Share prices of DeVry Education Group Inc.’s (DV) gained 1.03% as the company’s first quarter fiscal 2015 earnings of 47 cents surpassed the Zacks Consensus Estimate of 31 cents by 51.6%. Also, adjusted earnings increased 113.6% from the prior-year quarter earnings of 22 cents due to top-line increase and lower costs.
Revenues and Enrollments
DeVry’s quarterly net sales grew for the second time in a row. Sales were up 2.5% year over year to $462.0 million. Also, net sales surpassed the Zacks Consensus Estimate of $455 million by 1.5% and were in line with management’s expectations of delivering modestly positive growth in the quarter.
Once again, the relatively strong growth in the healthcare, professional and international businesses was partially offset by continued revenue decline at DeVry University, which accounts for half of the company’s revenues.
Lower Costs
Operating income of $24.6 million increased 139.9% year over year. Operating costs decreased 0.7% year over year to $437.4 million in the first quarter against the company’s expectation of a year-over-year increase. The decline in operating costs was driven by lower student services and administrative expense during the quarter.
Segment Discussion
Business, Technology and Management: This segment includes operations of the company’s largest subsidiary, DeVry University, which offers both graduate and undergraduate courses.
The segment recorded revenues of $203.6 million, down 12% year over year, due to lower enrollments. DeVry University has been witnessing enrollment declines for the past few quarters as the result of an overall economic downturn and lack of student confidence, which reduced demand.
For the September session, total undergraduate student enrollments and graduate course takers at Keller College declined 15.1% and 13.4%, respectively.
New undergraduate student enrollment declined 20% in the September session.
Medical and Healthcare: The segment consists of Ross University Medical and Veterinary Schools, AUC, Chamberlain College of Nursing and Carrington.
The segment reported revenues of $206 million, up 17% year over year, driven by growing demand and campus expansions.
Revenues at DeVry Medical International (DMI – which includes Ross University and AUC) grew 9% driven by an increase in clinical rotations and tuition. At Chamberlain College of Nursing, revenues grew 36% driven by solid enrollment growth of post licensure programs. At Carrington Colleges, revenues grew 4%.
Total enrollments increased 33.3% at the Chamberlain College of Nursing for the Sep 2014 session. However, the same decreased 0.9% at the Carrington Colleges Group for the three months ended Sep, 2014. At DMI, total enrollments decreased 0.8% for the same period.
New student enrollments (post-licensure programs only) increased 14.3% at the Chamberlain College of Nursing for the September sessions. DMI new enrollments dipped 3.6% for the Sep term. Moreover, new enrollments decreased 4% at the Carrington Colleges for the three months ended Sep 30, 2014.
Segment operating income improved 52% in the quarter to $38.3 million as a result of turnaround efforts at Carrington and a solid increase in demand for Chamberlain’s post licensure programs.
International and Professional Education: The segment includes professional exam review and training operations of Becker Professional Review and DeVry Brasil.
The segment recorded revenues of $53 million, up 22% year over year driven by top-line growth at both DeVry Brasil and Becker. DeVry Brasil revenues grew 25% year over year. Becker Professional Education’s revenues increased 18% year over year, driven by the launch of Becker One, a new curriculum delivery system where Becker students can access content updates on a regular basis.
Segment operating income of $4.7 million increased significantly from $0.4 million in the prior year quarter due to top-line growth.
Second Quarter 2015 Outlook
For fiscal second quarter 2015, the company expects revenues to be down modestly due to enrollment declines at DeVry University and the impact of Becker One. However, lower operating costs in the second quarter are expected to offset the impact of softer revenues.
2015 Outlook
Management maintained its guidance for full year 2015. In fiscal 2015, the company expects to see year-over-year revenue growth at its healthcare, professional, and international institutions. However, revenues are still expected to decline at the DeVry University. Revenue per student at DVU is expected to be down 1% to 2%.
In fact, the healthcare and international segments are expected to contribute a progressively larger portion of revenues/earnings in fiscal 2015.
Effective income tax rate from operations for the year will be in the 17% to 18% range, reflecting higher levels of income from international operations. For fiscal 2015, capital spending is expected to be in the range of $100 to $110 million, with approximately 80% being deployed to healthcare and international institutions, as the company invests in new programs, locations and infrastructure. Management raised the cost saving target for fiscal 2015 from $70 million to $90 million.
DeVry Education carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the education industry worth considering include GP Strategies Corp. (GPX), Lincoln Educational Services Corporation (LINC) and Universal Technical Institute, Inc. (UTI). While GP Strategies sports a Zacks Rank #1 (Strong Buy), Lincoln Educational Services Corporation and Universal Technical Institute both carry a Zacks Rank #2 (Buy).
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