Shares of Universal Technical Institute, Inc. UTI increased 11.24% as the company reported better-than-expected second-quarter fiscal 2015 results.
Adjusted earnings of 2 cents per share comfortably surpassed the Zacks Consensus Estimate of a loss of 11 cents. Adjusted earnings were also a huge improvement from the prior year quarter loss of 7 cents. We believe that the bottom line was driven by lower advertising expense and bad debt expense and higher revenue per student.
Quarter in Detail
Revenues of $91.2 million beat the Zacks Consensus Estimate of $89 million by 2.5%. Net revenues decreased 3.7% from the prior-year quarter as an increase in revenue per student was mostly offset by a decline in enrollments. The company’s revenues excluded $5.7 million of revenues related to the loan program during the quarter, lower than $6.6 million in the prior-year quarter. The company intends to include the amount as students pay back their debt.
Universal Technical reported an 8.9% decline in average undergraduate full-time enrollment in the second quarter. Student starts declined 12.9% in the quarter, owing to fewer applications in the prior quarters. However, new student starts were better than management expectations, owing to stronger show rates.
Universal Technical’s enrollments have been sluggish for many quarters due to regulatory challenges, changes and competition in the higher education industry. Enrollment trends throughout the industry have been affected by changing regulatory requirements, sluggish demand due to students’ aversion to debt and robust competition.
However, revenue per student improved 4.6% in the quarter on the back of higher registration fee.
Operating income of $2.4 million in the second quarter compared favorably with operating loss of $1.6 million in the prior-year quarter. The favorable performance was driven by a decline in compensation costs, lower advertising expense and bad debt expense, partially offset by lower revenues. As a percentage of revenues, advertising expense improved 30 basis points to 12.8%.
Fiscal 2015 Outlook
The company maintained its guidance for fiscal 2015. Fiscal 2015 student starts and total enrollment are expected to decline in mid-single digits. Revenues are expected to decline in the range of 3% to 4% as a hike in annual tuition is expected to be partially offset by a decline in enrollment levels.
However, the company expects operating income (excluding the impact of pre-opening costs of new campuses) to increase year over year on the back of higher cost efficiency
The company expects student starts and applications to rebound in the second half of 2015, with year over year increases in the fourth quarter of fiscal 2015. This should have a positive impact on enrollment trends in 2016.
Capital expenditures are expected to be about $35 million.
Universal Technical carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the education industry include National American University Holdings, Inc. NAUH, TAL Education Group XRS and New Oriental Education & Technology Group Inc. EDU. While National American University and TAL Education Group sport a Zacks Rank #1 (Strong Buy), New Oriental Education & Technology carries a Zacks Rank #2 (Buy).
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