Capella Education Company’s (CPLA) second quarter 2013 earnings of 83 cents a share surpassed the Zacks Consensus Estimate of 66 cents by 25.8% on the back of better-than-expected new enrollment and total enrollment in the quarter.
However, earnings declined 2.4% from the year-ago quarter due to year-over-year decreases in revenues and margins. Better-than-anticipated new enrollment growth and total enrollment, however, could not offset the year-over-year downward drift in earnings.
Revenues and Enrollments in Detail
Quarterly revenues of $103.7 million were ahead of the Zacks Consensus Estimate of $102.0 million by 1.7%, driven by new enrollment growth. Revenues slipped 2.3% from the year-ago levels due to total enrollment decline. The year-over-year top-line decline was also lower than management’s expectation of a 3.0% to 4.0% decline.
Total active enrollment dropped 0.9% from the prior-year quarter to 36,003 students. The decline was however significantly lower than management’s guidance of a 2.0% to 3.0% decline due to improving persistent rates and solid increase in new enrollments.
New enrollments grew 12.7% year over year versus an 8.2% increase in the prior year quarter, far exceeding management’s expectation of sequentially flat results. New enrollments benefited from double-digit percentage growth in all degrees.
Total enrollments declined 3.3% year over year for Ph.D./doctoral degrees and 5.7% for the Master's programs. However, total enrollment for both doctoral and masters programs improved sequentially. Total enrollments for the Bachelor’s programs grew 8.8%, resulting in the fifth consecutive quarter of increase. The Other segment jumped 28.9% year over year.
Costs and Margins
Instructional cost of services decreased 3.9% to $44.9 million in the second quarter of 2013. As a percentage of revenues, instructional cost of services decreased 70 basis points, primarily due to lower bad debt expense.
Operating income came down 3.3% to $17.5 million, whereas operating margin contracted 20 basis points to 16.8% due to strong comparison in the prior year quarter. However, operating margin exceeded management's expected range of 13.0% to 14.0% on the back of better-than-expected revenue performance and cost control initiatives.
For the third quarter of 2013, the company expects new enrollments to decline in a mid- to single-digit percentage range. Total enrollment is expected to dip 2% to 4% in the quarter.
Revenues are expected to remain flat to up 1% in the third quarter of 2013. Operating margin is expected to be in the range of 8% to 9% for the third quarter.
Capella carries a Zacks Rank #2 (Buy).
Some other education companies that are performing well are ATA, Inc. (ATAI), New Oriental Education & Technology Group (EDU) and TAL Education Group (XRS). All of them carry Zacks Rank #1.
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