Universal Technical Institute, Inc. (UTI) reported first-quarter fiscal 2015 adjusted earnings (excluding severance costs) of 15 cents per share which beat the Zacks Consensus Estimate of 4 cents by 275% and the prior year quarter earnings of 7 cents by 114%. We believe that earnings growth in the quarter was driven by solid margin increase and higher revenue per student.
Quarter in Detail
Revenues of $95.7 million beat the Zacks Consensus Estimate of $92 million by 3.5%. Net revenue decreased 1.4% 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 $6.3 million in the prior-year quarter. The company intends to include the amount as students pay back their debt.
Universal Technical reported a 6.9% decline in average undergraduate full-time enrollment to 13,400 in the first quarter. Student starts declined 13.6% to 1,900 in the quarter, owing to lower volume of new students.
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 4.8% in the quarter on the back of higher registration fee.
Operating income of $5.6 million in the first quarter increased 80.7% from the prior-year quarter. Operating margin rose 270 basis points to 5.9% during the quarter. Increase in operating income and margin in the quarter was driven by a decline in compensation costs, contract services expense and occupancy expense, partially offset by lower revenues and higher advertising expense
Financial Update
Universal Technical had cash and cash equivalents and investment of $91.2 million as of Dec 31, 2014, compared with $96.1 million as of Sep 30, 2014. As of Dec 31, 2014, the company paid shareholders $2.5 million as cash dividends.
Fiscal 2015 Outlook
The company maintained its guidance for fiscal 2015, barring the one for capital expenditure.
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 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, which should have a positive impact in 2016.
Capital expenditures are expected to be about $35 million, higher than prior expectation of $24 million, as the company invested in a new campus and the Houston campus.
Universal Technical carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Investors interested in the education industry can also consider stocks like Capella Education Co. (CPLA), Bright Horizons Family Solutions, Inc. (BFAM) and GP Strategies Corp. (GPX). All three companies carry a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment