ITT Educational Services Inc. set aside an extra $60 million in the fourth quarter to cover losses in a disastrous student loan program, and the payment helped send the Carmel-based operator of career-focused colleges tumbling to a loss of $11.6 million, or 49 cents per share, the company reported Thursday morning.
Wall Street analysts expected a profit of $1.09 per share, according to a survey by Thomson Reuters.
The disappointing news sent ITT's already-swooning stock down another 15 percent Thursday morning. The stock has lost about 30 percent of its value over the past five days.
The problems are in a $420 million block of private loans extended to students in 2009 and 2010. Because credit was hard to obtain in 2009, ITT agreed to cover a chunk of the lenders’ losses on the loans.
At the time, the deal kept money flowing to students, so they could cover the cost of enrolling in ITT courses. But in the midst of a terrible job market, students have been defaulting on those loans at unprecedented rates—more than 60 percent.
And it’s now coming back to bite ITT.
A year ago, ITT was in a similar situation, reporting a fourth-quarter loss of $9.5 million, or 41 cents per share, because it was forced to set aside $66.1 million to cover losses from the 2009-'10 loan portfolio.
At the time, CEO Kevin Modany painted the $66 million reserve as a high-end estimate of ITT’s loan exposure.
But ITT says it received new data on student defaults in the fourth quarter, and employed an enhanced methodology for calculating default rates. That led ITT to set aside another $60.3 million to cover loan losses.
All told, the company has set aside $127 million to cover losses on the 2009-'10 loan portfolio.
Other than the extra payment to cover loan losses, ITT’s quarter went as planned. Revenue was $262.9 million—about $2 million higher than analysts expected—but a decrease of 12.6 percent from the same quarter the previous year.
Enrollment of new students increased 4.5 percent, to 13,995, from a year earlier.
Total student enrollment at year's end, however, fell 5.8 percent, to 57,542, from the end of 2012.
ITT expects 2014 profit of $3 to $3.65 per share. Analysts expect $3.11 per share, on average.
It’s been a bad week for ITT. The company’s shares fell nearly 6 percent Wednesday after it disclosed that 12 state attorneys general and the U.S. Consumer Financial Protection Bureau are probing its recruitment practices, along with other for-profit colleges.
ITT shares were down $5.67 Thursday morning, to $31.51 per share.