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Apollo's 2Q Earnings & Revs Beat Ests.

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Apollo Group Inc. reported adjusted earnings (excluding special items) of 34 cents per share in the second quarter of fiscal 2013, surpassing the Zacks Consensus Estimate of 18 cents by 88.9%. However, lower revenues and higher marketing and advertising expenses resulted in a 40.4% decline from the prior-year earnings of 57 cents per share.

Apollo Group reported net revenue of $834.4 million in the second quarter of fiscal 2013, beating the Zacks Consensus Estimate of $821 million by 1.6%. Revenues, however, declined 13.3% from the prior-year quarter due to decline in enrollment at the University of Phoenix.

We believe that Apollo may have beat the top- and bottom-line estimates on the back of cost savings resulting from APOL’s restructuring efforts.

Enrollment Details  

University of Phoenix – Revenues declined 14.6% at the University of Phoenix to $756.5 million due to decline in enrollments. The University reported a decline of 15.5% in degreed enrollment to 300,800 students in the second quarter of fiscal 2013. New enrollment (or new degreed enrollment) at University of Phoenix declined 20.1% from the prior-year quarter to 38,900.

The decline was due to changing regulatory requirements, robust competition and a volatile economy. Apollo Group has been witnessing persistent decline in enrollment due to the weak macroeconomic environment and subsequent decline in demand for education (due to the hesitancy over taking a loan) in the U.S.

The company’s Associates Degree revenues in the second quarter of 2013 were $187.8 million, down 23.6%; Bachelor’s Degree revenues were $463.5 million, down 10.2%, Master’s Degree revenues were $132.5 million, down 11% and Doctoral Degree revenues were $17.1 million, down 18.2%.  

Revenue per student was flat year over year, owing to tuition pricing increase. In the quarter, higher student discounts and grants reduced revenues by almost $5 million. In the quarter, discounts were 7.0% of revenues, lower than the company’s expectation of 10%.

The company reported declines in all operating expenses, excepting marketing costs during the quarter, driven by the company’s restructuring efforts, including significant layoffs and campus closings, to turnaround its business.

Instructional and student advisory cost was $383.7 million in second quarter 2013, down 9.8% year over year due to lower variable costs associated with low enrollment. As a percentage of net revenue, this cost grew 180 basis points (bps).

The company incurred marketing expenses of $173.3 million in second quarter of 2013, up 9.0% year over year. Marketing expenses rose due to higher advertising expenses resulting from non-Internet brand building.

Admission advisory expenses declined 32.7% to $68.2 million compared with the prior-year figure due to lower admission advisory headcount. As a percentage of net revenue, this cost declined 240 bps due to the company restructuring efforts.

Apollo’s general and administrative (G&A) expenses declined 3.3% to $81.2 million in the second quarter of fiscal 2013 due to low share-based compensation spending.  Bad debt expenses declined 100 basis points to 2.2% of total revenue in the second quarter due to lower enrollments in University of Phoenix.


The company maintained its previously provided fiscal 2013 net revenue guidance in a range of $3.65 to $3.75 billion. Adjusted operating income is expected in a range of $500.0 to $550.0 million in fiscal 2013. Revenue per student is expected to range from negative 1% to 2% for the remainder of fiscal 2013 as Apollo will offer higher discounts this year.  

Apollo Group carries a Zacks Rank #4 (Sell).   

Education stocks such as DeVry Inc. , Xueda Education Group and Grand Canyon Education, Inc. (LOPE - Free Report) are currently performing well and are worth considering. Xueda Education Group carries a Zacks Rank #1 (Strong Buy), whereas Grand Canyon Education and DeVry both hold a Zacks Rank #2 (Buy).   

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