University of Phoenix closing half its campuses

October 18, 2012

Shares in Apollo Group Inc., the largest U.S. for-profit college chain, hit a five-year low Thursday after the company forecast lower revenue and announced plans to close 115 campuses—half its total—and cut 800 jobs.

Stock in Apollo, which operates the University of Phoenix, has dropped more than 59 percent on the year, making it the worst-performing stock in the Standard & Poor’s 500 Index.

Fewer students are signing up to attend Apollo and other for-profit colleges amid high U.S. unemployment and federal and state investigations raising questions about the schools’ loan defaults and marketing claims.

It wasn't clear whether the University of Phoenix campus in Indianapolis off Interstate 465 near the Castleton Square Mall would be among those closed. Company spokespeople have not specified which campuses will close, and they did not return a phone message Thursday morning.

The local campus had enrollment of 3,000 in the fall semester.

Apollo’s results demonstrate that investors should avoid the education industry, said Peter Appert, an analyst with Piper Jaffray & Co. in San Francisco.

“Education stocks are value traps, burdened by a downward bias in estimates, limited enrollment visibility and increasingly intense competitive dynamics,” Appert, who has a neutral rating on shares, wrote in a note to investors.

Apollo shares were trading at $20.88 each on Thursday morning after a 20-percent drop on Wednesday.

A Bloomberg index of 13 education stocks slid as much as 8.4 percent, the biggest drop in more than seven months.

For the year ending in August 2013, sales will be $3.65 billion to $3.8 billion, Phoenix-based Apollo said in a prepared statement. Analysts on average projected revenue of $4.07 billion, based on estimates compiled by Bloomberg.

Over the past year, enrollment at the University of Phoenix fell 14 percent, to 328,400 students.

The company said it will take steps to reduce annual operating expenses by at least $300 million by 2014. It will close 115 University of Phoenix locations, including 25 campuses and 90 smaller centers.

The company will continue to operate 112 locations. Apollo is also cutting 800 jobs over the next fiscal year, according to the statement.

“We’re positioning ourselves to be more nimble, more competitive and more successful for all of our stakeholders in Apollo,” CEO Greg Cappelli said on a conference call with analysts.

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