ITT shares plunge on competitor's enrollment woes

March 29, 2011

Shares of Carmel-based ITT Educational Services Inc. fell as much as 6.8 percent Tuesday morning after the largest player in its industry reported a 45-percent plunge in new-student enrollment.

Apollo Group Inc., operator of the University of Phoenix, the biggest U.S. for-profit college, is suffering enrollment declines because it now allows students to try its courses before signing up.

Apollo made that change in response to new federal “gainful employment” rules that threaten to restrict or end federal student loans at for-profit colleges that have too many former students not paying down their debts.

Since the U.S. Department of Education released data in July showing how the new rules would affect individual colleges, stocks of for-profit educators have suffered.

ITT stock fell $4.84 per share Tuesday morning, to $65.83, before rebounding slightly. Even before Tuesday’s drop, shares of ITT Educational had fallen 22 percent since July.

ITT Educational will report its first-quarter financial results on April 21.

Apollo suffered a net loss of 45 cents a share in the fiscal second quarter ended Feb. 28, compared with a profit of $92.6 million, or 60 cents a share, a year earlier, Phoenix-based Apollo announced Tuesday.

Apollo shares fell as much as 10 percent in morning trading on the NASDAQ stock index. The shares are down 33 percent in the past 12 months.

Enrollment at the University of Phoenix is likely to decline throughout this year as the college allows students to try its courses before signing up, Apollo Chief Financial Officer Brian Swartz said in January.

The increased effort to attract students is driving up Apollo’s marketing costs, said Ariel Sokol, a UBS AG analyst in New York.

“The amount that Apollo pays to put a new student in one of its classrooms has almost doubled over the past year, to about $3,200,” Sokol said in an interview before the results were released. “Declining new enrollment and higher marketing costs are both hurting Apollo’s net income.”

The 45-percent decline in new student enrollment at the University of Phoenix brought the figure to 48,200, Apollo said in the statement.

Revenue fell 2 percent, to $1.05 billion.

The results included about $222 million in charges related to goodwill, legal costs and other items, the company disclosed. Without the charges, income was $118.2 million, or 83 cents per share. The average prediction by 19 analysts surveyed by Bloomberg was 69 cents a share.


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