For-profit education provider DeVry Inc (DV.N) warned that profit for the June quarter will fall far short of market expectations as it spends more to boost falling enrollment at its many colleges, sending its shares plunging 23 percent.
Enrollments at for-profit colleges have taken a hit after colleges tightened their admission policies to meet stricter regulatory requirements aimed at reducing student debt.
Prospective students are also getting increasingly averse to the idea of taking out costly education loans, given the high unemployment rates, forcing colleges to spend more on scholarships and other incentives to lure new students.
"The bigger piece was the higher cost structure relative to the enrollment levels and if you roll that forward into fiscal 2013, that is going to have a disproportionate hit to earnings," Morningstar analyst Peter Wahlstrom said.
DeVry -- which runs Keller Graduate School of Management, Chamberlain College of Nursing, Ross University and the Carrington Colleges Group -- said it expects new enrollment to fall 15 to 17 percent at its DeVry University and 19 to 21 percent at Carrington Colleges.
A fall in revenue was partly due to increase in scholarships awarded to students in DeVry University's May and July classes, the company said. It also spent more money on inquiry generation.
DeVry plans to eliminate 570 jobs, in the fourth and the first quarter, and targets savings of at least $50 million in fiscal 2013.
Late last month, market leader Apollo Group Inc APOL.O had projected a drop in student sign-ups for another quarter and said it would cut costs to offset lower revenue.
BLEAK FOURTH QUARTER
DeVry expects fourth-quarter adjusted earnings of 43 to 46 cents per share, on revenue of between $500 million and $510 million.
Analysts were expecting earnings of 78 cents per share on revenue of $516.7 million, according to Thomson Reuters I/B/E/S.
DeVry said it expects total operating costs and expenses to be between $465 million and $475 million, a 6 percent to 9 percent jump from last year.
Shares of the company, which closed at $27.56 on Monday on the New York Stock Exchange, were down 22 percent in aftermarket trade.
(Reporting by Megha Mandavia in Bangalore; Editing by Anil D'Silva, Sriraj Kalluvila)