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Washington Post Net Triples on Education, Advertising

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Nov. 5 (Bloomberg) -- Washington Post Co. said third-quarter profit more than tripled on sales growth in its higher-education unit, which is facing government scrutiny, and a pickup in advertising revenue at its newspaper business.

The publisher of the Washington Post newspaper had a net income of $61.2 million, or $6.84 a share, compared with $17.3 million, or $1.81, a year earlier, according to a statement from the company today. Sales rose 7.3 percent to $1.19 billion.

Earnings doubled at the Kaplan education unit, which accounts for almost two-thirds of revenue. Still, enrollment growth for higher-education programs slowed and the Washington-based company repeated that pending government regulations on for-profit colleges and a new free-trial period for students may have a “material adverse effect” on earnings.

The Kaplan business is “the lifeblood of the Washington Post,” Bradley Safalow, chief executive of New York-based PAA Research, said in an interview before the results. PAA analyzes higher-education stocks.

Revenue at the newspaper division, which includes the Washington Post and the Herald of Everett, Washington, rose 5 percent to $163.4 million. The Post’s print ad sales rose 3 percent to $72 million.

The company, like other newspaper publishers, has trimmed costs by eliminating jobs and combining or shortening sections as advertising continues to migrate to digital news outlets and print circulation drops.

The Post Co. advanced $14.48, or 3.8 percent, to $398.38 at 4:02 p.m. in New York Stock Exchange composite trading. The shares have lost 9.4 percent this year.

Regulatory Scrutiny

Enrollment growth at Kaplan slowed to 8 percent from 18 percent in the second quarter. The business’s growth is threatened as for-profit colleges have come under scrutiny by Congress, the Government Accountability Office, and the U.S. Department of Education.

Kaplan suspended enrollment at two of its campuses after an undercover GAO investigation released Aug. 4 found that recruiters were exaggerating how much applicants could earn from a Kaplan education. The GAO report prompted Florida’s attorney general to open an investigation into Kaplan and other for-profit colleges.

Anticipating stricter government regulation, Kaplan has stopped linking its admission advisers’ compensation to the number of students they bring in, and begun allowing undergraduates to attend classes for a trial period -- and then drop out of the given class without owing any tuition.

“They’re trying to raise the quality of their student base and focus on outcomes,” said Jeff Silber, an analyst with BMO Capital Markets in New York. “It’s definitely the right thing to do to ensure the longevity of this sector, but unfortunately there’s typically a near-term adverse effect to earnings.”

Apollo Group Inc., owner of the University of Phoenix, which has adopted similar measures, said last month that new student enrollment in the quarter ending in November may drop more than 40 percent from a year earlier. Phoenix is the largest U.S. for-profit college, based on enrollment.

To contact the reporters on this story: Brett Pulley in New York at bpulley@bloomberg.net; Daniel Golden in Boston at dlgolden@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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