Corinthian's Profit, Student Enrollment Falls

SANTA ANA, Calif. ( TheStreet) -- Corinthian Colleges ( COCO) said student enrollment continued to decline last quarter, pressuring its profit by 60%.

Corinthian, which operates Everest Colleges, also offered a mixed current-quarter forecast, saying it expects to earn between 11 cents and 13 cents per share, on revenue between $423 million and $433 million. Analysts were looking for a profit of 11 cents per share on revenue of $450 million.

Shares of Corinthian fell 3.2% to $4.30 in the first minutes of trading Tuesday morning.



Last year Corinthian discontinued enrolling ability-to-benefit (ATB) students, pressuring total student enrollment numbers in recent quarters. ATB students refer to those applicants who do not already possess a high school diploma. Corinthian stopped admitting those applicants in Sept., 2010, as it worked to improve its cohort default rates.

Corinthian said Tuesday it will "begin enrolling ATB students again in the near future."

New student enrollment plummeted 21.5% last quarter, while total enrollment was down by 8.9%.

CEO Jack Massimino also attributed a smaller student roster to "general economic conditions, negative industry publicity and uncertainties in the regulatory environment," as well a recent tuition increase instituted to comply with the federal 90/10 rule, a rule stipulating that no more than 90% of a for-profit education provider's revenue may be generated from the Department of Education's federal student aid program.

In the recent quarter, Corinthian earned $16.1 million, or 19 cents per share, down from $39.8 million, or 45 cents per share, earned in the year-earlier period. Revenue fell 3.3% to $462.3 million.

Last week DeVry ( DV) and Capella Education ( CPLA) topped quarterly profit expectations despite softer student enrollment.


While DeVry's total student roster grew, new undergraduate enrollment at its namesake university dropped 15.4%; at its Ross University, new student enrollment fell 8.2%.

For Capella Education, new student enrollment plummeted 35.8%, and it forecast new student starts would be down 40% in the fiscal second quarter as the impact of increased competition and recent measures instituted to remain in compliance with new Department of Education regulations pressure enrollment standards.

Capella said it increased marketing and promotion spending by 18% to $35.3 million as it works to retain its working adult student base, students deemed more likely to be able to pay back federal loans.

Federal student aid is among the primary sources of income for for-profit education providers.

Capella said tuition fee increases for the 2011-12 academic year would not be as severe as its previous tuition hikes, and the school said it would provide scholarships and grants in order to draw in more students.

Larger rival Apollo Group ( APOL), operator of University of Phoenix, said in March its new student starts dropped by 45%, and the school operator forecast declines in 2011 and 2012 revenue.

Even so, Apollo Group topped adjusted quarterly profit expectations , though it offered a soft student enrollment outlook for the University of Phoenix.

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.

Uncertainty has plagued the for-profit education sector since last summer.

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 recently 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."

Earlier this year, Capella said it planned to reduce its non-faculty workforce by around 8%, or 125 positions, resulting in a charge of about $2 million in the quarter ending March 31, 2011 and an annualized cost savings of approximately $12 to $12.5 million.

-- Written by Miriam Marcus Reimer in New York.

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

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