Universal Technical's (UTI) Q2 Loss Narrower Than Expected

Universal Technical Institute, Inc. (NYSE:UTI) reported narrower-than-expected loss in the second quarter of fiscal 2017. During the quarter, the company made progress in terms of new program offerings, smaller campus initiatives and strategic partnerships. However, student starts continue to be weak. The company has adjusted its marketing strategy and improved student support services. This is expected to improve student starts in the second half.

The company’s adjusted loss of 12 cents per share in the quarter was narrower than the Zacks Consensus Estimate of a loss of 16 cents by 25%. In the year-ago quarter, the company posted loss per share of $1.32.

Revenues & Enrollment

Revenues of $82.5 million in the second quarter fell 6.5% from the prior-year quarter due to a decrease in student enrollment.

The top line, however, excluded revenues of $4.4 million related to the loan program during the quarter. The company intends to include this amount in the forthcoming quarters as students clear their debts.

Universal Technical reported a 10.7% drop in average undergraduate full-time enrollments in the quarter. The decline can be attributed to lower student population and weak student starts. Total starts declined 17.4% in the quarter under review.

Universal Technical’s enrollments have been sluggish for several quarters due to regulatory challenges along with changes and competition in the higher education industry.

Operating Highlights

Operating expenses reduced 13% or by $12.2 million to $81.8 million on lower compensation expenses and improved operating efficiencies following the implementation of the Financial Improvement Plan.

The company reported operating income of $0.7 million in the quarter as against an operating loss of $5.8 million in the prior-year quarter. The improvement can be attributed to $1 million of operating income from the Long Beach campus and significant cost reduction.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") was $5.6 million, compared to a loss of $0.6 million in the prior-year quarter.

Financials

The company had cash and cash equivalents and investments of $98.7 million as of Mar 31, 2017, compared with $120.7 million as of Sep 30, 2016. The decrease can be attributed to collateral requirements for surety bonds renewed in the quarter and changes in working capital.

Universal Technical Institute Inc Price, Consensus and EPS Surprise

FY17 Guidance

Universal Technical expects new student starts to decline in the high-single digits.

The average student population is likely to decline low double digits from the fiscal 2016 level.

Revenues are expected to be down in the mid-to-high single digits in fiscal 2017. Earlier, revenues were anticipated to be down in the mid-single digits.

Universal Technical now expects its Financial Improvement Plan to generate annualized cost savings at the higher end of the $30 million to $40 million range, whereas the plan was earlier expected to deliver over $30 million in annualized cost savings.

Capital expenditures are expected to be approximately $10 million to $11 million for the year ending Sep 30, 2017, compared with $12.5 million to $13.5 million projected earlier.

Zacks Rank & Peer Release

Universal Technical currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Capella Education Company (NASDAQ:CPLA) reported adjusted earnings of 94 cents in the first quarter of 2017, which surpassed the Zacks Consensus Estimate of 87 cents by 8.1%. Adjusted earnings however decreased 9.3% year over year.

Upcoming Peer Releases

Laureate Education Inc. (NASDAQ:LAUR) is slated to release first-quarter 2017 results on May 11, before market opens.

American Public Education, Inc. (NASDAQ:APEI) is scheduled to report first-quarter 2017 results on May 9, after market close.

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