Educator Widens View To Offset Tech Slump
biz.yahoo.com
Excerpt
"The company intends to open new campuses this year in Atlanta, Baltimore and Columbus, Ohio. In addition, new learning outposts in China and India could fuel further growth."
Friday February 14, 10:41 am ET
By Marilyn Alva
You'd think, given the tech sector's ongoing slump, that an educator that specializes in preparing students for high-tech jobs would be struggling.
Hiring in the tech field remains weak. And high school grads are eyeing other industries.
So how do you explain ITT Educational Services Inc.'s (NYSE:ESI - News) run of success?
The firm, which specializes in post-secondary technical education, has put together nine straight quarters of at least 19% year-over-year earnings growth. Sales over the same period have grown at least 13%.
Earnings last year moved up 34% to 94 cents a share, while revenue gained 13% to $464.9 million. Student enrollment for the year grew 6% - more than 11% in the fourth quarter alone.
ITT's secret, analysts say, is that it does a good job eyeing new market opportunities to reduce the impact of the tech slump.
"The company is manufacturing its own growth," said Trace Urdan of ThinkEquity Partners, a boutique investment firm.
That wasn't the case five years ago, when ITT was coasting on a tradition that dated back three decades. That tradition was to teach students at its trade schools how to become electronics engineers and drafting technicians.
Its two-year associate degree programs mainly attracted young men just out of high school.
When enrollment growth fell in the late 1990s, when the Internet economy was taking off, ITT executives returned to the drawing board.
In 1999 and 2000 they rolled out four new associate degree programs in computer networking, software applications, multimedia and Web development.
At the same time, they updated what had become stale core engineering and drafting curricula by bringing computers into the classrooms, among other things.
By 2001, a turnaround was under way, and more women were enrolling. The company has continued to forge on in new directions, even more so since the tech bubble burst.
"The people we've been training are at the technician level, and there is still a very high demand for those skills," said Omer Waddles, ITT's chief operating officer.
He cites tech demand in fields such as hospitals, banks and retail.
Still, high school grads - ITT's longtime target group - are largely shunning high-tech training. So ITT has been going after older students who already have jobs and want to upgrade their technology skills.
"People in the work force can see past the headlines," Urdan said. "They understand that having skills in technology can be a good long-term move for them."
ITT started rolling out tech-oriented bachelor-degree programs last year, including one in systems security, a hot area right now.
The company plans to launch five more bachelor programs this year, including ones in industrial design, digital entertainment and game design, software engineering and business administration.
An online master's in business administration is expected to roll out by September.
Class Shift
To attract working adults, ITT shifted from five-day-a-week classes to three days a week. It also offered more night classes.
"We've leveraged double use out of our facilities for the same period of time," Waddles said.
One result: Operating margins are improving, he says.
Meanwhile, new student starts have shown recent strength after a choppy performance for much of the past year, says analyst Richard Close of SunTrust Robinson Humphrey.
New enrollments rose 11.2% in the fourth quarter. That was the best showing in seven quarters, when new enrollment growth ranged anywhere from zero to 7%.
Student retention rates also are improving, Close says. With new bachelor degrees, many students are expected to stay in ITT schools longer as they migrate up from two-year associate programs.
That also means more revenue per student. The figure hit $14,620 last year, up 13% from two years earlier.
ITT has 74 small campuses in 28 states. Most are in leased office buildings with no more than 500 students in each. In the last year, ITT has bought six of those buildings.
Because campuses are smaller and more geographically diverse than some rivals, ITT hasn't been hit as hard from IT staffing cutbacks as some other high-tech educators, analysts say.
"Its smaller campus model allows them to quickly exit areas of weakness . . . and also to expand into pockets of strength when that seems appropriate," Urdan said.
He says DeVry Inc., another education firm heavily involved in high-tech training, is having problems.Among other things, it has larger campuses than ITT - including one in Silicon Valley, which has been hit hard by the tech slowdown.
"(DeVry's) new enrollment dropped off 12.5% for the November trimester," Urdan said.
For its part, ITT plans to close its two schools in the Silicon Valley once current enrollments are taught out.
The company intends to open new campuses this year in Atlanta, Baltimore and Columbus, Ohio. In addition, new learning outposts in China and India could fuel further growth.
Analysts expect earnings to grow in double digits for at least the next two years. Those polled by First Call see profit this year rising 21% to 1.14 a share, then 20% to $1.37 a share in 2004. |
