Capella Education Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of for-profit educator Capella Education (NAS: CPLA) got an "F" from investors today, as shares sank as much as 16% in intraday trading after the company posted results from its fourth quarter.

So what: For-profit schools have been broadly under pressure from the government as concerns mount over questionable practices, particularly when it comes to recruiting students. Those pressures have shown up in the results of companies across the sector, and Capella was no exception. For the fourth quarter, Capella's revenue dropped 4% from the year prior to $110 million, while earnings per share slid 22% year over year to $0.85. Analysts had been expecting EPS of $0.91 on $110 million in revenue.

The poor results were driven by a 4.5% decrease in total active enrollment, a lower operating margin, and a $1.3 million charge associated with cutting loose 63 employees.

Now what: New enrollment in the fourth quarter declined by 9.4% as compared with the year prior, so that didn't help raise investors' hopes about what's ahead for Capella. Enrollment is expected to decline further in both the first quarter and full year for 2012. However, the company sees those declines moderating -- first-quarter declines in new enrollment are expected to be "slight" as compared with a drop of 36% the year prior.

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