Capella profit down 48% on decline in enrollment

  • Article by: JIM BUCHTA , Star Tribune
  • Updated: October 23, 2012 - 9:36 PM

Enrollment declines caused 3rd quarter profits to fall 49 percent despite an unexpected increase in new students

Enrollment declines continue to ding revenue at Minneapolis-based Capella Education Co., but an expected increase in enrollment holds hope for a better future.

The company, parent company of Capella University, a provider of online post-secondary education, said Tuesday that third-quarter net income was $5.1 million, a decrease of more than 48 percent. While active enrollment was off 2.1 percent, new enrollment exceeded expectations during the quarter, rising 10.5 percent compared with last year.

Despite a challenging environment for higher education providers, Kevin Gilligan, Capella's chairman and chief executive officer, was optimistic.

"We are pleased to report year-over-year new enrollment growth within a continued challenging overall market environment," he said. "This performance is further indication that our business fundamentals are stabilizing."

Capella shares were down about 2.8 percent, to $33.08, in early trading Tuesday but recovered to close at $33.99, down 3 cents per share.

Jeffrey Meuler, a senior research analyst with Robert W. Baird & Co. Inc., said Capella is faring better than its peers, but he was disappointed in guidance on fourth-quarter margins and beyond, a result of the lower active enrollments.

"The environment remains challenging, but Capella is seeing improvements from company initiatives," he said. "But they'll see additional margin pressures in 2013."

The for-profit education industry has come under tighter regulatory scrutiny in recent years, which has crimped profit margins. Capella said its consolidated operating margin will be approximately 13.5 to 14.5 percent of total revenue for the fourth quarter of 2012 compared with 17.2 percent in the same period last year.

Company spokesperson Mike Buttry said quarterly enrollment grew year-over-year for the first time in eight quarters. Enrollment at the end of last month was nearly 35,000. Capella expects enrollment growth during the fourth quarter to be flat compared with last year, with total enrollment declining 4 to 5 percent.

Revenue was off almost 3 percent to $99.3 million from $102.3 million, and the company said operating income stood at $8.3 million, compared with $14.9 million last year.

Staff writer Patrick Kennedy contributed to this report. Jim Buchta • 612-673-7376

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