Corinthian Beats, Plans Layoffs

SANTA ANA, Calif. ( TheStreet) -- Corinthian Colleges ( COCO) beat top- and bottom-line expectations for its 2011 fiscal second quarter, but the postsecondary education provider forecast slower student enrollment growth and said it plans to raise tuition fees and trim its workforce.

Corinthian said early Tuesday it earned adjusted quarterly profits of $19.1 million, or 23 cents per share, beating Wall Street's expectations for earnings of $19 million, or 22 cents per share.


Corinthian said it took $206.0 million in impairment, facility closing and severance charges in the recent quarter. Unadjusted for those one-time items, Corinthian booked net losses of $163.7 million, or $1.94 loss per share, compared with year-earlier profits of $39.4 million, or 44 cents per share. Analysts typically exclude such extraordinary items when forecasting earnings estimates.

Corinthian said its total student population grew 13.3% year-over-year to 105,498, as of Dec. 31, but that on a pro forma basis, including the Heald student population, the company's total student roster decreased 0.5%. Corinthian completed its acquisition of Heald Capital, the parent company of Heald College, in January of 2010.

Total new students decreased 8% to 26,831. On a pro forma basis, new student growth declined 17.7%.

Even so, investors were pleased with Corinthian's current-quarter outlook, which was in line with analysts' consensus, bidding Corinthian shares 5.1% higher in morning trading Tuesday to $5.55.

Corinthian forecast fiscal-third quarter revenue in a range between $462 million and $472 million, with earnings-per-share in a range of 20 cents to 22 cents. It also said new student growth should decline between 15 cents and 17 cents.


The company said it plans to cut 4% of its workforce in the current quarter, or around 672 workers, and expects the layoffs to result in annualized savings of $60 million.

Education peer DeVry ( DV) saw its shares edge 0.1% lower Tuesday morning.

DeVry topped Wall Street's quarterly expectations in January with higher profits and revenue despite a decline in new student enrollment at its namesake university.

DeVry booked a 22.3% jump in quarterly profits to $88.7 million, or $1.25 per share. Revenue grew 16.6% to $551.5 million.

DeVry University's new undergraduate enrollment decreased 4.7% and total undergraduate enrollment rose 14.9% in the fall. At DeVry University's Keller Graduate School of Management, the number of course takers in November 2010 increased 11.9%.

At DeVry's Chamberlain College of Nursing, new student enrollment in the fall increased 42% and total students increased more than 58%.

An attractive segment in the education space this year is in schools that offer nursing programs, as DeVry does through its Chamberlain school. Citi analyst James Samford said schools should benefit from nursing-student enrollment after U.S. nursing schools turned away nearly 55,000 qualified applicants in 2009 due to budget restraints and an insufficient number of faculties. The analyst noted that the Bureau of Labor Statistics has indicated upwards of 581,500 new registered nurse positions will be created through 2018, boosting the RN workforce by 22%.

Stocks in the education sector underperformed the S&P 500 last year for the second consecutive year. Performance in 2011 is expected to remain volatile amid regulatory uncertainty, but TheStreet takes a closer look at key industry players and how each is expected to perform.

The Department of Education is expected to unveil a final version of what is known as the "gainful employment" rule which would cut federal aid to schools with more than 65% of students unable to repay hefty loans. Federal aid to for-profit education providers came to nearly $150 billion in the last academic year.


RBC Capital Markets analyst Robert C. Wetenhall said he expects the final version "will be comparable to or less onerous than the previously published draft version." Still, he told TheStreet that it's "tough to get excited about the education sector's outlook" for 2011 given the lack of a hard catalyst, or "something dramatically material likely to provide torque to the stocks."

The Obama administration's proposed education regulations 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 would also be required to limit student enrollment to those who have high school diplomas or can readily demonstrate their readiness for university-level education. Schools must also comply with what is called the 90:10 rule in fiscal 2012, a rule stipulating that no more than 90% of a for-profit education provider's revenue may be generated from the DOE's federal student aid program.

Bob Phillips, managing partner at Spectrum Management Group, told TheStreet "the general macro outlook for the sector is not good." He views the education sector as "a bubble fueled by free government money."

Citi analyst Samford suggested investors "stick with the clicks," meaning schools that offer online postsecondary education programs as opposed to more traditional classroom and campus settings. He estimated that nearly a third of all students took at least one course online in 2010. Nearly half of students taking at least one online course, around 3 million, were taking programs exclusively online he said, a number he expects will grow to 5 million by 2015.

Samford also encouraged investors to consider schools with lower-priced programs. Even as the nationwide unemployment figure is expected to drop by 60 basis points this year, "sustained unemployment levels above 9% will continue to offset a complete tailwind reversal" that would normally affect school stocks during a recovery.

School stock peers Apollo Group ( APOL) and ITT Educational Services ( ESI) each topped Wall Street's expectations for their recently reported quarters.

Apollo Group, the parent company of University of Phoenix and other for-profit postsecondary education programs, posted fiscal-first quarter profits of $235.4 million, or $1.61 per share, down 2% from year-earlier earnings. Despite the profit decline, Apollo handily beat expectations for earnings of $1.35 per share, or $197.7 million.

Revenue came in at $1.33 billion, up 5.4% year-over-year.


RBC's Wetenhall said that "investors are starting to give Apollo credit for improving the quality of its business model, but remain cautious due to poor enrollment visibility."

Degreed enrollment at University of Phoenix declined 3.8% year-over-year to 438,100, though average enrollment during the quarter increased slightly, helping to boost Apollo's revenue.

The company added that it does not expect materially unfavorable findings from the Department of Education's review of the education sector that began in December of last year, looking into for-profit school programs funded with federal aid.

Following ITT's better-than-expected 2010 fourth-quarter earnings report, Barrington Research analyst Alexander Paris maintained an outperform rating on ESI shares and lifted his price target by $5 to $80, but he lowered his revenue and earnings-per-share expectations for 2011. The analyst now expects ITT to book full-year earnings of $9.15 per share, down from his prior estimate for $12.20, and expects 2011 revenue to come in at $1.47 billion, down from $1.74 billion.

Deutsche Bank analysts lifted their price target on ITT shares by $25 to $75, maintaining a hold rating on the stock. Analysts from RBC Captial Markets also raised their price target on ITT, from $64 to $76, and set a sector perform rating on the stock. Zacks Investment Research, meanwhile, downgraded ITT to underperform, from neutral.

While total enrollment grew, new enrollments fell 9.4% in the October-December quarter, compared with a 3.9% decline in the prior quarter, and the school cautioned that enrollments would continue to drop in coming quarters.

ITT forecast 2011 EPS of $10.50 and said profit margins will decline as student enrollments drop.

Barrington's Parris noted that while "management has been relatively quiet on the issue of gainful employment, especially with the potential significant impact to earnings, we were encouraged that management decided to include an estimate (although we're still unclear as to what extent it is included) of its impact in their 2011 guidance," underscoring that "guidance provides a slight relief of uncertainty surrounding gainful employment risks."


-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

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