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Apollo Group Quarterly Profit Falls 40% as Enrollment Drops

June 25 (Bloomberg) -- Apollo Group Inc., owner of the University of Phoenix and the biggest U.S. for-profit college, said net income in the fiscal third quarter slid 40 percent as new enrollment tumbled.

Net income for the period ended May 31 fell to $80 million, or 71 cents a share, from $134 million, or $1.13, a year earlier, Phoenix-based Apollo said today in a statement. Excluding some items, profit was $1.05 a share, beating the 86-cent average of analysts’ estimates compiled by Bloomberg.

Apollo cushioned the impact of dropping enrollment by cutting quarterly costs 9.5 percent through a restructuring program and debt reduction. The company’s efforts to raise its profile with potential students through a rebranding effort and partnerships with employers to place graduates in jobs haven’t changed trends in student signups, said Jarrel Price, an analyst at Height Analytics in Washington.

“We need to get a clarity about the true causes of the continued deterioration in new student enrollment,” Price, who doesn’t rate the shares, said in a telephone interview. “These results may be a further indication that rebranding takes time.”

Apollo fell as much as 7.2 percent in late trading. The stock gained 1.4 percent to $19.38 at the close in New York, and has declined 7.4 percent this year.

Switching Indexes

Apollo, whose shares have slid 40 percent in the past year, will lose its spot in the Standard & Poor’s 500 Index later this week, S&P said in a statement June 20. Apollo will join the S&P Midcap 400 Index.

New students signing up for classes in the quarter slumped 24 percent from a year earlier to 38,900, Apollo said.

Declining enrollment has come amid increased scrutiny over the past few years by Congress, state attorneys general and the U.S. Education Department over for-profit colleges’ marketing practices. The schools’ students 7also have a higher rate of government student-loan defaults than those at non-profit colleges.

The drop in enrollment at the University of Phoenix is “difficult to accept,” Chief Executive Officer Greg Cappelli said on a conference call following the earnings results. “We’re focused on truly engaging students, creating an environment that addresses their needs and delivering better outcomes” for graduation and on the job front, he said.

Revenue dropped 16 percent to $946.8 million, missing the $965.8 million average of analysts’ estimates.

Admissions Advising

Total costs were $814.8 million, down from $900.8 million a year earlier. Apollo’s cost cutting included a 32 percent drop from the year-earlier quarter in admissions advisory expenses.

Sales for fiscal 2013 will be $3.65 billion to $3.7 billion, Apollo said. Analysts had projected $3.71 billion.

The company’s restructuring is expected to “favorably impact” annual operating expenses by at least $400 million beginning in the next fiscal year, compared with fiscal 2012. Apollo said that reflects a $50 million increase in anticipated savings from its previous outlook.

Margaret Spellings, who was U.S. Education Secretary from 2005 through 2009, will resign from Apollo’s board effective Aug. 31, the company said. Spellings, who was named to the board a year ago, will become president of the George W. Bush Foundation on Sept. 1.

(Apollo held a conference call at 5 p.m. New York time to discuss the results. To listen to a replay, call +1-855-859-2056 in the U.S., or +1-404-537-3406 internationally. The pin is 86623109.)

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

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

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