Universal Technical Institute, Inc.’s UTI adjusted loss of 12 cents per share in third-quarter fiscal 2015 was wider than the Zacks Consensus Estimate of a loss of 9 cents. Adjusted loss also reflected a significant decline from the prior-year quarter earnings of a penny due to softer revenues.
Quarter in Detail
Revenues of $85.1 million missed the Zacks Consensus Estimate of $89 million by 4.4%. Net revenues decreased 6.8% from the prior-year quarter due to lower enrollments partially offset by higher revenue per student. The company’s revenues excluded $5.1 million of revenues related to the loan program during the quarter, lower than $5.6 million in the prior-year quarter. The company intends to include the amount as students pay back their debt.
Universal Technical reported an 8.7% decline in average undergraduate full-time enrollment in the third quarter. Student starts remained flat in the quarter, owing to fewer applications in the prior quarters.
Universal Technical’s enrollments have been sluggish for many quarters due to regulatory challenges, changes and competition in the higher education industry. In fact, 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 2.9% in the quarter on the back of higher registration fee.
Operating loss of $4.0 million in the third quarter compared unfavorably with operating income of $1.0 million in the prior-year quarter. The weak performance was due to lower revenues, higher advertising expenses and cost related to opening of the Long Beach, CA campus, partially offset by lower compensation costs. As a percentage of revenues, advertising expenses increased 400 basis points to 14%.
Fiscal 2015 Outlook
The company has 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.
Meanwhile, the company expects student starts to rebound in fourth-quarter 2015. This should have a positive impact on enrollment trends in 2016.
Universal Technical carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Other favorably placed stocks in the education industry include Strayer Education Inc. STRA, ITT Educational Services Inc. ESI and New Oriental Education & Technology Group Inc. EDU. While Strayer Education sports a Zacks Rank #1 (Strong Buy), Educational Services and New Oriental Education & Technology Group carry a Zacks Rank #2.
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