Dismal 2Q for DeVry

DeVry Inc. (DV - Analyst Report) registered sluggish second quarter 2012 earnings of 13 cents per share, which crushed down 89.6% from $1.25 per share posted in the year-ago period. Earnings also lagged the Zacks Consensus Estimate of $1.08 by 87.9%.

Management acknowledged that deteriorating economic conditions and rising unemployment have negatively impacted the results. Moreover, the new regulations associated with the education system posed as headwind for the company. However, DeVry continues to focus on increasing new student enrollments, and generate operating efficiencies to reduce expenses, while balancing the necessary investments in providingacademic quality and student services for longer-term growth. It gives importance to academic quality and strong execution of diversification strategy.

Consolidated Revenue and Margins

DeVry’s quarterly net sales fell 5.0% to $524.0 million compared with $551.5 million in the prior-year period. Sales also lagged the Zacks Sales Estimate of $544 million.

Operating cost and expenses climbed to $510.3 million compared with $415.9 million a year ago.

As a result, operating income declined sharply to $13.75 million in the quarter, compared with $135.5 million in the year-ago period.

Total graduate course takers at DeVry University slipped 12.8% in the fall and new undergraduate enrollment also shrank 24.6%. However, at Keller Graduate School of Management, the number of course takers in November 2011 increased 0.3%.

The decline in total enrollment was theresult of the changes that were brought in accordance withnew regulations and persistent unemployment, which continued to affect consumer confidence.

The DeVry Medical International segment, continued with its expansion of its facilities and making investments in academic quality, such as simulation and other advanced student teaching techniques. The integration of American University of the Caribbean School of Medicine is progressing on track.

In Chamberlain College of Nursing, total student enrollment in the period increased more than 26%, while new student enrollment in the fall decreased 1.6%.

Chamberlain plans to open new locations in Indianapolis, Atlanta and Cleveland, by end ofcalendar year 2012.

Total student enrollment at Carrington Colleges declined 28.4% and new students declined 33.0% for the fall period. This group of colleges openeda new location in the Dallas metro area, and continues to focus on expanding its program offerings both onsite and online.

In the International, K-12, and Professional Education Segment, Becker Professional Education shed its Stalla CFA business and released its enhanced 2012 version of its CPA exam review product.

DeVry Basil, opened new Ruy Barbosa campus building in Salvador; a new campus in Sao Luis; and continues with other campus renovations and investments in academic quality.

Other Financial Updates

DeVry exited the year with cash and cash equivalents of $285.7 million at December 31, 2011, down from $447.1 million at June 30, 2011 and $459.3 million at the end of December 31, 2010. Operating cash flows were $32.4 million in the second quarter of 2012, owing to strong working capital management. DeVry spent $63.0 million as capital expenditure.

During the second quarter, DeVry completed its sixth stock repurchase program and commenced the seventh program. The company repurchased 1.25 million shares of its common stock at a cost of approximately $47.6 million, or $37.95 per share.

The year has started on a slow note, adversely impacted by enrollment deceleration and tougher year-over-year comparisons. Nonetheless, the company is expected to pick the momentum in the second half of the year.

However, risks relating to regulatory matters, vulnerability to seasonal fluctuations and high dependence on government aid programs are matters of concern.

DeVry, which competes with Apollo Group Inc (APOL - Analyst Report), maintains anUnderperform rating on a long-term basis. Currently, DeVry holds a Zacks #4 Rank, which is equivalent to a short-term Sell rating.

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