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Adtalem (ATGE) Beats Q2 Earnings Estimates, Lags Revenues

Zacks Equity Research

Adtalem Global Education Inc. ATGE reported mixed second-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate, while revenues missed the same.

Earnings (excluding special items) came in at 74 cents, beating the consensus mark of 73 cents per share by 1.4%. However, revenues of $316.6 million missed the consensus estimate by 0.7%.

Adjusted earnings decreased 8.6% from 81 cents reported in the prior-year quarter. The company’s bottom line was mainly affected by certain restructuring charges related to the closing of the Ross University School of Medicine campus in Dominica and real estate consolidations.

Adtalem Global Education Inc. Price, Consensus and EPS Surprise

Adtalem Global Education Inc. Price, Consensus and EPS Surprise | Adtalem Global Education Inc. Quote

Nonetheless, total revenues increased 2.7% from the year-ago figure of $308.2 million. The top-line performance was mainly backed by rising enrollments in its medical and healthcare segment, along with strong Professional Education segment. The solid performance in Professional Education was driven by the refreshed product differentiation in the Becker business and continued growth in the Association of Certified Anti-Money Laundering Specialists (“ACAMS”).

Enrollments of new students in the January session increased 4.9% and that of total students grew 2.9% year over year. Adjusted operating income was $58.4 million, reflecting a decline of 4.8% year over year.

During the second quarter of fiscal 2019, Adtalem closed the sale of DeVry University and Carrington College. Following the sale, the company incurred a pre-tax loss of $32.7 million.

Segment Details

Medical and Healthcare: The segment’s revenues rose 4.6% from the year-ago quarter to $212.6 million, led by growth at Chamberlain University, as well as Medical and Veterinary schools.

Chamberlain University revenues were up 6.2% from the year-ago quarter. New student enrollment in the November session declined 6.7%, while that of the January session grew 6.4%. Total student count increased 3.7% in November and 3.3% in the January session.

Revenues from Medical and Veterinary schools jumped 2.4% year over year. New and total student enrollment declined 8.5% and 6.6%, respectively, in the January 2019 semester. The decrease was mainly due to the shift in starts of students in the prior fiscal year, mainly due to Hurricanes Irma and Maria. Notably, after excluding the same, new student enrollments increased 6.6%.

Yet, adjusted operating income of $47.5 million was down 13.7% from the prior-year quarter.

Professional Education: The segment’s revenues of $42.1 million were up 38.8% year over year.

Revenues at Becker increased 15.9% and that of ACAMS climbed 64.7% from the year-ago quarter. The upside mainly stemmed from the shift of the North American annual conference to the fiscal second quarter from the fiscal first quarter.

The segment’s operating income increased significantly to $9.6 million from the prior-year figure of $2.2 million.

Technology and Business: The segment recorded revenues of $62.6 million, down 16.6% year over year. The top line also declined 2.4% on a constant-currency basis, primarily due to lower tuition fee in response to student financial aid program reductions as well as increased competition.

Adjusted operating income of $8.5 million decreased 38.7% year over year.

Liquidity & Cash Flow

As of Dec 31, 2018, Adtalem’s cash and equivalents were $294.8 million compared with $430.7 million on Jun 30, 2018. Cash flow provided by operating activities totaled $70.3 million at the end of the fiscal second quarter, up from $59.9 million in the year-ago quarter.

In the fiscal second quarter, the company repurchased approximately 1.1 million shares of common stock for $56.8 million, at average purchase price of $50.18.

Fiscal Third-Quarter Guidance

Revenues are expected to grow approximately 1-2% year over year. Adjusted operating costs are expected in the range of 3-4%.

Fiscal 2019 Guidance

Total revenues are now anticipated to grow approximately 3-4% in fiscal 2019. Adjusted earnings are anticipated to grow 2-3% from a year ago. Capital spending is expected in the range of $65-$70 million. The capital spending includes about $20-$25 million for the relocation of RUSM campus to Barbados.

The effective income tax rate for the fiscal year is likely to be around 16-17%.

Zacks Rank & Other Stocks to Consider

Currently, Adtalem carries a Zacks Rank #2 (Buy). Other top-ranked stocks from the same industry include K12 Inc. LRN, Laureate Education, Inc. LAUR and Strategic Education, Inc. STRA, each carrying a Zacks Rank #2. You can the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

K12 has an expected earnings growth rate of 16.2% for fiscal 2019.

Laureate Education’s earnings per share are expected to increase 220.8% in 2018.

Strategic Education is expected to record an EPS growth rate of 33.5% in 2019.

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