Career Education flunks earnings test
BY DAVID ROEDER email@example.com November 10, 2012 8:00PM
Students at Le Cordon Bleu College of Culinary Arts, 361 W. Chestnut during Janna Gur, Israeli cookbook author and food specialist presentation, Monday, May 7, 2012. | John H. White~Chicago Sun-Times.
David Roeder reports on real estate at 6:22 p.m. every Thursday on WBBM-AM (780) and WBBM-FM (105.9). The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday.
Updated: November 12, 2012 8:28AM
Shares of Schaumburg-based Career Education (CECO) plummeted to a 52-week low Friday after executives reported a steep third-quarter loss and a coming shutdown of a quarter of its locations. The company calls them “campuses,” but that seems too grandiose a word. Chairman Steven Lesnik told analysts in a conference call that there are more losses to come.
“Even as we pursue a long-range strategy, we need to adjust to the current environment and make expedient adjustments right now,” Lesnik said. The provider of for-profit higher education is closing 23 locations and laying off 900 workers around the country, including some at the corporate headquarters. He declined to say which locations will be shuttered.
Lesnik, however, spoke about staff that has been added in ethics and compliance and he talked gamely of a corporate spirit in “partnering with external regulators and creditors.”
He meant that as a positive, but it only conjures up the challenges Career Education faces. Investors are voting with their feet: shares Friday fell 14 percent to $2.93. They have fallen more than 80 percent since the summer of 2011.
The entire sector of for-profit education is under scrutiny that’s liable to continue with the re-election of President Barack Obama. Federal investigations have found many schools becoming degree mills that run with little regard for their students’ employment prospects. They also depend heavily on federal money for tuition support, and Uncle Sam is demanding accountability and higher standards.
Career Education has been accused of reporting false job placement data to attract students. Lesnik said it has fixed the ethical lapses. Its schools have operated for years, but when doing the right thing requires a concerted effort, you have to wonder about the culture of the place.
The company’s schools include Le Cordon Bleu North America and American InterContinental University.
The company lost $33.1 million, 50 cents a share, during the third quarter, vs. a profit of $10.6 million, 10 cents a share, for the same period last year. Revenue was down 22 percent, almost directly in line with a 23 percent fall off in enrollment.
A $185 million line of credit for Career Education has expired, and the company has yet to secure a replacement.
Lesnik said the company is investing in new personalized learning techniques that he promised will set the pace for the industry. It’s the kind of innovation that the private sector can afford while the public sector deals with budget cutbacks, he said.
But his problem runs deeper than access to capital. Access to integrity will decide the company’s fate.
INBOX TO OUTHOUSE: Groupon (GRPN) shares fell about 30 percent to a new all-time low of $2.76 Friday, and there’s a temptation to speak of the daily deals company in the past tense. Last week’s earnings showed that the Groupon as we know it, with its emailed coupons, has nearly run its course, but its direct selling segment is growing. Face it, Groupon will try to be a retailer like Amazon (AMZN), possibly as a private company. When your shares go for less than a latte, why bear the expense of publicly reporting results?
LAW OF AVERAGES: How many times haven’t you read a piece about investments that touts the merits of dollar-cost averaging, or DCA? It’s an article of faith among financial planners that DCA, buying stocks a little at a time vs. doing it in a lump sum, will spread out the risk over time.
A study by mutual fund firm Vanguard Group is shaking things up by claiming DCA doesn’t work. It looked at a variety of scenarios in markets in the United States, United Kingdom and Australia and concluded that all DCA does is defer risk until later.
SOCIAL AWARENESS: Chicago-based Northern Trust (NTRS) has signed an agreement with MSCI Inc. to offer an expanded choice of investment options that follow social criteria. MSCI is a leader in what’s called ESG research, which stands for screening of stocks by environmental, social and governance standards. Northern Trust said more clients are examining their portfolios for their impacts on climate change, among other concerns.
SNAKE EYES: The Wall Street Journal said casino mogul Sheldon Adelson didn’t see much of a return for the $53 million he spent supporting political candidates, including Mitt Romney. Only one of the eight won.
The guy would have done better at his own craps tables.
CLOSING QUOTE: “If, like us, you believe there are dangers in the years ahead, but that U.S. growth will push profits higher over time and that the odds of a positive turn in fiscal policy are real, then equities are really cheap.” — Brian Wesbury, chief economist, Bob Stein, senior economist, First Trust Advisors