ITT Educational Services Inc. (ESI), one of the leading providers of technology-based post-secondary degree programs in the U.S., recently delivered first-quarter 2011 results that beat the Zacks’ expectation. The quarterly earnings of $2.91 per share outpaced the Zacks Consensus Estimate of $2.53, and surged 18.3% from $2.46 per share earned in the year-ago quarter.
ITT Educational registered a decline of 0.2% in revenue to gross $383.2 million compared with $384.0 million in the prior-year quarter. Moreover, total revenue also missed the Zacks Consensus Estimate of $384.0 million.
In the first quarter, the company witnessed a 0.6% decline in total enrollment to 84,030 students compared with 84,555 students in the prior-year period. The overall decline in enrollment was mainly attributable to a 5.6% decline in new enrollments to 21,761 students compared with 23,064 students in the prior-year period. Revenue per student inched down 4.8% to $4,525.
ITT Educational reported a year-over-year decline in number of probable students interested in the company’s study programs in the first quarter of 2011, primarily due to a shift in the media mix. However, inquiries transformed into application increased during the quarter.
The potential risk presently looming over the education sector is the uncertainty over the Pell Grant program. The U.S. Senate has passed a resolution to cut $38.5 billion from the federal budget in fiscal 2011. However, the Obama government has maintained the maximum amount for Pell Grant at $5,550 per student for 2011-12 academic year. However, the federal budget cut may have an impact on the number of student getting Pell Grant approval from the Department of Education.
However, ITT Educational is in view that the recent federal budget cut will not have a significant impact on the company’s cash flows until 2013. But, whenever it does, it will be in the range of $20.0 million to $30.0 million.
ITT Educational, which conducts programs through its ITT Technical Institutes and Daniel Webster Colleges, notified that the cost of educational services rose 2.6% to $137.9 million. However, student services and administrative expenses declined 2.2% to $104.6 million.
Consequently, ITT Educational’s operating income of $140.7 million, logged a decline of 1.4%. Moreover, operating margin contracted 40 basis points to 36.7% in the quarter.
ITT Educational ended the quarter with cash and cash equivalents of $187.9 million, long-term debt of $150.0 million, and shareholders’ equity of $80.5 million. The company generated $182.1 million of cash from operations, incurred capital expenditure of $4.7 million and repurchased $139.7 million worth of shares during the period.
Management expects fiscal 2011 earnings to be in the range of $8.50 to $10.50 per share. The current Zacks Consensus Estimate of $9.50 lies within the company’s guidance range. Moreover, the company has planned to begin its operations at 8 to 10 new locations in fiscal 2011. Currently, ITT Educational operates through 130 campuses and 4 learning sites.
The company’s nearest competitor Apollo Group Inc. (APOL) recently reported its second-quarter 2011 earnings per share of 83 cents, beating the Zacks Consensus Estimate of 69 cents.
Currently, we have a long-term ‘Neutral’ rating on the stock. ITT Educational holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation that correlates with our long-term view.
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