Strayer Education Inc. (STRA) recently posted second quarter 2012 earnings of $1.85 per share, missing the Zacks Consensus Estimate by a penny. Earnings also plunged 27% from the year-ago earnings due to top-line decline. However, earnings were in the middle of the guided range of $1.84 and $1.86 per share.
Total revenue in the quarter dropped 11% from the prior-year quarter to $146.3 million, due to weak enrollments. Total revenue missed the Zacks Consensus Revenue Estimate of $148 million.
Quarter in Detail
Strayer University’s total enrollment for the 2012 summer term declined 7% to 44,236 students. New student enrollments were up by an encouraging 9% year over year. However, continuing student enrollment dropped 11% due to the declining continuation rate in the quarter.
Of all the students 33% are graduates, while 67% are undergraduate students. Business and accounting students comprised roughly two-thirds of that population.
Total campus-based students fell 9% to 39,483 and global online student enrollment went up 8% year over year to 4,753. Students taking full-time online classes went down 6% during the quarter.
The company’s convenient evening, weekend and online courses attract corporate alliances and community college articulation agreements.
New students from the national account increased 11%, as the company signed six new corporate agreements in the quarter. Students enrolling from community college articulation agreements grew 20%.
Investment in new campuses is an important part of the company’s growth strategy. The company regularly opens new campuses every year, both in new states and markets.
Enrollment at mature campuses (67 in operations for more than 3 years) tumbled 12% to 35,331, whereas enrollment at new campuses (29 in operations for 3 years or less) jumped 31% to 4,152. The company opened four new campuses during the summer term of 2012.
While two of the new campuses are located in Minneapolis, Minnesota, the other two have come up in Chicago, Illinois. In addition to the four new campuses discussed, the company plans to open four additional campuses during 2012, as a part of its plan to open eight new campuses during the year.
Operating income in the quarter plummeted 28% to $36.2 million, whereas, operating margin contracted 590 basis points to 24.7%. Bad debt expense as a percentage of revenues was 4.4% in the second quarter versus 4.1% in the prior-year quarter.
Other Financial Details
Strayer Education ended the quarter with cash and cash equivalents of $48.7 million as compared with $52.7 million generated in the prior quarter. Capital expenditures were $9.9 million at the end of June 30, 2012, compared with $4.1 million at the end of March 31, 2012.
During the quarter, Strayer Education paid a total dividend of $11.8 million ($1.00 per share) and had $80 million at its disposal under its share repurchase authorization. The company did not repurchase shares in the second quarter.
Guidance for 2012
Strayer Education expects third quarter 2012 earnings to lie in the range of 30 cents and 32 cents per share. The Zacks Consensus Estimate is pegged at 68 cents for the third quarter and $6.94 per share for the full year. Operating margin is expected to be in the 5% to 6% range for the quarter.
For 2012, revenues are expected to be down approximately 1% to 2% year on year.
We are encouraged by Strayer’s strong brand position and its geographic expansion strategy of opening new campuses every year, both in new states and markets.
Further, the company’s corporate alliances give it a competitive advantage and contribute significantly to growth. On the flip side, no matter the new enrolment growth, the company continues to suffer from a difficult regulatory environment as well as weak student demand.
Currently, Strayer Education has a long-term Neutral recommendation on the stock. We hold a Zacks #3 Rank in the near term (Hold rating).
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