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American Public (APEI) Beats Q1 Earnings & Sale Estimates

American Public Education, Inc.’s APEI first-quarter 2016 adjusted earnings of 64 cents per share surpassed the Zacks Consensus Estimate of 45 cents by 42.2%. Earnings were significantly above management’s expected range of 47–52 cents.

Moreover, adjusted earnings per share surged 25.5% year over year on higher-than-expected revenues and solid rise in profits.

Revenues and Enrollment

Total revenue of $84.0 million surpassed the Zacks Consensus Estimate of $82.0 million by 2.4%. Although revenues dipped 1.6% year over year, this was slightly better than the company’s expected range of 2–4%. Revenues declined at both American Public University System (APUS) and Hondros College of Nursing (HCON).

Revenues dropped 1.6% at APUS to $76.3 million due to lower enrollment trends, thereby offsetting the increase in revenues from higher tuition fees implemented last year.

Total enrollment at APUS slipped 4%, owing to a decline in enrollment of students using Federal Student Aid (FSA) – a trend over the past few quarters.

The decline was, however, at the lower end of management’s expected range of 4–8% decline. Enrollments by continuing students declined approximately 2% year over year.

New student enrollments (student starts) at APUS fell 15%, which was also at the lower end of the company’s expectations of a decline in the range of 15–20%.

Quarterly revenues, enrollment levels and earnings were impacted by persistent volatility and softness in enrollment of students under the Federal Student Aid (FSA) and Tuition Assistance (TA) program.

New enrollment of students using FSA plunged 34%, while those using TA slipped 3%.

TA enrollments were hurt by the continued volatility in the military, changes in the administration of TA program by the Department of Defense and other possible factors.

Enrollment trends were also hurt by increased competition, especially among online programs. The company’s efforts to improve the quality mix of students through a new admissions process and change in the method of FSA disbursements to a multiple disbursement method to first time APUS undergraduate students also adversely affected enrollment trends.

Though new enrollment of students using veteran benefits rose 6% year over year, those for students using cash and other sources declined 3%.

Revenues at Hondros College of Nursing fell 3.6% to $7.7 million due to lower enrollment trends. Total enrollment at the Hondros College Nursing Programs (HCON) declined approximately 17%, while starts decreased 20%. Total enrollments decline was steeper than management expectation of a fall of 6% but starts declined as expected.

Profits Rise

Operating income rose 10.3% to $16.0 million as 14.4% increase in profits at APUS offset a 36.5% fall in profits at HCON. Operating margins rose 210 bps year over year to 19% in the quarter. Lower costs and expenses translated to higher profits.

Costs and expenses were down 4.2% to $68.0 million in the quarter, primarily as a result of an improvement in the bad debt expense ratio. Bad debt expense ratio improved 250 bps to 2.5% in the first quarter.

The company’s focus on improving student persistence has been hurting enrollment trends and overall revenues. However, the same factors led to lower bad debt expense and higher margins.

Second-Quarter 2016 Outlook

The company issued second-quarter 2016 guidance.

Total revenues are expected to decline by 4–7%. Earnings per share are expected to be between 36 cents and 41 cents. The Zacks Consensus Estimate stands at 40 cents.

Total enrollments at APUS are expected to decline in the range of 7–10%, while new enrollments are expected to decrease 19–24%.

At HCON, total enrollments are expected to decline about 10% while starts are expected to fall about 12% during the quarter.

American Public currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked schools include Capella Education Co. CPLA, New Oriental Education & Technology Group Inc. EDU and Lincoln Educational Services Corporation LINC. While New Oriental Education sports a Zacks Rank #1 (Strong Buy), Capella and Lincoln Educational hold a Zacks Rank #2 (Buy).

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AMER PUB EDUCAT (APEI): Free Stock Analysis Report
 
CAPELLA EDUCATN (CPLA): Free Stock Analysis Report
 
NEW ORIENTAL ED (EDU): Free Stock Analysis Report
 
LINCOLN EDUCATL (LINC): Free Stock Analysis Report
 
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