Bloomberg News

Apollo Profit Exceeds Analysts’ Estimates on New Enrollment

March 26, 2012

Apollo Group Inc. (APOL:US), the biggest U.S. for-profit college company, posted fiscal second-quarter profit and sales that topped analysts’ estimates as more new students signed up for classes.

Apollo also said that the Securities and Exchange Commission’s staff doesn’t intend to recommend enforcement action following an informal probe into its accounting that began in 2009.

Net income rose to $63.9 million, or 51 cents a share, in the three months ended Feb. 29, from a loss of $64 million, or 45 cents, a year earlier, Apollo, owner of the University of Phoenix, said today in a statement. Profit excluding some items was 58 cents a share, exceeding the 37-cent average of estimates (APOL:US) compiled by Bloomberg.

Apollo’s results suggest its efforts to screen out students who are unlikely to be successful may have started to pay off, said Peter Appert, an analyst at Piper Jaffray & Co. in San Francisco. The report indicates that fewer students are leaving, showing higher rates of “persistence.”

“It’s a positive data point,” Appert, who has a neutral rating (APOL:US) on Apollo shares, said in an interview. A financial turnaround is still “a ways off. We can’t declare victory yet.”

Apollo, based in Phoenix, fell 4.9 percent to $41.10 in extended trading at 6:54 p.m. New York time, after Co-Chief Executive Officer Gregory Cappelli told investors in a conference call that its new enrollments will continue to be “volatile.” The shares (APOL:US) gained 1.9 percent to $43.20 at the 4 p.m. close.

Student Enrollment

Consumer reluctance to take on education debt in a weak economy, growing competition among for-profit schools and negative publicity from government inquiries has hurt enrollment, Appert said. The U.S. Education Department has tightened regulations and Congress and state officials are scrutinizing their student-loan default rates, which are higher than at traditional schools.

As of the end of February, a total of 355,800 students were enrolled in Apollo degree programs, down 12 percent from a year earlier.

At the same time, new students signing up for classes increased 1 percent, in line with the company’s forecast last month. That forecast was down from an earlier projection of about 13 percent growth.

New student enrollment could “break into negative double digits” in the third quarter, Brian Swartz, chief financial officer, told investors in the conference call.

Full-Year Profit

While second-quarter sales (APOL:US) fell 7.5 percent to $969.6 million, they topped the average $931.6 million estimate of analysts.

Apollo reiterated its month-old forecast (APOL:US) for full-year profit of $625 million to $725 million, excluding one-time items. It said sales would be as much as $4.3 billion, exceeding the $4.25 billion average of estimates.

In 2010, to improve student retention, Apollo instituted a program to let students try out classes before enrolling.

The SEC investigation focused on the company’s revenue recognition practices, specifically on student refunds, refunds of federal student financial-aid to lenders, bad debt reserves and insider-trading policies and procedures, according to a company filing.

The Bloomberg U.S. For-Profit Education Index (USEDU) of 13 college companies climbed 2.4 percent today.

To contact the reporter on this story: John Hechinger in Boston at jhechinger@bloomberg.net

To contact the editor responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net


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Companies Mentioned

  • APOL
    (Apollo Education Group Inc)
    • $32.35 USD
    • 0.62
    • 1.92%
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