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DeVry Beats on Q3 Earnings, Revs

Zacks Equity Research

DeVry Education Group Inc. (DV) beat the Zacks Consensus Estimate for both revenues and earnings in the third quarter of fiscal 2014, for the second quarter in a row.
Adjusted earnings of 87 cents per share beat the Zacks Consensus Estimate of 75 cents by 16.0% in the third quarter of fiscal 2014. We believe that the company’s return to positive enrollment in the quarter contributed to the earnings beat. Earnings, however, declined 6.5% from the prior-year quarter due to a year-over-year decline in total revenue.

Adjusted earnings exclude restructuring charges (related to workforce reduction and real estate optimization) and gain on sales of assets.

Revenues and Enrollments

DeVry’s quarterly net sales fell 1.5% year over year to $496.1 million as the relatively strong growth in the healthcare, professional and international businesses was offset by continued revenue decline at the flagship DeVry University, which accounts for half of the revenues.

Revenues, however, beat the Zacks Consensus Estimate of $492 million, which, we believe, was due to strong sales at growth institutions like Chamberlain, Ross, Becker and DeVry Brasil.

The company’s total post-secondary enrollments across all its programs were up 1.7% driven by double-digit enrollment increase at the Chamberlain College of Nursing and DeVry Brasil.

Costs Details

Operating costs (excluding restructuring charges) decreased slightly year over year to $426.6 million in the third quarter.  Cost of educational services increased 2.5% and student services and administrative expenses decreased 2.9% in the quarter.
The company is following a strict cost-control routine and is particularly looking to combat escalating costs at DeVry University and Carrington Colleges.

Segment Discussion

Business, Technology and Management: This segment includes operations of the company’s largest subsidiary, DeVry University, which offers both graduate and undergraduate courses.

The segment recorded revenues of $241.9 million, down 14.7% year over year, due to lower enrollments and lower revenue per student (down 1%). DeVry University has been witnessing enrollment declines for the past few quarters as a result of overall economic downturn and lack of student confidence, which has reduced demand.

Higher use of scholarships during the past several sessions to lure students is lowering revenue per student.

For the March session, total undergraduate student enrollments, and graduate course takers at Keller College declined 10.4%, and 15.1% respectively. Total undergraduate student enrollments decline was narrower than 15.1%, and 18.0%, respectively in the January session.

New undergraduate student enrollment declined 2.5% for the March session, narrower than a decline of 7.9% in the January session.

In the quarter, the company reported adjusted income of $23 million, lower than $35.0 million in the prior-year quarter due to lower revenues and decreased operating leverage.

Medical and Healthcare: The segment consists of Ross University Medical and Veterinary Schools, AUC, Chamberlain College of Nursing and Carrington Colleges.

The segment reported revenues of $204.6 million, up 16.8% year over year, driven by growing demand and campus expansions.

Total enrollments increased 37.4% at the Chamberlain College of Nursing for the March session versus 32.2% in the January session, owing to strong demand for Family Nurse Practitioner and Doctor of Nurse Practitioner degree programs. However, the same decreased 2.4% at the Carrington Colleges Group for the three months ended Mar 31, 2014 but increased 13.5% at DeVry Brazil for the March term.

New student enrollments (online only) increased 55.5% at the Chamberlain College of Nursing for the March session compared with 55.7% in the January session. However, new enrollments declined 6.0% at the Carrington Colleges for the three months ended Mar 31, 2014, and 19.7% at DeVry Brazil for the March term.

Carrington Colleges’ new enrollments have slowed down in the past few quarters from double-digit increases seen in the first three quarters of fiscal 2013 as the company suspended recruitment for some non-core programs as part of its turnaround efforts.

Segment operating income improved 28% in the quarter to $46 million due to narrower losses as a result of turnaround efforts at Carrington and a solid increase in Chamberlain’s post licensure programs.

International and Professional Education: The segment includes professional exam review and training operations of Becker Professional Review and DeVry Brasil.

The segment recorded revenues of $50.8 million, up 9.7% year over year, largely driven by top-line growth at both DeVry Brasil and Becker. DeVry Brasil revenues grew 15% in the quarter, gaining from the recent acquisition of Facid as well as strong organic growth. Becker Professional Education’s revenues increased 5% year over year.

Financial Details

DeVry ended the quarter with cash and cash equivalents of $396.8 million as of March 31, 2014, compared with $262.0 million at the end of the second quarter of fiscal 2014.

Fourth Quarter 2014 Outlook

For the fourth quarter of fiscal 2014, the company expects revenue growth from all the institutions except DeVry University. The company expects operating cost to decline year over year, but increase sequentially in the quarter.

For fiscal 2014, capital spending is expected to be in the range of $70 million to $80 million, lower than prior expectations of $90 to $100 million. The company has also raised its total cost savings target for institutions in transition to at least $100 million, up from prior expectation of $60 million.

DeVry carries a Zacks Rank #2 (Buy).  

Other Stocks to Consider

Other stocks worth considering in the building/construction sector include Apollo Education Group, Inc. (APOL), Strayer Education Inc. (STRA) and TAL Education Group (XRS). All the companies carry a Zacks Rank #2.


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