Apollo Group tumbles to 11-year low as enrollments continue to slide

Wed Oct 17, 2012 1:28pm EDT

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(Reuters) - Apollo Group Inc's (APOL.O) plan to save $300 million by cutting jobs and shutting half its University of Phoenix learning sites failed to satisfy investors concerned about plunging enrollments.

Shares of Apollo, which runs the largest U.S. for-profit college, tumbled 20 percent to an 11-year low of $21.97 on Wednesday on the Nasdaq.

The industry bellwether's earnings report provides a taste of what is to come from the other for-profit colleges, analysts said.

They expect fewer enrollments and more restructuring from several of them. Stocks of Apollo rivals Strayer Education (STRA.O), ITT Educational Services (ESI.N), DeVry (DV.N) and Corinthian Colleges (COCO.O) were all down between 5 and 8 percent on Wednesday.

Apollo said on Tuesday it plans to cut 800 jobs and close 115 campuses and student learning centers, after student sign-ups fell 14 percent for the recently-ended fourth quarter. It also forecast a weak 2013.

New enrollments at Apollo are down nearly 50 percent since the fourth quarter of 2010 but have still not touched bottom. The company said it expects sign-ups to fall for at least another two quarters.

"The tough part is there isn't much visibility into the (restructuring) plan or its success," said Peter Wahlstrom, an analyst with Morningstar.

"Enrollments could be even more volatile in the near term."

Closing campuses, along with a tuition freeze announced last week, will have the immediate effect of reducing its revenue base.

TOO LATE?

Piper Jaffray analyst Peter Appert said he did not expect a restructuring of this magnitude.

"It is an acknowledgement that the industry environment is extremely challenging and is going to remain so for the foreseeable future."

The industry is increasingly losing share to non-profit colleges and other institutions due to the damage to their reputation and brand value from government investigations and rules.

The scrutiny revealed low graduation rates, high student debt loads and in some cases fraudulent activities.

New federal rules that threatened to cut away financial aid if debt loads remained high were introduced in 2011, forcing for-profits to change the way they enrolled students and focus more on the quality of education.

Several analysts said Apollo's actions could have come sooner.

Apollo's plan to shut half its learning sites will only affect 4 percent of its total students.

Wells Fargo analyst Trace Urdan said given that the locations served such a small portion of its students, they could have been shut earlier.

"The cost savings will offset what would otherwise have even more pressure on their earnings per share," Urdan said. (Reporting by A. Ananthalakshmi in Bangalore; Editing by Supriya Kurane)

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