Thursday, March 24, 2011

Apollo Group (NASDAQ: APOL): Q2 Earnings Preview 2011

Apollo Group
Apollo Group, Inc. (NASDAQ: APOL) is scheduled to release its fiscal second-quarter earnings before the opening bell on Tuesday March 29, 2011. Analysts, on average, expect the company to report earnings of $0.68 per share on revenue of $1.03 billion. In the year ago quarter, the company reported earnings of $0.84 per share on revenue of $1.07 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 $235.4 million or $1.61 per share, down from $240.1 million or $1.54 per share in the prior year quarter. On an adjusted basis, the company earned $1.63 a share in the first quarter. Revenue climbed 5.4% to $1.33 billion from $1.26 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of $1.30 per share on revenue of $1.26 billion. 

For-profit colleges such as Apollo's University of Phoenix have come under fire for burdening students with debt without training them properly for the workplace. Apollo and its peers are facing new regulatory hurdles as the U.S. Department of Education prepares to implement a series of rules related to recruiter compensation, state authorization of programs and a number of other topics. The Department of Education has proposed a new rule that could limit Apollo's access to federal financial aid if too few of its students were repaying loans or if they had too much debt.

The company has started to change the way it operates to accommodate some new regulations, including not paying counselors bonuses based on how many students they enroll. It also is providing new students with a free three-week trial program to see if they are ready for school. In the first quarter, these changes contributed to a decline in enrollment, the company said. Total degreed enrollment slipped 3.8 percent versus the prior-year quarter as new degreed enrollment tumbled 42.4 percent.

The company expects the year-over-year decline in new degreed enrollment in the second quarter to be about the same as the first quarter. Because of a large decline in new enrollments coupled with the graduation of some of our existing student population, the company expects increasing declines in total enrollment as they move through the year.  The company is fighting declining new-student enrollments and rising marketing costs by reining in expenses, cutting staff and shedding programs with low returns.

The company's stock currently trades at a forward P/E (fye Aug 31, 2012) of 9.79 and PEG Ratio (5 yr expected) of 0.93. In terms of stock performance, Apollo shares have lost more than 33% over the past year.

Full Disclosure: None.
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