UPDATE 3-ITT Education Q2 beats, shares fall as enrolment slows

* Q2 EPS $2.78 vs est $2.68

* Q2 revenue $401.8 mln vs est $403.9 mln

* Raises FY10 EPS view to $11.00-$11.35

* Q2 new enrolment growth about 10 pct

* Shares down as much as 9 percent

(Adds conference call details, updates share movement)

By Megha Mandavia

July 22 (Reuters) - For-profit education provider ITT Educational Services Inc (ESI.N) posted a better-than-expected quarterly profit, but slowing student enrolment growth drove shares down as much as 9 percent.

"It is decelerating from the very high rates of growth that we saw in 2009 simply because of the slower rate of new student growth," said analyst James Maher of ThinkEquity LLC.

New student enrolment, which grew about 10 percent this quarter, has been growing at more than 27 percent for five consecutive quarters. Last quarter it grew at about 22 percent.

"It was a solid financial quarter in terms of margin expansion and improved cash flow. However, enrolment growth (new and total) came in below our consensus," Oppenheimer analyst Scott Schneeberger said in a note to clients.

LOW STUDENT EMPLOYMENT RATE

ThinkEquity analyst James Maher also added that in the short-term, the uncertainty of gainful employment regulation will pressurise the shares, and make assessments of future operating margins difficult.

The U.S. Department of Education has already proposed rules that would force for-profit colleges to release data to students on graduation and job placement rates.

It has said it will soon consider whether these institutions need to demonstrate that they prepare students for jobs before students would be eligible for federal grants and loans. [ID:nN24164082]

About 73 percent of its 2009 employable graduates obtained employment, using skills taught in their programs of study, by April 30, 2010 compared with 77 percent of its 2008 employable graduates who got placements by April 30, 2009, the company said in a statement.

"We are disappointed with these results and clearly have a lot of work to do to off set the slow economic recovery," Chief Executive Kevin Modany said on a conference call with clients.

Revenue-per-student, which was $19,059 in 2009, is expected to be lower in 2010 as an increase in student scholarships and awards is expected, Chief Financial Officer Daniel Fitzpatrick said. For the second quarter, it fell about 2 percent on year.

Q2 RESULTS

IIT Education raised its 2010 earnings outlook to between $11.00 per share and $11.35 per share, from the prior view of between $10.50 per share and $11.25 per share.

For the second quarter, ITT reported net income of $96 million, or $2.68 a share, compared with $71.1 million, or $1.85 a share, a year ago.

Revenue rose about 27 percent to $401.8 million. Total student enrolment as of June 30 increased 21 percent to 84,695, the company said in a statement.

Analysts on average were expecting earnings of $2.68 a share on revenue of $403.9 million, according to Thomson Reuters I/B/E/S.

Shares of the company, which touched a low of $81.03, were trading down 4 percent at $85.02 Thursday afternoon on the New York Stock Exchange. (Reporting by Megha Mandavia in Bangalore; Editing by Roshni Menon & Prem Udayabhanu)