Share price of Universal Technical Institute, Inc. (UTI) gained around 3% on Dec 2 after the company reported strong fourth quarter fiscal 2014 results. Moreover, the mechanical training institute provided a positive outlook for 2015 expecting student starts and applications to rebound.
Universal Technical's fourth-quarter fiscal 2014 adjusted earnings (excluding severance costs) of 10 cents per share surpassed both the Zacks Consensus Estimate and the prior year quarter earnings of 7 cents by 42.9%. We believe that earnings growth in the quarter was driven by solid margin increase and higher revenue per student.
Quarter in Detail
Net revenue of $95.3 million decreased 0.5% from the prior-year quarter as an increase in revenue per student was mostly offset by a decline in enrollments. Revenues beat the Zacks Consensus Estimate of $95 million by 0.3%.
The company's revenue excluded $4.8 million of revenues related to the loan program during the quarter, higher than $4.1 million in the prior-year quarter. The company intends to include the amount as students pay back their debt.
Universal Technical reported a 4.8% decline in average undergraduate full-time enrollment to 13,900 in the fourth quarter. Student starts declined 7.2% to 6,400 in the quarter.
Universal Technical's enrollments have been sluggish for many quarters due to regulatory challenges, changes and competition in the higher education industry. Enrollment trends throughout the industry have been affected by changing regulatory requirements, sluggish demand due to students' aversion to debt, robust competition and a volatile economy.
However, revenue per student improved 3% in the quarter on the back of higher registration fee. Higher registration fee has been eroding new student applications for some time. However, the company justified that it will generate better quality applications.
Operating income of $3.9 million in the fourth quarter increased 179% from the prior-year quarter. Operating margin rose 260 basis points to 4.1% during the quarter. Solid cost control, and decline in compensation and legal costs, drove the increase in operating income and margin in the quarter.
Financial Update
Universal Technical had cash and cash equivalents and investment of $96.1 million as of Sep 30, 2014, compared with $91.1 million as of Jun 30, 2014. As of Sep 30, 2014, the company paid shareholders $9.9 million as cash dividends and repurchased $1.4 million worth of shares.
Fiscal 2014
Universal Technical's fiscal 2014 adjusted earnings of 8 cents per share missed the Zacks Consensus Estimate of 12 cents by 33.3%. Earnings per share missed the prior year quarter earnings of 16 cents by 50%. We believe that the soft year-over-year earnings were due to weak revenues and persistent decline in enrollment levels.
Net revenue of $378.4 million decreased 0.5% from the prior-year due to a decline in enrollments. Revenues lagged the Zacks Consensus Estimate of $380 million by 0.4%.
Fiscal 2015 Outlook
For fiscal 2015, student starts and total enrollment are expected to decline in mid-single digits. Revenues are expected to decline in the range of 3% to 4% as a hike in annual tuition is expected to be partially offset by a decline in enrollment levels. However, the company expects operating income to increase year over year on the back of higher efficiency.
The company expects student starts and applications to rebound in the second half of 2015 which should have a positive impact in 2016.
Capital expenditures are expected to be about $24 million in 2015. Quarterly results are expected to remain volatile.
Universal Technical carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Other stocks in the education industry worth considering include Strayer Education Inc. (STRA), Grand Canyon Education, Inc. (LOPE) and Capella Education Co. (CPLA). All the three education companies sport a Zacks Rank #1 (Strong Buy).
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