Nelnet Inc.’s (NNI) third quarter earnings of $1.01 per share were well ahead of the Zacks Consensus Estimate of 75 cents. The company had earned 47 cents in the year-ago quarter.
Nelnet has also reinstated its dividend program, which had been suspended in May 2008. The company will pay a fourth-quarter cash dividend of 7 cents per share to its class A and class B common stockholders. The dividend will be paid on Dec 15, 2009, to shareholders of record as of Dec 1, 2009.
Quarterly results reflect the benefits of diversification of revenue through fee-based businesses, reduced operating expenses, improved core student loan spread and reduced debt burden.
Including discontinued operations and restructuring charges, the company reported GAAP net income of $46.4 million or 93 cents per share compared with income of $23.8 million or 48 cents in the year-ago period.
Nelnet’s fee-based business generated revenue of $74.6 million compared with $76.7 million in the prior-year period. Fee-based revenue from tuition payment plan, campus commerce and certain enrollment services businesses increased 17% year-over-year to $36.6 million.
Nelnet commenced servicing federally owned student loans in September 2009 for the Department of Education (DOE). Nelnet was one of the four private sector servicers who were awarded a servicing contract in June 2009 by the DOE to service all federally-owned student loans, including Federal Family Education Loan Program (FFELP) loans purchased by the DOE pursuant to Ensuring Continued Access to Student Loans Act (ECASLA).
As of Oct 31, 2009, the company was servicing about $2.5 billion of loans for the DOE. Approximately $740 million (approximately 87,000 borrowers) of such loans were previously catered to other companies but are now being serviced by Nelnet.
Nelnet reported net interest income of $69.2 million, up 16% from $59.6 million reported in the year-ago period. Core student loan spread increased 18 basis points sequentially and 23 bps year-over-year to 1.27%, primarily driven by low interest rate environment and improving capital markets. Provisions for loan losses were $7.5 million compared with $7.0 million in the prior-year period.
Nelnet reported a gain of $9.7 million on the sale of $428 million of federal student loans to the DOE and $5.2 million from the company’s repurchase of debt. The company said that its fourth quarter earnings will include a gain of $26.9 million on the sale of loans to the DOE in October 2009.
The company has reported a decrease in operating expenses in the quarter. Total operating expenses were $92.7 million compared with $103.7 million in the prior-year period. Excluding the cost to provide enrollment services and restructuring and impairment charges, operating expenses decreased 20% from the year-ago quarter to $69.0 million.
Nelnet continues to benefit from its diversified business model. Increasing revenues from fee-based business and servicing of loans for the Education Department, coupled with the cost containment initiatives, augur well for the company. Also, the capital market appreciation and a low interest rate environment should help the company to post strong earnings, going forward
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