Tuesday, December 28, 2010

Apollo Group (NASDAQ: APOL): Q1 Earnings Preview 2011

Apollo Group, Inc. (NASDAQ: APOL) is scheduled to release its fiscal first-quarter financial results after the closing bell on January 10, 2011. Analysts, on average, expect the company to report earnings of $1.35 per share on revenue of $1.26 billion. In the year ago quarter, the company reported earnings of $1.47 per share on revenue of $1.27 billion.

Apollo Group, Inc. provides educational programs and services at the undergraduate, master?s, and doctoral levels. The Company offers educational programs and services both online and on-campus at the undergraduate, master’s and doctoral levels through its wholly owned subsidiaries, The University of Phoenix, Inc. (University of Phoenix); Institute for Professional Development (IPD); The College for Financial Planning Institutes Corporation (CFFP), and Meritus University, Inc. (Meritus).

In the preceding fiscal fourth-quarter, the Phoenix, Arizona-based company's net income was $41 million, or 28 cents a share, compared with $91.5 million, or 59 cents a share, in the year-earlier quarter. On an adjusted basis, the company earned $1.31 a share in the latest quarter. Revenue climbed to 17.4% to $1.26 billion from $1.07 billion. Analysts, on average, expected the company to report earnings of $1.30 per share on revenue of $1.26 billion. 

Apollo and the for profit education at large have been in the news quite often following the U.S. Department of Education release of a notice or proposed rulemaking on gainful employment. For-profit colleges are resisting a U.S. Department of Education proposal to restrict funding and objecting to a law that limits their revenue from government sources. The proposed restriction, called “gainful employment,” would tie eligibility for federal student-aid programs to graduates’ incomes and loan repayment rates. The company have taken steps to steps to position itself in an environment of increased regulation, a move that will lower defaults. Recently, the University of Phoenix began an orientation program designed to lower dropout and default rates. At The University of Phoenix’s parent company, Apollo Group, federal dollars constitute more than 90% of revenue.

At its last earnings call in October, the company withdrew its prior preliminary business outlook for fiscal 2011, citing the transitional state of the business and the uncertain regulatory environment. The company said that it expects that the implementation of these initiatives, together with the effect of other challenges the proprietary education industry is facing will adversely impact its operating metrics and financial results. Apollo Group Inc. also cautioned that enrollment in its first-quarter 2011 would drop by more than 40%.

Apollo has been the target of many significant lawsuits involving in essence its alleged improper use & classification of federal student financial aid & its methods of attracting students. The government is investigating the possibility of insider trading and other violations, and some investors have filed a class-action lawsuit alleging false statements by company execs. Apollo says it did nothing wrong and is fighting the suit, but bad publicity has led to falling enrollments, and the company recently laid off 700 workers.Apollo Group said it expects to incur charges of $5 million in its quarter ending Nov. 30, in connection with the cuts. It also said it expects to realize related employee compensation expense reductions of $8 million per quarter, commencing in the second quarter of fiscal year 2011. Apollo said the personnel reductions are designed to streamline its operations and better align operations with its refined business model and outlook. 

In terms of stock performance, Apollo shares have lost more than 35% over the past year.

Full Disclosure: None.
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