Universal Technical (UTI) Q3 Loss Narrows, Sales View Cut

Universal Technical Institute, Inc. (NYSE:UTI) reported better-than-expected third-quarter fiscal 2016 earnings per share. However, the automotive technician training company, once again cut its outlook for enrolments and sales which resulted in a close to 14% drop in share price on Friday.

Universal Technical posted an adjusted loss of 20 cents per share in the quarter, which was narrower than the Zacks Consensus Estimate of 25 cents. In the year-ago quarter, the company had generated a loss of 9 cents per share.

Earnings were adjusted to exclude the negative impact of the opening of the Long Beach, CA campus. This campus opened in the current quarter – fourth-quarter fiscal 2016.

Quarter in Detail

Revenues of $82.3 million fell 3.3% from the prior-year quarter due to lower total enrolment trends.

The top line, however, excluded revenues of $4.2 million related to the loan program during the quarter. The company intends to include this amount in the forthcoming quarters as students pay back their debt.

Universal Technical reported 8.3% drop in average undergraduate full-time enrollments in the quarter. The decline in total enrollment was due to a lower student population at the commencement of the quarter and weak student starts. Student starts declined 18.8% in the quarter due to a fall in show rates.

At the conference call, management informed that with the improvement in economy and job market is hurting demand for higher education and thereby enrollment trends of for-profit schools. The chief executive officer (CEO), Kim McWaters, also said that ‘’the negative news cycle against for-profit-schools’’ has resulted in lower student interest. In-fact, Universal Technical’s enrollments have been sluggish for several quarters now, due to regulatory challenges, along with changes and competition in the higher education industry. However, revenue per student improved 5.7% in the quarter.

Excluding the costs related to the Long Beach campus, operating loss was $5.5 million compared to a loss of $2.5 million in the prior-year quarter. The weak performance was due to lower revenues and higher compensation costs.

Fiscal 2016 Outlook Cut

Given its present enrollment scenario, Universal Technical cut its guidance for total enrolment, starts and revenues for fiscal 2016.

Universal Technical expects fiscal 2016 student starts to decrease in the low double digit range, compared to the prior guidance of low-to-mid single digits. Total enrollment is also anticipated to decline in the low double digits comparing unfavorably to the prior guidance of mid-to-high single digits.

Revenues are expected to decline about 6–7%, which is wider than the prior expectation of 3–5%.

Capital expenditure is expected in the range of $8.0 to $9.0 million, almost half of the previous expectation of $19.5 million to $20.5 million as the company has modified certain project timelines.

Universal Technical carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the education industry include Lincoln Educational Services Corporation (NASDAQ:LINC) , Apollo Education Group, Inc. (NASDAQ:APOL) and Grand Canyon Education, Inc. (NASDAQ:LOPE) . While Lincoln Educational Services sports a Zacks Rank #1 (Strong Buy), Apollo Education and Grand Canyon carry a Zacks Rank #2 (Buy).