Tickers in this Article: APOL, STRA, CECO, COCO, ESI
Apollo Group (Nasdaq:APOL) operates for-profit education provider University of Phoenix. The industry is in a state of flux, and while Apollo reported second quarter results on Tuesday that largely met expectations, it expects sales and profits to fall for the next couple of years. The firm remains firmly profitable, but the stock will likely remain stagnant until operating conditions are more favorable.

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Second Quarter Recap
Net revenues fell 2% to $1.05 billion due to lower enrollment. The company detailed that degreed enrollment dropped almost 12% to 405,300 students as a 44.9% drop in new students to 48,200 is starting to really eat into enrollment count as older students graduate. The largest decline in enrollment came from students pursuing an associate's degree, which fell almost 23% to represent just over 38% of total enrollment. Students pursuing bachelor's degrees increased a modest 1.8% while master's and doctorate enrollment both fell slightly.

A non-cash charge to write down the value of a struggling degree program caused reported expenses to jump almost 20% to $1.07 billion. As a result, reported operating income fell into negative territory at $23 million and net income was also a negative $97.1 million, or a loss of $0.45 per diluted share. Backing out the one-time impairment, net income would have been approximately $118 million, or almost 10% of revenue for a healthy net margin. Earnings would have been $0.83 per diluted share.

For the coming year, Apollo projects sales between $4.65 billion and $4.75 billion and operating income in a small range near $1.2 billion. For fiscal 2012, it sees sales declining to between $4 billion and $4.25 billion and operating income between $675 million and $800 million. Analysts currently expect earnings of $4.61 per share and $4.27 next year.

Million-dollar questions include what Apollo's sales and profits will eventually fall to and the extent to which they will grow after they reach this new base line level. There is quite a bit of uncertainty as the company has elected to, in its own words, focus on "shifting the mix of enrollment to more experienced students who have a greater likelihood of succeeding in the Company's programs."

The for-profit education space has been criticized for piling debt on certain students and for a mixed record on the graduation rates of its students. (To learn more, see 5 Ways To Fund A College Education.)

The Bottom Line
Apollo is not alone as rivals including Strayer Education (Nasdaq:STRA), Career Education (Nasdaq:CECO), Corinthian Colleges (Nasdaq:COCO) and ITT Education Services (NYSE:ESI) are facing the same criticism. As the largest player, Apollo stands among the best chances for making it through the current uncertainty and finding a business model that more efficiently brings on students that will graduate, pay off their debts, and find higher-paying jobs as a result. (To learn more about business models, see Is Your Business Model Viable? An 8-Point Test.)

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