DeVry Meets EPS, Enrollments Weak

Zacks

DeVry Inc. (DV) announced third quarter 2012 earnings of $1.00 per share, down 24.2% from $1.32 per share posted in the year-ago period with no abatement in the decline in enrollment. Earnings were however in line with the Zacks Consensus Estimate.

DeVry’s quarterly net sales fell 3.9% to $540.8 million from $562.7 million in the prior-year period due to sluggish student enrollments in the quarter. Acquisitions made in the recent past added 3.1% to top-line growth in the quarter. Sales were slightly above the Zacks Sales Estimate of $532 million.

The company’s total post secondary enrollments across all its programs (excluding Becker and Advanced Academics) were down 3.7% over the prior-year quarter. The decline in enrollment is the result of persistent unemployment, a weak macroeconomic environment and modifications made to the business to comply with new regulations.

Segment Discussion

Business, Technology and Management: This segment includes operations of the company’s largest subsidiary, DeVryUniversity, which offers both graduate and undergraduate courses. The segment recorded revenue of $338.7 million, down 10.5% year over year due to a 15.1% decline in total undergraduate student enrollment. The company’s flagship segment witnessed a 19.7% decline in new undergraduate student enrollment. The university’s graduate course takers declined 3% for the January term and 4.3% for the March term.

Medical and Healthcare segment: The segment consists of Ross University Medical and Veterinary Schools, American University of the Caribbean (:AUC), Chamberlain College of Nursing and Carrington Colleges. The segment recorded revenue of $160.5 million, up 12.6% year over year, as a 19.9% increase in total student enrolment in the Chamberlain College of Nursing offset the trivial 1% increase at DeVry Medical International and a 28.4% decline at Carrington Colleges Group.

New student enrollments declined 20.5% at DeVry Medical International (due to capacity constraints at the Ross University School of Medicine) and 30.9% at the Carrington Colleges Group but were up 2.8% at the Chamberlain College of Nursing. The Chamberlain College of Nursing delivered positive revenue and enrollment growth in the quarter due to new campuses at Houston, Miramar, Florida, and Indianapolis. The campus at Indianapolis opened in March this year. The company expects to open a new campus at Atlanta in May.

The enrollment growth rates discussed above are for the spring term for the Chamberlain College of Nursing and Carrington Colleges and for the January 2012 term for DeVry Medical International.

K-12 and Professional Education: The segment includes professional exam review and training operations of Becker Professional Review, DeVry Brasil and Advanced Academics. The segment recorded revenue of $41.5 million, almost flat year over year, as solid enrollment growth at DeVry Brasil was offset by revenue declines at Becker.The DeVryBrasil business recorded new student enrollment increase of 46.1% for the spring 2012 term while the total enrollment grew 55.6% due to strong demand and the acquisition of Faculdade Boa Viagem in February 2012.

In April 2012, the segment acquired Falcon Physician Reviews, a provider of comprehensive review programs for preparation of competitive medical exams.

Other Details

Cost of educational services increased approximately 5% in the quarter while student services and administrative expenses were up 4% over the prior-year quarter.

DeVry exited the quarter with cash and cash equivalents of $332.1 million, up from $285.7 million at the end of December 31, 2011. During the quarter, DeVry repurchased 0.8 million shares of its common stock at a cost of approximately $32.1 million under its seventh repurchase program.

Outlook

In order to combat declining profits and student enrolment, DeVry has undertaken many steps. The company is following a strict cost control routine and is particularly looking to combat costs at the DeVry University and Carrington Colleges. The company has reduced its workforce, cut down on discretionary spending, and has pursued many other short-term and long-term cost saving initiatives. Other than that the company is also working on its marketing efforts to build brand awareness, making strategic acquisitions aimed at long-term growth, diversifying into new high demand education programs and investing in its people to deliver better quality service and education to its students.

The company is expecting revenue to be down for fiscal 2012 and flat to slightly down in fiscal 2013. However, the company looks forward to attractive earnings growth in the period 2014-2016. The company is expecting DeVry University to generate modest enrollment growth, Carrington Colleges to return to 2011 levels and other institutions to maintain their growth momentum in the 2014-2016 period.

Another education company Capella Education Company (CPLA) reported first-quarter 2012 enrollment declines which led to both top and bottom line misses.

Our Recommendation

We currently have a Neutral recommendation on DeVry Inc. The stock carries a Zacks #3 Rank in the near term (‘Hold’ rating).

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