Lincoln Beats on Record Revenue, Profits

Lincoln Educational Services' shares soar after the for-profit education provider posts record revenue, margins and earnings per share.
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WEST ORANGE, N.J. (

TheStreet

) --

Lincoln Educational Services

(LINC) - Get Report

offered up the latest earnings announcements from the for-profit education sector Wednesday, beating expectations.

Lincoln Educational Services posted record third-quarter revenues, margins and earnings per share, though top-line results came in shy of expectations.

Commenting on

newly proposed Department of Education regulations, Lincoln said it is operating on the assumption that some version of those rules will be enacted in 2011.

>>School Stocks Tumble on GOP Win

"While we believe that these rules will have an impact on our profitability, at this time, we do not believe that their enactment will pose a significant threat to our overall educational model, as the majority of our campuses offer programs that are short in length, incur manageable debt levels and lead to viable technical careers," Lincoln said.

The

new rules cover everything from restricting incentive-based recruiting practices, the need for new job-training courses and taking action against schools which fail to advertise honestly to requiring schools to notify students of graduation and job placement rates.

Institutions will also be required to limit student enrollment to those who have high school diplomas or can readily demonstrate their readiness for university-level education.

The rules will go into effect in the middle of next year, in time for the fall 2011 semester.

Lincoln plans to reduce its number of ability-to-benefit students (ATB) in an effort to comply with the 90:10 rule, which stipulates that no more than 90% of a for-profit education provider's revenue may be generated from Department of Education's federal student-aid program. It also plans to adjust its programs to reduce student debt and improve related debt-to-income ratios for graduates, and improve graduation rates overall.

Lincoln missed top-line expectations despite a 12.7% boost to its quarterly revenue, posting sales of $167.2 million, up from $148.4 million. Analysts expected revenue of $167.5 million.

Revenue growth was attributed to a 10.6% increase in average student population. Revenue per student rose 1.9%, mostly due to tuition increases, which range from 3% to 5% annually, offset by shifts in program mix.

Lincoln said quarterly profits grew 38.3% to $18.9 million, or 76 cents per share, compared with year-earlier earnings of $13.7 million, or 50 cents per share. Results topped expectations for earnings of $16.4 million, or 62 cents per share.

Earnings growth came thanks to improved capacity utilization as Lincoln served a larger student population, it said. Capacity utilization increased to 66% in the quarter, from 63% in the third quarter last year.

Lincoln said operating income margins improved to 19.4% from 16.3%.

Lincoln repurchased $47 million of its common stock in the quarter, and announced a

new annual dividend of $1 per share, to be paid quarterly.

The West Orange, N.J.-based postsecondary education provider revised its previously issued guidance. It now expects student starts to be essentially flat to slightly negative for all of 2010.

The company said student population and revenue will "decrease modestly in 2011 from 2010 levels before gradually recovering in 2012," and that "these decreases will create downward pressure on our margins over the next 18 to 24 months" as it implements actions to remain compliant with new regulations.

A number of for-profit education providers -- including

DeVry

(DV)

,

Capella Education

(CPLA) - Get Report

,

ITT Educational Services

(ESI) - Get Report

,

Apollo Group

(APOL)

and

Corinthian Colleges

(COCO)

-- have warned of declining student enrollment in recent weeks, in anticipation of the new, more restrictive regulations.

Bridgepoint Education

(BPI) - Get Report

said Tuesday it expects student enrollment will fall as much as 7% sequentially in the current quarter.

>>Corithian Misses, Bridgepoint Beats

Lincoln expects 2010 revenue to range from $635 to $640 million and diluted earnings per share to range from $2.65 to $2.70. Analysts' consensus call is for full year revenue of $644.5 million and EPS of $2.47.

Lincoln shares surged 17.5% Wednesday to close at $14.52.

Industry peer

Educational Management Services

(EDMC)

reported its latest results after the closing bell, topping analysts' consensus call for top- and bottom-line results.

EDMC was mum, however, on the impact of the Obama administration's proposed legislation.

Education Management shares fell 5.6% in intraday trading ahead of its earnings report, and then tumbled 1.9% afterhours on its less-than-stellar outlook.

-- Written by Miriam Marcus Reimer in New York.

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