Career Ed taking steps to right ship, but shares fall
Career Education Chief Executive Officer Gary E. McCullough on Tuesday said he remains optimistic but realistic about the need to increase falling profits.
"We have reason to be optimistic," McCullough said in an analyst call Tuesday morning. However, "Our profit margins continue to be below expectations."
The Hoffman Estates-based for-profit education chain recently settled a raft of lawsuits and saw government investigations of how it gave students information on tuition and job placement shut down. And a key certification group may end its two-year probation of Career Education's largest school when it meets in December, McCullough told analysts.
McCullough touted the company's five year plan and a new executive corps to lead a comeback. McCullough was named CEO in March after proxy fights, lawsuits, certification probation and ethical questions kept its performance down and led to the resignation last year of longtime CEO John "Jack" Larson.
Still, McCullough's upbeat assessment Tuesday did not comfort investors as shares fell 7 percent, losing $2.47, ending at $32.40.
Profits in the third quarter fell almost 25 percent to $15.6 million, or 17 cents a share, below Wall Street analyst expectations, according to a Reuters survey.
Revenue fell 5.6 percent from last year to $404.4 million, also below analysts' expectations.
Career Education offers degrees in a variety of career-oriented programs from business to cooking. It operates more than 75 campuses in the U.S., Canada, the U.K., France and the United Arab Emirates with more than 90,000 students.
The company said profit margins fell because more students shifted to the university segment's associate degree program instead of the higher margin bachelor's degree program.
Also, Colorado Technical University Online, which historically has had lower margins than that of American InterContinental University Online, grew faster than expected, the company said.
The company said it also experienced increased expenses for its start-up campuses.
Career Education said during the third quarter it continued its year-long negotiations to sell 11 schools and campuses. Talks with the most likely buyer were not successful, McCullough said, but other options will be decided upon by year's end.
Baird analyst Amy W. Junker said Career Education is taking the right steps to improve its operations. Overall, however, Junker said the timing of its turnaround is still uncertain.
"While this is the second consecutive quarter of positive start and enrollment growth, we remain cautious, given the continued deterioration in revenue per student and lower operating margin," Junker wrote in a client note.
Longtime analyst of Career Education's stocks Barrington Research's Alex Paris Jr. said he stopped covering the company a couple of months ago.
"I just felt the stock price already reflected the current positives, including the (American InterContinental University) probation news," Paris said. "I thought they would have to spend so much money to get it going again, it would be a long ways off before it got going again."
Career Education's brands
The Hoffman Estates-based for-profit education chain operates under several brand names.
School Curriculum
• Le Cordon Bleu Schools North America culinary
• Harrington College of Design interior design
• Brook Institute photography
• International Academy of Design fashion merchandising/interior design
• American InterContinental University career training
• Colorado Technical University career training
• Sanford-Brown Institutes and Colleges career training
Source: Career Education Corp.