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Adtalem's (ATGE) Q3 Earnings Beat Estimates, Revenues Miss

Zacks Equity Research

Adtalem Global Education Inc. ATGE reported mixed third-quarter fiscal 2019 results, wherein earnings topped the Zacks Consensus Estimate, while revenues missed the same. Strong enrollment, growth across segments, continued strength in balance sheet, and achievement of several strategic actions were partially offset by currency headwinds in Brazil and delays in FIES funding, which negatively impacted its top-line growth.

Adjusted earnings were 68 cents, which surpassed the consensus mark of 65 cents per share by 4.6%. However, revenues of $308.6 million lagged analysts’ expectation of $316 million by 2.2%.

Adjusted earnings decreased 2.9% from 70 cents reported in the prior-year quarter. The company’s bottom line was mainly affected by certain restructuring charges related to real estate consolidations in Adtalem Brazil and its home office.

Adtalem Global Education Inc. Price, Consensus and EPS Surprise

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

Revenues & Operating Discussion

Total revenues declined 0.5% from the year-ago figure of $310.1 million. Enrollment of new students increased 15.4% and that of total students grew 4.3% year over year.

Adjusted operating income totaled $50.2 million, reflecting a decline of 5.5% year over year.

Following the sale of DeVry University and Carrington College during second-quarter fiscal 2019, the company incurred a pre-tax loss of $1.8 million during the reported quarter.

Segment Details

Medical and Healthcare: Revenues from the segment rose 1.6% from the year-ago quarter to $223.6 million. Excluding the impact of the shift in starts due to hurricanes Irma and Mariain in first-quarter fiscal 2018, revenues grew 3.3% year over year.

Chamberlain University revenues were flat with the year-ago level. New student enrollment (online) in the March session declined 3.7% from the prior-year quarter. However, total student count increased 3.4% in the same period, backed by strong growth in both Bachelor of Science in Nursing and graduate programs. In the fiscal third quarter, new and total student enrollment grew 4% and 3.3%, respectively, from the year-ago period.

Medical and Veterinary schools’ revenues climbed 4.1% year over year. Excluding the impact of the shift in starts due to hurricanes Irma and Maria in first-quarter fiscal 2018, revenues grew 8.5% from a year ago.

Adjusted operating income was $53.0 million, down 12.8% from the prior-year level.

Professional Education: The segment’s revenues came in at $35.9 million, up 14.1% year over year. Revenues at Becker increased 3% and that of ACAMS climbed 38.1% from the year-ago quarter. Moreover, the segment’s operating income increased significantly to $5.1 million from the prior-year figure of $2.4 million.

Technology and Business: The segment recorded revenues of $49.9 million, up 15.5% year over year. However, the metric declined 2% on a constant-currency basis, primarily due to higher discounting that is necessary to offset the effect of reductions and delays in government financial aid program funding. New student enrollment jumped 17.7% year over year. The same improved 8.6% from the year-ago figure, excluding distance learning. Moreover, total enrollment was up 5.6% from the year-ago period. The metric increased 2% excluding distance learning.

During the quarter, the company registered adjusted operating loss of $0.8 million compared with a loss of $0.1 million in the prior-year period.

Liquidity & Cash Flow

As of Mar 31, 2019, Adtalem’s cash and equivalents were $321.2 million compared with $430.7 million on Jun 30, 2018. Cash flow provided by operating activities totaled $128.5 million at the end of the fiscal third quarter, down from $183.3 million in the year-ago period.

In the fiscal third quarter, the company repurchased approximately 1.27 million shares of common stock for $61 million, at average purchase price of $48.15.


Fiscal Fourth Quarter

Revenues are expected to grow approximately 3-4% year over year. Adjusted operating costs are anticipated to rise 3-4%.

Fiscal 2019 Guidance

Total revenues are now projected to be flat with the year-ago level. Nonetheless, adjusted earnings are anticipated to grow 2-3% from a year ago. Capital spending is expected to be nearly $65 million. The effective income tax rate for the fiscal year is likely to be around 16-17%.

Zacks Rank & Stocks to Consider

Currently, Adtalem carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same industry include K12 Inc. LRN, Lincoln Educational Services Corp. LINC and Career Education Corp. CECO, each carrying a Zacks Rank #2 (Buy). You can the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

K12 has an expected earnings growth rate of 23.5% for fiscal 2019.

Lincoln Educational Services’ earnings per share are expected to increase 148.2% in 2019.

Career Education is expected to record an EPS growth rate of 9.5% in 2019.

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