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DeVry (DV) Lags Q2 Earnings & Revenues; Q3 Costs to Rise - Analyst Blog

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Shares of DeVry Education Group Inc. (DV) plunged almost 10% in after-hours trading following the lower-than-expected second-quarter fiscal 2015 results.

Adjusted earnings (excluding restructuring costs) of 75 cents per share missed the Zacks Consensus Estimate of 78 cents by 3.8% and declined 6.3% from the prior-year quarter figure of 80 cents. Lower revenues and higher growth investments hurt earnings.

Devry Education Group Inc. - Earnings Surprise | FindTheBest

Revenues and Enrollments Decline

DeVry’s quarterly net sales declined 1.3% year over year to $484.9 million and missed the Zacks Consensus Estimate of $491 million by 1.2%. As expected, revenues declined due to lower revenues at DeVry University and Becker.

The for-profit education company’s total post-secondary enrollments across all its programs (excluding Becker) declined 0.1% as double-digit enrollment increase at Chamberlain was offset by lower enrollments at DeVry Medical International (DMI) and persistent weak enrollment trends at DeVry University. Total enrollments declined sequentially from an increase of 0.4% in the first quarter. New enrollments grew 6.4%.

Lower Costs

Adjusted operating costs decreased 0.5% year over year as cost controls at DeVry University offset investments made to support growth at healthcare schools.

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 $214 million, down 12.3% year over year, due to lower enrollments. DeVry University has been witnessing enrollment declines over the past few quarters due to lower demand.

For the November session, total undergraduate student enrollments and graduate course takers at Keller College declined 12.6% and 9.8%, respectively. Total undergraduate student enrollments were better than 15.1% decline in the September session.

For the January session, total undergraduate student enrollments and graduate course takers at Keller College declined 15.9% and 12.8%, respectively.

New undergraduate student enrollment declined 12.9% and 12.8% in the November and January sessions, respectively.

In the March session, management expects better enrollment trends compared with January.

Adjusted operating income of $11.1 million increased 11.9% year over year due to solid expense management. The company is following a strict cost-control routine at the DeVry University.

Management expects enrollment declines to persist and lower revenues in fiscal 2015.

Medical and Healthcare: The segment consists of Ross University Medical and Veterinary Schools, American University of the Caribbean School of Medicine (AUC), Chamberlain College of Nursing and Carrington.

The segment reported revenues of $214 million, up 12% year over year, driven by growing demand and campus expansions. All the institutions witnessed top-line growth, especially Chamberlain.

At Chamberlain College of Nursing, revenues grew nearly 30% driven by solid enrollment growth of post licensure programs (masters and doctoral programs) because of the great demand for nurses with advanced degrees. Revenues at DMI - which includes Ross University and AUC - grew 4%. At Carrington Colleges, revenues rose 1%.

For the November and January sessions, total enrollments increased a respective of 32.3% and 27.1% at the Chamberlain College of Nursing. At DMI, total enrollments decreased 7.9% for the January session due to enrollment management issues. However, the same increased only 1.2% at the Carrington Colleges Group for the three months ended Dec 2014 due to the favorable timing of session start dates.

New student enrollments (post-licensure programs only) increased 9.5% and 5.7% at the Chamberlain College of Nursing for the November and January sessions, respectively. DMI new enrollments dipped 3.8% for the January term. However, new enrollments improved 14.4% at the Carrington Colleges for the three months ended Dec 31, 2014 driven by the demand for medical and veterinary programs and a change in the timing of program starts from the first quarter into the second.

Segment operating income declined 2.9% to $38.1 million as top-line growth was offset by investments made to support growth and a larger share of home office costs.

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 $61.2 million, down 0.3% year over year as top-line growth in DeVry Brasil was offset by a decline at Becker. DeVry Brasil revenues grew 22% year over year, driven by improved enrollment trends.

Becker Professional Education’s revenues declined 26% year over year due to timing shift from Becker One and softness in the number of CPA exam candidates.

Becker One, a new curriculum delivery system where Becker students can access content updates on a regular basis was launched in the first quarter. However, the launch was due in the second quarter. The earlier launch resulted in a shift of about $4 million in revenues into the first quarter.

Segment operating income declined 33.2% to $10.5 million year over year due to lower Becker revenues.

Third-Quarter 2015 Outlook

For fiscal third-quarter 2015, the company expects revenues to be flat as declines at DeVry University will be offset by positive revenue growth at other institutions. However, operating costs are expected to increase sequentially in the third quarter due to campus expansion at Chamberlain, recent acquisitions in Brazil and higher advertising costs at DeVry University.

Stocks to Consider

DeVry carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the education industry include Capella Education Co. (CPLA), GP Strategies Corp. (GPX) and Bright Horizons Family Solutions, Inc. (BFAM). All these stocks have a Zacks Rank #2 (Buy).


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