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Capella Misses on Q1 Earnings, Beats Revs

Zacks Equity Research

Capella Education Company’s (CPLA) first-quarter 2014 earnings of 70 cents a share missed the Zacks Consensus Estimate of 73 cents by 4.1%. Earnings however remained flat year over year as strong top-line growth was offset by softer margins.

Revenues and Enrollments in Detail

Quarterly revenues of $105.6 million beat the Zacks Consensus Estimate of $105 million marginally. Revenues inched up 0.3% from the year-ago level due to a 2.8% increase in tuition fee and improvement in student starts. The revenue growth rate was also better than the company’s guided range of flat to 1.0% decline.

Total active enrollment dropped 1.4% from the prior-year quarter, narrower than the expected range of 1.5% to 2.5% decline.

New enrollments rose 2.6% year over year, as new enrollments in Master’s programs increased during the quarter. However, new enrollment of bachelor degree programs declined during the quarter.

Costs and Margins

Operating income went down 0.7% year over year to $15.1 million. Operating margin decreased 10 basis points (bps) to 14.3%. Operating margin was within management's expected range of 14% to 15%.

Instructional cost of services of $47.3 million in the first quarter of 2014 increased 0.7% year over year. As a percentage of revenue, bad debt expense of 3.3% declined 20 basis points.   

Second Quarter 2014 Outlook

For second quarter 2014, the company expects new enrollments to increase in mid-single digit year over year on the back of expected improvement in enrollments in bachelor degree programs. Total enrollment is expected to dip 1.0% to 2.0% in the quarter.

Revenues are expected to remain flat to up 1.0% year over year in the quarter on the back of contribution from business outside Capella University and higher revenue per student at Capella University. The company intends to increase average tuition fee by 2.5% from Jul 2014. Operating margin is expected in the range of 16.5% to 17.5% for the second quarter.

2014 Outlook

The company expects positive total enrollment growth and operating margin improvement in 2014.

Other Stocks to Consider

Capella Education Company carries a Zacks Rank #3 (Hold).  Better-ranked stocks worth considering in the education sector include DeVry Education Group Inc. (DV), K12, Inc. (LRN) and TAL Education Group (XRS). All the companies carry a Zacks Rank #2 (Buy).

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