ITT Educational Services Inc.(ESI), one of the leading providers of technology-based post-secondary degree programs in the U.S., recently delivered fourth-quarter 2010 results that beat Zacks' expectations. The quarterly earnings of $3.14 per share outpaced the Zacks Consensus Estimate of $3.11, and surged 22.7% from $2.56 per share earned in the year-ago quarter. For the fiscal 2010, the company reported earnings per share of $11.17 versus $7.91 reported in the prior-year quarter. Earnings per share also beat the Zacks Consensus Estimate of $11.13.
ITT Educational registered a growth of 9.5% in revenue to gross $410.1 million compared with $374.4 million in the prior-year quarter. Total revenue beat the Zacks Consensus Estimate of $403 million. For fiscal 2010, total revenue came in at $1,596.5 million compared with $1,319.2 million in the prior fiscal year. Total revenue also outdid the Zacks Consensus Estimate of $1,593 million.
In the fourth quarter, the company noticed a 4.9% growth in total enrollment to 84,686 students. The overall rise in enrollment was mainly attributable to a 9.4% jump in continuing enrollment to 66,964 students, offset by a 9.4% decline in new enrollments to 17,722 students. Revenue per student fell 1.4% to $4,660.
The potential risk presently looming over the education sector is the regulation proposed by the Department of Education that may weigh upon students' enrollments and the company's profits. Recently, the Department of Education stipulated that an educational program could only qualify for Title IV funds if it helps in achieving gainful employment. The company derives a major portion of its revenues from federal student financial aid programs that come under the purview of the Title IV programs. The education institutions are also under the scanner due to the rise in the default rate of student loans.
ITT Educational, which conducts programs through its ITT Technical Institutes and Daniel Webster Colleges, notified that cost of educational services rose 11.6% to $135.2 million, while student services and administrative expenses climbed 12.2% to $112.5 million. However, the top-line growth more than offset the increase in operating expenses.
Consequently, ITT Educational's operating income, at $162.4 million, logged a growth of 6.2%. However, operating margin contracted 120 basis points to 39.6% in the quarter. For fiscal 2010, operating income increased a sharp 25.5% to $613.5 million while operating margin expanded 130 basis points to 38.4%.
ITT Educational ended the year with cash and cash equivalents of $163.8 million, long-term debt of $150 million, and shareholders' equity of $128.1 million. The company generated $195.4 million of cash from operations, incurred capital expenditure of $6.2 million and repurchased $119.7 million worth of shares during the year.
The company's nearest competitor Apollo Group Inc. (APOL) recently reported first quarter 2011 earnings per share of $1.63 per share.
Currently, we have an Underperform rating on the stock. ITT Educational holds a Zacks #4 Rank, which translates into a short-term Sell recommendation that correlates with our long-term view.
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