UPDATE 3-Capella Education expects quarterly revenue to fall by up to 5.5 pct

Tue Feb 12, 2013 11:11am EST

* Analysts had expected 1st-qtr revenue to fall about 4 pct

* Company expects first-quarter sign-ups to rise about 5 pct

* Shares drop 4 pct

By Sagarika Jaisinghani

Feb 12 (Reuters) - For-profit education provider Capella Education Co said it expects student sign-ups to increase for the third straight quarter in the three months to end-March, but expressed doubts about whether the upswing would be sustained through the year.

Capella, which offers mainly online courses, said it expects new enrollments to grow by about 5 percent in the current quarter. But Chief Executive Kevin Gilligan said the company was still feeling the effects of a big drop in enrollments in the first two quarters of 2012, which would drag down revenue during the first half of 2013.

Shares of the company, the owner of Capella University, were down 4 percent at $30.83 in morning trading on the Nasdaq. They have shed 35 percent of their value in the last year.

The owner of Capella University said it expects revenue to fall by about 4.5 percent to 5.5 percent in the quarter. It did not provide a specific forecast for revenue beyond the first quarter.

Analysts on average were expecting revenue of $105.2 million for the current quarter, implying a fall of about 4 percent, according to Thomson Reuters I/B/E/S.

Capella does not usually provide a profit forecast, but BMO Capital Markets analyst Jeff Silber said the company's revenue forecast implied first-quarter earnings in the range of 61 cents to 67 cents per share. That is also well below the average estimate of 77 cents per share.

Stricter admissions policies, low graduation rates and a weak U.S. job market have hurt enrollments at for-profit education providers over the last two years.

Companies such as Apollo Group Inc, DeVry Inc and ITT Educational Services Inc have ramped up their spending on marketing to woo more students.

However, their efforts have generally borne little fruit so far as jobless rates remain high.

Gilligan said the company could return to total enrollment and revenue growth in 2014 if new enrollments rise uninterrupted through 2013.

New enrollments -- which grew for the first time in nearly two years in the September quarter -- rose 0.6 percent in the fourth quarter ended Dec. 31.

Capella's attributable net income fell 29 percent to $8.6 million, or 68 cents per share.

The Minneapolis-based company recorded a valuation allowance on foreign deferred income taxes that reduced net income by 5 cents per share. Excluding the allowance, Capella earned 73 cents per share, missing analysts' estimates by a cent.

Revenue dropped 3 percent to $107 million, but beat analysts' expectations of $106.1 million.

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