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DeVry Education Q3 Earnings Beat, Sales Lag, Shares Fall - Analyst Blog

Zacks Equity Research

Shares of DeVry Education Group Inc. DV plunged 5.51% in after-hours trading after it announced soft third-quarter fiscal 2015 results.

The education company outlined its turnaround strategy for DeVry University, its largest subsidiary, which has been consistently reporting weak enrollment trends.

Adjusted earnings (excluding special items) of 70 cents per share beat the Zacks Consensus Estimate of 68 cents by 2.9% but declined 19.5% year over year. Lower revenues and increased costs hurt earnings.
 

Devry Education Group Inc. - Earnings Surprise | FindTheCompany

 

Quarter Details

DeVry’s quarterly net sales declined 1.3% year over year to $489.8 million and missed the Zacks Consensus Estimate of $496 million by 1.25%. The net sales decline was worse than management’s expectation of flattish results.

The for-profit education company’s total post-secondary enrollments increased 18.3% on the back of strong enrollment trends at Chamberlain College of Nursing and DeVry Brazil. New enrollments grew 40.9% year over year.

Adjusted operating costs increased 1.6% year over year owing to investments made to support growth at health care 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 $203.8 million, down 15.7% year over year, due to lower enrollments. DeVry University has been witnessing enrollment declines over the past few quarters due to lower demand.

In the March session, total enrollments and new enrollment of undergraduate students declined 15% and 17.2%, respectively. Enrollments of graduate course takers, including the Keller Graduate School of Management, declined 9.5% during the quarter.

Adjusted operating income of $5.6 million decreased 75.1% year over year. 

The company is undertaking several new student focused initiatives at DeVry University to return to growth and transform this business. In order to drive growth in the near term, the company intends to invest in its strongest markets and programs, reduce its cost structure, and re-launch the DeVry University brand. The company intends to improve its teaching and learning model, affordability and strengthen employer workforce solutions.    

Medical and Healthcare: The segment consists of DeVry Medical International (includes 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 $225.4 million, up 10.2% year over year, driven by strong revenue increase at Chamberlain College of Nursing and Carrington Colleges.

At Chamberlain College of Nursing, revenues grew 25.3% driven by solid enrollment growth of pre-licensure and post licensure programs (masters and doctoral programs). This increase was driven by solid demand for nurses with advanced degrees. Total enrollment for the March session increased 27.1%.  New enrollment for the March session increased 3.5%.  During the first quarter of 2015, Chamberlain opened locations in Troy, Michigan, and Las Vegas.

At Chamberlain College of Nursing, the company expects more than $360 million in revenues at the end of 2015, which will mark a year-over-year increase of over 25%. For fiscal 2016, the company expects new enrollment at Chamberlain to increase in the range of 4% to 6% and total enrollment to increase in the mid-teens range.  

At Carrington Colleges, revenues rose 2.8% in the quarter. Total enrollment during first quarter 2015 decreased 1.5%. while new enrollments decreased 2.7% owing to fewer class starts in the quarter.  

Segment operating income increased 2.5% to $45.8 million on the back of solid business at Chamberlain College of Nursing and Carrington Colleges.

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 $61.1 million, up 20.3% year over year driven by top-line growth in DeVry Brasil.

DeVry Brasil revenues grew 38.8% year over year, driven by improved enrollment trends. New enrollments in the March term increased 105.5% year over while total enrollment increased 77.9% year over year.  

Becker Professional Education’s revenues declined 0.7% year over year due to softer demand for the CPA course.

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-than-anticipated launch resulted in a hurt second quarter revenues by about $4 million.

Segment operating income declined 26.9% to $4.63 million year over year due to lower Becker revenues.

DeVry carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the education industry include Career Education Corp. CECO, New Oriental Education & Technology Group Inc. EDU and TAL Education Group XRS. While Career Education and New Oriental Education & Technology sport a Zacks Rank #1 (Strong Buy), TAL Education holds a Zacks Rank #2 (Buy).


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