Apollo Education Group, Inc.’s (APOL - Analyst Report) adjusted earnings of 44 cents per share in the first quarter of fiscal 2015 beat the Zacks Consensus Estimate of 41 cents by about 7%. However, earnings declined 58.1% year over year due to lower revenues and profits, and higher taxes.

Adjusted earnings exclude restructuring and other charges, acquisition costs and contingent consideration charges, and other special items.

Net revenue of $719.1 million lagged the Zacks Consensus Estimate of $728 million by 1.2%. Revenues missed the company’s expected range of $720 million to $730 million as well and declined 15.2% from the prior-year quarter due to lower enrollments.

Despite exceeding the company’s guided range of $70 million to $75 million, adjusted operating income declined 59.1% year over year to $82.7 million due to lower revenues and dilution from Open Colleges.

Adjusted effective tax rate was 42.2%, higher than 40.8% in the prior-year quarter.

Segment Details

University of Phoenix – Revenues declined 20.4% year over year to $592.9 million at the UOP due to a 13.5% decline in total enrollment to 227,400. New enrollment or starts at the UOP declined 5% year over year to 39,600.

Apollo’s enrollments have been sluggish for many quarters due to regulatory challenges  and changes and competition in the higher education industry.

However, the decline in starts moderated at a steady rate throughout 2014 and in the first quarter of 2015. The rate decline in the first quarter of 2015 improved compared to declines of 5.9%, 12.9%, 16.5% and 22.9%, in the fourth, third, second and first quarters of 2014, respectively, indicating that the company’s branding, program diversification and student retention initiatives are gradually yielding results.

Apollo Global reported net revenue of $115.1 million, up 26.2% year over year. The segment has been benefiting from revenues from Open Colleges and Milpark acquisitions and improved enrollments in international markets.

In order to drive enrollment levels, some of the education companies are now acquiring other institutes in international markets, where the education market is relatively lucrative and there is demand for career-oriented courses. DeVry Education Group Inc. (DV - Analyst Report) acquired two educational institutions in Brazil in Dec 2014 to further strengthen its foothold in the northern part of the country.
   
The Other Schools segment reported revenues of $11.1 million in the first quarter of fiscal 2015, down 8.3% year over year.

Second Quarter 2015 Outlook

Management expects second-quarter fiscal 2015 revenues in the range of $580 million to $595 million. Operating loss is expected to range between $25 million and $35 million.

Fiscal 2015 Guidance

Based on the business trends in the first quarter of fiscal 2015, Apollo Education Group has cut its guidance for fiscal 2015.

Management expects fiscal 2015 revenues in the range of $2.74 billion to $2.80 billion, much lower than the prior expectation of $2.80 to $2.85 billion and representing a decline from fiscal 2014 levels. Adjusted operating income is expected to range between $250 million and $290 million, lower than the prior expectation of $300 million and $325 million.

Apollo Education Group carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the education industry include Bright Horizons Family Solutions, Inc. (BFAM - Snapshot Report) and Grand Canyon Education, Inc. (LOPE - Snapshot Report). Both companies hold a Zacks Rank #2 (Buy).