In FY2013, Apollo Group Inc (NASDAQ:APOL) reported weak financial results, with decreases in revenue and operating income of 12.9% and 21.5%, respectively, versus the prior-year period. The company’s sales growth has been hurt by lower enrollment levels at its University of Phoenix operation, as well as sales of its non-core business units. In addition, Apollo Group Inc (NASDAQ:APOL)’s profitability has been negatively impacted by the costs of closing campus facilities and providing enhanced levels of student services.
Looking for diversification
Given the risks and rewards of the education sector, investors should probably stick with a diversified player that participates in a wide range of segments on a global basis, like The Washington Post Company (NYSE:WPO). The company’s Kaplan unit is a leading provider of education services, including participating in the online education, test preparation, and continuing education markets. It also has a growing international education business, which primarily provides English-language teaching and professional education in select geographies, like Australia and the U.K.
In its latest fiscal year, The Washington Post Company (NYSE:WPO)’s Kaplan had weak financial results, with an 8.7% decrease in segment operating revenue and a steep decline in operating income. The unit’s sales growth was hurt by enrollment declines in its online and campus education segments, as well as lower average pricing in its test preparation business. However, it enjoyed higher revenue and enrollment in its international segment as students flocked to its English-language programs. While the Kaplan unit is being hurt by temporary uncertainties in the domestic education market, it will be a long-term player in the global education market and will benefit from the financial strength of the larger The Washington Post Company (NYSE:WPO) enterprise.
The bottom line
The for-profit education sector has potential changes ahead of it, with a 2012 Senate report generally recommending a host of more restrictive rules for the industry. Despite the uncertainties, for-profit institutions will continue to play a critical role in the education of millions of people around the world. Investors that want exposure to the sector during this volatile period should go with the company that has the best diversification and the financial strength to ride out the storm, which is The Washington Post Company (NYSE:WPO).
The article Should You Dip a Toe in the Education Sector? originally appeared on Fool.com and is written by Robert Hanley.
Robert Hanley has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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