New campuses weigh on Strayer's forecast; dividend suspended

Fri Nov 9, 2012 11:10am EST

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(Reuters) - Strayer Education Inc (STRA.O) forecast a weak fourth quarter and said it would not pay regular dividends in 2013, as it spends on new campus openings amid anemic new student enrollments.

The for-profit education company's shares fell to a decade low of $48 on the Nasdaq on Friday morning.

Strayer, which caters mainly to working adults, was spending about $12 million per quarter on dividend payouts, nearly three times its net profit for the last quarter.

The company, which raised its share repurchase authorization to $120 million, could use this money to buy back its shares, said Morningstar Inc analyst Peter Wahlstrom.

Strayer Chief Executive Robert Silberman declined to comment on possible share repurchases.

For-profit colleges have seen enrollments, and subsequently results, fall after admission policies were tightened to meet stricter regulations aimed at reducing student debt. The high unemployment rate has also affected enrollment.

Analyst Wahlstrom said he still expects enrollments at for-profit colleges to be under pressure next year.

While rivals Apollo Group Inc (APOL.O) and Career Education Corp (CECO.O) have said that they will shut more than 20 campuses each to save costs, Strayer said it plans to open three new campuses in the fourth quarter.

That will bring the total number of new campuses opened in 2012 to eight. It has no plans to open any next year.

The company will wait for a bit more clarity on short-term economic uncertainty before it makes plans to open any more campuses, CEO Silberman said on a conference call with analysts.

SHRINKING PROFITS

Strayer pegged fourth-quarter earnings at $1.43 to $1.45 per share, well below analysts' average estimate of $1.59 per share.

Although Strayer University, its only source of revenue, will increase tuition by 3 percent effective January, overall revenue is likely to remain flat in 2013. Expenses are expected to rise 1 percent to 2 percent in the period.

Bad debt expense as a percentage of revenue rose to 4.2 percent in the third quarter from 3.8 percent a year earlier.

The expense accounts for the portion of federal student loans that universities must return to the government if a student drops out before completing 60 percent of a course.

New student sign-ups rose 4 percent in the fall term, while total enrollments were down 5 percent at 51,727 students.

"New students are not growing as quickly as they shrunk the year before so it is taking a little while to pull our total student enrollment and revenue up," CEO Silberman said.

Net income dropped 70 percent to $4.1 million, or 36 cents per share. Revenue fell 9 percent to $124.3 million.

Analysts had expected Strayer to earn 32 cents per share on revenue of $123.5 million, according to Thomson Reuters I/B/E/S. (Reporting by Sagarika Jaisinghani in Bangalore; Editing by Sreejiraj Eluvangal and Supriya Kurane)

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