Share price of Strayer Education, Inc. (STRA - Analyst Report) declined 4.3% on May 6 as the education company reported disappointing first quarter of 2015 results.

Moreover, the company could not sustain the improvement in starts that it witnessed in the latter half of 2014 in 2015 so far.

Despite being in line with the Zacks Consensus Estimate, Strayer Education’s first quarter 2015 adjusted earnings of $1.05 per share decreased 21.7% year over year on soft revenues and lower margins.
 

Strayer Education Inc. - Earnings Surprise | FindTheCompany

Total revenue in the quarter fell 4% from the comparable prior-year quarter to $111.9 million due to a decline in total enrollment and revenue per student in the quarter. Total revenue however marginally beat the Zacks Consensus Estimate of $111 million.  

Revenue per student decreased 3.1% during the quarter.  

Enrollment Discussion

Strayer University’s total enrollment declined 1% to 40,875 students for the spring term due to a 1% decline in continuing student enrollments. Total enrollment was 450 students, less than the number required to achieve the breakeven point. New enrollments/starts declined about 1% year over year. 

Strayer’s total enrollment has been declining due to continued unemployment and a subsequent decline in student demand. However, the company has been taking several initiatives to drive new enrollments. The company introduced the Graduation Fund in mid-2013, which offers one free course for every three programs completed successfully. These initiatives resulted in starts increase in low-single digits in the latter half of 2014 which we could not be sustained in the first quarter of 2015.

Adjusted operating margin decreased 380 basis points to 17.6% due to soft revenues. Bad debt expense as a percentage of revenues was 3.1% in the first quarter, lower than 4.3% in the year-ago quarter and 4.0% in the prior quarter, owing to continued improvement in student performance and collection of outstanding balance.

Other Financial Details

Strayer Education ended the quarter with cash and cash equivalents of $188.3 million as of Mar 31, 2015, compared with $162.3 million as of Dec 31, 2014.

Launch of Strayer@Work

Strayer recently introduced a new division called Strayer@Work, where the company partners with Fortune 1000 companies. Strayer will help these companies identify the skill gaps in their organizations. The division will offer two programs, Skills@Work, and Degrees@Work. While Skills@Work will focus on work force development, Degrees@Work will allow the company’s workforce to earn undergraduate or graduate degrees from Strayer University at no cost and with no debt to the employee.

Outlook for 2015

Revenue per student is expected to decline at the lower end of the range of 4% – 5% in 2015. Strayer maintained that its operating expenses are expected to be flat to up 2%.  

Strayer Education carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the education industry include National American University Holdings, Inc. (NAUH - Snapshot Report), Bright Horizons Family Solutions, Inc. (BFAM - Snapshot Report) and New Oriental Education & Technology Group Inc. (EDU - Snapshot Report). While New Oriental Education & Technology sports a Zacks Rank #1 (Strong Buy), National American University and Bright Horizons Family Solutions carry a Zacks Rank #2 (Buy).