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Apollo Falls After Cutting Enrollment, Profit Forecasts

Feb. 28 (Bloomberg) -- Apollo Group Inc., owner of the University of Phoenix, led a decline in for-profit college stocks after cutting its forecasts for earnings and student enrollment.

Apollo, whose online school is the biggest of the for-profit colleges, fell 16 percent to $43.04. It was the biggest drop since Oct. 14, 2010.

Congress and states’ attorneys general have been reviewing sales practices and student debt loads at for-profit colleges, which get as much as 90 percent of their revenue from federal programs. Apollo’s enrollment forecast for little or no second-quarter growth signals that for-profit colleges’ recovery from the probes and new regulations has slowed, said Jarrel Price, an analyst with Height Analytics LLC in Washington.

“Apollo had been leading the sector through an enrollment reset and we, like most investors, had been very bullish about their enrollment outlook,” he said today in an e-mail. “This is a very concerning development for Apollo and the rest of the space.”

A Bloomberg index of 13 for-profit education companies declined 8.6 percent, the biggest drop in 13 months. Bridgepoint Education Inc., based in San Diego, lost 7.8 percent to $24.54. Education Management Corp., based in Pittsburgh, fell 6.3 percent to $17.92. Capella Education Co., based in Minneapolis, dropped 6.2 percent to $38.81.

Enrollment at the University of Phoenix will be little changed or show low single-digit percentage growth for the second quarter, compared with an earlier forecast of about 13 percent growth, according to a statement today from Phoenix-based Apollo.

Sales Practices

A number of factors, including competition from other companies, an improving labor market and the company’s own changes in its sales practices may be responsible for the enrollment trends, Apollo said in the statement.

Profit for the year ending August will be $625 million to $725 million, excluding one-time items, down from the earlier target of $655 million to $750 million, the company said.

“Investors need an explanation of what changed since Apollo gave guidance in January,” Price said.

Accreditation

Senator Richard Durbin of Illinois last week called for the University of Phoenix’s accreditation body to conduct a “careful review” of the for-profit college, which has been the subject of at least five state lawsuits and a federal investigation. It’s imperative that schools receiving federal money “offer their students quality education, clear information about their financial obligations and appropriate educational support,” he said in a letter.

Education researchers have also questioned the value of offerings at for-profit colleges. A Harvard University study released Feb. 22 said for-profit college students are more likely to be unemployed and earn less in the six years after graduation than their peers at community colleges.

Career Education Corp., the company that operates Le Cordon Bleu North America cooking schools, said yesterday that it received a Dec. 9 civil investigative demand from the Illinois attorney general to determine whether the company has complied with state consumer protection laws. The attorney general has requested documents relating to a broad spectrum of business practices, Career Education said in a government filing.

Career Education, based in Schaumburg, Illinois, tumbled 19 percent to $9.10, the biggest drop since Nov. 2, 2011, a day after Ed McCullough, the company’s former chief executive, resigned.

To contact the reporter on this story: John Lauerman in Boston at jlauerman@bloomberg.net; Oliver Staley in London at ostaley@bloomberg.net

To contact the editor responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net

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