Education Management shares dive on slashed outlook

(Reuters) - Shares of Education Management Corp (EDMC.O) fell as much as 22 percent, after the company reported a sharp decline in enrollments and cut its adjusted earnings forecast for fiscal 2012.

The slide in student enrollment across the sector has been triggered by several changes made by the companies to their admission practices after the U.S. government stepped in to keep unethical practices, low graduation rates and huge student debt loads in check.

Education Management, which started on making changes to its course and recruitment process much after its competitors, is seeing enrollment declines later than most of them. It is expected to report similar declines for some more time.

The company is also aggressively cutting costs. It recently cut about 400 jobs, or about 2 percent of its total workforce, at its online division.

"We will continue to evaluate all aspects of our business in order to avoid unnecessary costs," a company executive said on a call with analysts.

Morgan Stanley analyst Suzanne Stein said this was the second quarter the company reported declining enrollments, and with a high fixed-cost base, it would prove to be a challenge for the company to further cut costs.

Total enrollment at the company's schools fell more than 9 percent at the start of the current January quarter. The company saw a 4.5 percent drop in the previous quarter.

Barclays Capital cut its price target on Education Management's stock to $19 from $22.

The brokerage said Education Management would lag much of the peer group in its eventual enrollment and profit rebound even though it is one of the highest quality companies in the industry due to its strong student outcomes, diversified program mix.

Market leader Apollo Group (APOL.O) -- which took the lead in changing its admission policies -- posted strong quarterly results last month as new student sign-ups at its University of Phoenix rose for the first time in five quarters.

Education Management, which runs the Art Institutes, Argosy University and Brown Mackie Colleges, cut its fiscal 2012 adjusted earnings to $1.11-$1.15 per share from $1.34-$1.40 a share.

Shares of the company, which hit a two-and-a-half month low of $20.10 earlier in the session, were trading down 16 percent at $21.49 on Thursday. The stock was among the top percentage losers on the Nasdaq.

(Reporting by Kartick Jagtap and Megha Mandavia in Bangalore; Editing by Joyjeet Das, Sriraj Kalluvila)