anticipated to rise 7-9% on a year-over-year basis. Capital spending is expected in the range of $45-$50 million. Effective income tax rate for the fiscal year is expected in the range of 19-20%.

Zacks Rank & Key Pick

Adtalem — which shares space with American Public Education, Inc. APEI and Strategic Education, Inc. STRA in the Zacks Schools industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock in the same space is New Oriental Education & Technology Group Inc. (EDU - Free Report) , which sports a Zacks Rank #1.

New Oriental’s earnings for the current year are expected to rise 39.5%.

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