Capella sees improvements as new student enrollment rises
- Article by: Steve Alexander
- Star Tribune
- February 12, 2013 - 11:00 PM
It’s a tough time to be running an online college, but Capella Education Co. hopes to be a high achiever again by 2014.
Capella Education, which is suffering along with its for-profit education peers after a decline in enrollments that began in 2010 and is linked to the economy, met fourth-quarter earnings expectations Tuesday.
The company earned $8.6 million on revenue of $107 million, down from earnings $12.1 million on revenue of $110 million a year earlier. Adjusted earnings were 73 cents a share, compared with the 74 cents Wall Street was expecting. Revenue was slightly better than the $106.1 million analysts had anticipated.
“Considering the challenges in the higher-education industry, Capella’s fourth quarter was solid,” Jeff Meuler, an analyst at Robert W. Baird & Co. in Milwaukee. “They’re on the right path to growth. It’s a bumpy path, but they’re executing relatively well.”
Capella Education also saw new student enrollment rise slightly in the fourth quarter and expects the trend to continue in the coming months, a sign that the Minneapolis online educator’s outlook is improving.
Capella disclosed that its new enrollment is growing at an average rate of about 5 percent annually, leading analysts to project the company will return to earnings and revenue growth in the first half of 2014.
“The good news is that front-end metrics, such as new student volume and conversion rates [of prospective students into actual students] are encouraging,” said Jerry Herman, an analyst at Stifel Nicolaus in Cleveland. Total enrollment declined 3.6 percent, and it will take time for the growth in new enrollments to change that trend, he said.
If Capella can maintain its new student enrollment growth in the first quarter of 2013, “that would be a healthy flow given the current environment,” Herman said.
Capella CEO Kevin Gilligan offered some encouragement. “While the overall market environment remains challenging, our improving position heading into 2013 gives us confidence that we are on the right path to return to total enrollment and revenue growth,” he said.
But 2013 promises to be a transition year on the way to a recovery, analysts said. Despite the projected growth in new students in the first quarter, Capella said total revenue is expected to decline 4.5 to 5.5 percent. Partly as a result, analysts expect that Capella’s 2013 financial results will be lower than those in 2012.
“We think 2013 will be a trough year, with Capella returning to growth in total enrollment, revenue and earnings per share in 2014,” Meuler said.
Capella’s stock, which had gained more than $3 in the past week after a competitor reported better-than-expected performance, closed at $31.56 Tuesday, down 45 cents.
In 2012, Capella earned $36.5 million, a net of $2.76 a share, on revenue of $421.9 million. That was down from 2011 earnings of $52.1 million, or a net of $3.40 per share, on revenue of $430 million.
“All things considered, Capella is doing well,” Herman said.
Staff writer Jackie Crosby contributed to this report. Steve Alexander • 612-673-4553
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