Apollo Group's Grim Outlook Overpowers FQ2 Earnings Beat

Apollo Group (NASDAQ: APOL) has just opened down 8 percent on yesterday's close following their earnings report after the bell yesterday. While earnings represented a beat to analyst estimates, the depressed outlook into future growth is commanding most of investor attention this morning.

The for-profit education provider reported net income of $63.9 million or $0.51 a share, which was significantly better than than the $0.45 loss in the respective quarter last year (driven by a write off in intangible assets).

The beat, however, represented lean execution needed to counteract deteriorating fundamentals such as decreased growth rates in student enrollment. Consolidated net revenues of $969.6 million for the quarter just ended were 7.5 percent down from the comparable quarter a year ago. A 5-percent higher per-student revenue in the quarter, generated by higher tuition fees and charges, could not offset new enrollment that decreased by 5 percentage points year over year.

Pressure in new enrollment comes from multiple fronts. First, whereas the company's University of Phoenix used to have somewhat of a monopoly on the part-time adult learner, more traditional educators are increasingly offering the same flexibility for this student group. State as well as private colleges and universities are catching up to economic realities with part-time degree programs and cheaper online learning, which has cut into Apollo Group's target market significantly.

Another sizeable threat comes, interestingly enough, from improving labor market trends. As more jobs open up, an underemployed target market finds they have jobs to go to rather than enroll in degree programs in order to improve their marketability.

On the flip side, challenging economic conditions have also cut into the company's enrollment, with less income available for educational investment, so the company hopes all-around improvements in the economy will not just tax its new enrollment base, but also assist it.

The tapering of new enrollment Apollo has seen since January is expected to continue into the thir fiscal quarter. The company expects double-digit decreases in that metric if current trends continue. In addition, Apollo Group conceded in their earnings call that theyr ability to counteract this trend with gains in efficiency and innovation are somewhat more limited in the third fiscal quarter of 2012. The initiatives the company has undertaken will have their effect delayed until the fourth quarter, if effective at all.

Nonetheless, the company vows to continue its execution, and thus has reaffirmed its financial outlook of $4.1 to $4.3 billion in revenues for the entire fiscal 2012, and operating income between $725 and $725 million.

APOL has just opened down over 8% to $39.7 a share.