By Lucy Ren
The stock of DeVry Education Group Inc., one of the largest educational organizations in the world with subsidiaries including Carrington College and DeVry University, plummeted 18.1 percent, as the company’s adjusted earnings per share of 75 cents fell short of the consensus estimate of 78 cents.
DeVry’s second quarter net income decreased 11.9 percent to $42.41 million, or 65 cents per diluted share, from $48.16 million, or 75 cents per diluted share a year ago. Its quarterly revenue declined 1.3 percent to $484.88 million from $491.27 million a year ago.
“The biggest problem they are facing is that their core business, DeVry University, continues to shrink, suffering from a lack of new students demand,” said Trace Urdan, managing director at Wells Fargo Securities. “They are trying hard to stabilize that decline and get back to growing again.”
The Downers Grove-based, for-profit education company’s total post-secondary enrollments declined 0.1 percent. Revenue grew at most of its institutions, most notably at Chamberlain and DeVry Brasil, with the exception of DeVry University.
DeVry continued to execute a turnaround and transformation plan to reduce its cost structure, including a new advertising campaign and cost savings that could exceed the prior $90 million target, according to Thursday’s conference call.
“It will take time for management’s plan to gain traction,” wrote analyst Alexander Paris of Barrington Research Associates Inc. He said the company will be “profitable at the institution level as it aligns its cost structure to enrollment levels at DeVry University.”
Urdan said DeVry’s “high pricing” is an issue leading to the declining enrollment, especially because “other schools that they compete with have dropped their tuitions.” The low enrollment also “relates to where we are in the economic cycle,” Urdan added, “As the labor market heats up sufficiently, it would draw students back in.”
[soundcloud url=”https://api.soundcloud.com/tracks/189899447″ params=”color=74d1db&auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false” width=”100%” height=”166″ iframe=”true” /]
“As a tactic, DeVry is going after the ‘grade completers,’” Urdan said. “These are the people who have some amount of college, they have accumulated some credits, but they never completed it.” He said DeVry is facing fierce competition because not-for-profit colleges also appeal to these students.
As for the current quarter, DeVry’s President Daniel Hamburger said in the conference call that management expects “relatively flat” revenue, as anticipated declines at DeVry University will “offset revenue growth at its other institutions,” especially in the medical and health care and professional education segments.
Jeffrey Silber, analyst at BMO Capital Markets Corp., wrote in a note that he was surprised to see the medical and healthcare segments “slowing with margins.”
DeVry announced two more acquisitions in Brazil in December. DeVry Brasil now serves 33,000 students in 13 campuses in northeastern Brazil.
Management anticipates DeVry’s operating costs to “increase about 4.5 percent sequentially,” Hamburger said in the conference call. He attributed the increase to expenses in “campus expansion at Chamberlain,” “the recent acquisitions in Brazil” and the increase in advertisement for DeVry University.
Paris declared that DeVry is a “high-quality company” but needs “stabilization at the flagship university.” He believes the company is “doing the right things to get DVU back on track and to fuel continued growth in its other segments.”
For the six months ended on December 31, DeVry’s revenue decreased to $875.48 million from $877.21 a year ago. Its net income increased to $62.85 million from $41.02 million.
The closing price on Friday was $36.24, a decrease of $8.01.
