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Capella reports 25 percent drop in profit

MINNEAPOLIS (AP) -- Capella Education's net income fell 25 percent in the second quarter as tightening industry regulation crimped enrollment.

The Minneapolis company expects total enrollment to decline by about 3.5 percent to 4.5 percent in the current quarter from the year-ago period. Revenue is also expected to fall by 3.5 percent to 4.5 percent.

For-profit colleges have come under intense scrutiny regarding their graduation rates, particularly since the students often take out federal loans to attend. Every company in the sector declined Tuesday, the biggest plunge being taken by DeVry. DeVry announced late Monday that it would cut hundreds of jobs because of declining enrollment.

As for-profit companies take steps to comply with new regulations and improve the quality of their programs — at the risk of losing federal aid availability for students — profits have been trimmed.

For the three months ended June 30, Capella said it earned $11.4 million, or 85 cents per share. That's compared with $15.5 million, or 99 cents per share, in the year-ago period. Revenue was $106.2 million, down from $106.4 million a year ago. Operating margin fell to 17 percent, compared with 22.5 percent a year ago and costs and expenses rose.

Total active enrollment in the quarter fell 4.6 percent; new enrollment declined by 6 percent from the year-ago period.

For the third quarter, the company said operating margin is expected to worsen to 5 percent to 6 percent of total revenue, from 14.5 percent a year ago, in part because of increased marketing expenses.

Shares of Capella Education Co. slipped 24 cents to $28.18.