Universal Technical Institute Inc. (UTI”>UTI) recently posted better-than-expected third-quarter 2011 results. The quarterly earnings of 27 cents a share topped the Zacks Consensus Estimate of 21 cents, and climbed 8% from 25 cents earned in the prior-year quarter.
Behind the Headline
Net revenue for the quarter climbed 1.3% to $108.9 million from the prior-year quarter, and came ahead of the Zacks Consensus Estimate of $105 million. The increase in revenue reflects a rise in tuition fees, partially offset by a fall in average undergraduate full-time student enrollment.
The educational institute, which provides professional automotive, diesel, collision repair, motorcycle and marine programs, reported that average undergraduate full-time enrollment dropped 3.8%. Student starts for the quarter plummeted 32.5%.
Universal Technical’s leading position in providing technical education to aspiring automotive professionals and its business model of working closely with leading original equipment manufacturers provide the company a competitive advantage.
However, management hinted that the regulation proposed by the Department of Education is weighing upon student enrollments.
The Department of Education proposed that an educational program could only qualify for Title IV funds, if it helps in achieving gainful employment, which includes the criteria of loan repayment rate and debt-to-income ratios. The company derives a major portion of its revenues from federal student financial aid programs, the Title IV programs. The education institutions are also under the scanner due to the rise in the default rate of student loans.
Universal Technical warned that enrollment of new students for the fourth quarter and fiscal 2011 will be below the prior periods, and consequently result in a low single-digit revenue growth.
Universal Technical informed that EBITDA for the quarter tumbled 11.2% to $13.2 million, whereas EBITDA margin contracted 180 basis points to 12.1%. Operating income plunged 32% to $6.7 million in the quarter, whereas operating margin shriveled 30 basis points to 6.2%.
Universal Technical continues to forecast operating margin between 11% and 13% for fiscal 2011 based on effective cost management.
Other Financial Details
Universal Technical ended the quarter with cash and cash equivalents of $37.1 million and shareholders’ equity of $135 million. The company generated operating cash flow of $2.7 million during the quarter. Return on equity for the trailing four quarters ended June 30, 2011, came in at 24% compared with 25.6% for the trailing four quarters ended September 30, 2010.
Currently, we have a long-term ‘Underperform’ rating on the stock. Universal Technical, which competes with Corinthian Colleges Inc. (COCO”>COCO), holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation.
CORINTHIAN COL (COCO): Free Stock Analysis Report
UNIVL TECH INST (UTI): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment