Capella Education posts lower profit, tops view

NEW YORK (AP) — Shares of Capella Education Co. shot up Tuesday after the online college operator posted a 26 percent drop in third-quarter profit but still beat Wall Street expectations.

Minneapolis-based Capella said its net income fell to $9.9 million, or 66 cents per share, for the three months ended Sept. 30 compared with $13.5 million, or 80 cents per share, in the year-ago quarter.

There were 10 percent fewer outstanding shares in the latest quarter due to company buybacks.

Revenue fell 3 percent to $102.3 million from $105 million last year.

Analysts, on average, were expecting earnings of 60 cents per share, on revenue of $101.8 million, according to data provided by FactSet.

Capella said new enrollment for the fall semester dropped 36 percent compared with last year. Total active enrollment decreased 7.5 percent from the prior year to 35,755.

The company said it expects enrollment to continue to decline — for the fourth quarter total enrollment is expected to be 4 percent to 6 percent below the 39,477 it reported for the end of last year. The company said re-registration of existing students is "expected to remain strong," but new enrollment is forecast to drop by about 10 percent.

Revenue is expected to fall between 3 percent to 4.5 percent, implying revenue between $109.6 million and $111.3 million.

That's ahead of Street forecasts. Analysts were expecting revenue of $107.5 million, on average, with estimates ranging from $101.2 million to $112.2 million.

Citi Investment Research analyst James Samford said in a note that the results were less negative than the second quarter. The forecast for a 10 percent drop in enrollment is better than his expectations for a 20 percent decline, he said.

"Turning the corner on fundamental trends, however, is a welcome relief, even if the fundamentals remain relatively weak," he wrote.

Shares rallied after the report, gaining $3.91, or 12.5 percent, to $35.23. The stock has traded between $26.12 and $69.85 in the past 52 weeks.