Apollo Group Inc.'s shares plunged Wednesday after the for-profit education company reported a disastrous fourth-quarter and announced plans to close some of its University of Phoenix schools.
THE SPARK: Apollo Group reported late Tuesday that its fourth-quarter profit fell 60 percent due to higher costs and declining enrollment. To cope, the company said it plans to close 115 of the school's smaller locations. Apollo also issued a full-year revenue forecast that was below the market's expectations.
THE BIG PICTURE: University of Phoenix currently has about 328,000 students, down from a peak of more than 400,000. Following the closures, it will be left with 112 locations across the country.
Enrollments in the for-profit sector overall have been declining after years of rapid growth, even as enrollment in other sectors of higher education rises. Recent federal figures showed enrollment in for-profits fell 2.9 percent in 2011. The sector has faced tighter regulations and more pressure to enroll students who have a better chance of graduating. Additionally, students are increasingly favoring online courses.
THE ANALYSIS: Barrington Research analyst Alexander Paris said the worst may be behind the company, but downgraded his rating to "Market Perform" from "Outperform" on the news. The company must prove that its moves will have a positive impact on its bottom line and provide a clearer outlook to increase investor confidence, he said.
SHARE ACTION: Shares plunged more than 19 percent to its lowest level in at least five years on Tuesday. Share price fell $5.24 to $22.25 by early afternoon.
The company's stock had already been falling for the past few years. Its shares have lost more than 75 percent of their value since peaking in January 2009.