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Apollo Group Drops Most in Two Years on Sales Forecast

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Oct. 17 (Bloomberg) -- Apollo Group Inc., the largest U.S. for-profit college chain, fell the most in two years after forecasting revenue for fiscal 2013 that missed analysts’ estimates and announcing it would close campuses and cut jobs.

Apollo, which operates the University of Phoenix, has dropped 60 percent this year, making it the worst-performing stock in the Standard & Poor’s 500 Index.

Fewer students are signing up to attend Apollo and other for-profit colleges amid high U.S. unemployment and federal and state investigations raising questions about the schools’ loan defaults and marketing claims. Apollo’s results demonstrate that investors should avoid the education industry, said Peter Appert, an analyst with Piper Jaffray & Co. in San Francisco.

“Education stocks are value traps, burdened by a downward bias in estimates, limited enrollment visibility and increasingly intense competitive dynamics,” Appert, who has a neutral rating on shares, wrote in a note to investors today.

Apollo dropped 22 percent to close at $21.40 in New York, the most since October 2010. A Bloomberg index of 13 education stocks slid 8.4 percent, the biggest drop in more than seven months.

For the year ending in August 2013, sales will be $3.65 billion to $3.8 billion, Phoenix-based Apollo said yesterday in a statement. Analysts on average projected revenue of $4.07 billion, based on estimates compiled by Bloomberg. Over the past year, enrollment at the University of Phoenix fell 14 percent to 328,400 students.

‘More Nimble’

The company said it will take steps to reduce annual operating expenses by at least $300 million by 2014. It will close 115 University of Phoenix locations, including 25 campuses and 90 smaller centers. The company will continue to operate 112 locations. Apollo is also cutting 800 jobs over the next fiscal year, according to the statement.

“We’re positioning ourselves to be more nimble, more competitive and more successful for all of our stakeholders in Apollo,” Chief Executive Officer Greg Cappelli said yesterday on a conference call with analysts.

Bank of America Merrill Lynch lowered its rating on Apollo today to “neutral” from “buy.”

Net income in the fourth quarter ended Aug. 31 fell 60 percent to $75.4 million, or 66 cents a share, from $188.6 million, or $1.37, a year earlier, Apollo said. Profit excluding some items was 52 cents a share, topping the 49-cent average of analysts’ estimates.

Sales in the three-month period declined 11 percent to $996.5 million, below the average $1.01 billion estimate of analysts.

To contact the reporter on this story: John Hechinger in Boston at jhechinger@bloomberg.net

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

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