Sylvan Posts Profit Of $3.7 Million For 1st

Company Announces School Contracts In Detroit, New Orleans

April 25, 1997|By Ted Shelsby | Ted Shelsby,SUN STAFF

Sylvan Learning Systems Inc. reported higher-than-expected first-quarter earnings yesterday and announced service contracts with public school systems in Detroit and New Orleans that could lead to a significant boost in future business.

In the three months ended March 31, Sylvan earned $3.7 million, equal to 14 cents a share, on revenue of $44.9 million.

This compares with a profit of $1.8 million, or 8 cents a share, in the same period last year, when earnings were reduced by $1.2 million as a result of Sylvan's purchase of computers and other equipment related to its acquisition of Bloomington, Minn.-based Drake Prometric, LP in 1995. Revenue totaled $34.6 million in the 1996 period.

"They beat the street estimate on revenues by a couple of million dollars and a penny on earnings," said Peter P. Appert, an analyst who follows Sylvan for Alex. Brown Inc.

"The key to their success in the quarter is the improvements in the operating margins of all three divisions -- testing, contract education and learning centers," Appert said. "The year is off on a pretty good start."

Michael T. Moe, an analyst with Montgomery Securities in San Francisco, said all three lines of Sylvan's business performed better than analysts had anticipated.

"Historically, one division does better than expected and this is offset by one with lower-than-anticipated results. But this time it was a very solid quarter for all of its lines of business."

Revenue for the testing division rose 42 percent to $25.2 million. Contract Educational Services revenue grew by 10 percent to $10.5 million. In the learning center division, revenue was up 28 percent to $9.2 million.

Sylvan spokeswoman Vickie Glazar said the Detroit Board of Estimates on Tuesday approved the company's contract to provide teaching services in five public schools.

Glazar said Sylvan will go into the schools and set up learnings centers for accelerated instruction in math and reading for students referred to the company by the schools.

The company said that the Detroit contract and another with the school system in New Orleans, which was negotiated in January and announced yesterday, should create combined revenue of about $4.5 million over their three-year terms.

That could be a modest estimate, according to Appert. "The Detroit contract is an important development," he said. "It is a highly visible urban school system that is among the top 10 in the nation based on the number of students."

He said that in addition to being lucrative by itself, the Detroit contract could encourage other school systems throughout the country to contract with Sylvan.

Appert said that agreement in Detroit amounts to Sylvan "getting its toe in the water. This gets them into the school district and assuming they get results, which Sylvan usually does, I would say the prospects for additional business look pretty good."

Regarding its pending acquisition of National Education Center, Sylvan's chairman and co-chief executive, Chris Hoehn-Saric, said: "We continue to view the combination of Sylvan and NEC as the best way to create value for shareholders of both companies and we are proceeding as planned to finalize the transaction."

Sylvan announced on March 12 that it had reached an agreement to acquire California-based NEC in a stock transaction worth roughly $638 million.

In a surprise move, Harcourt General Inc., based in Chestnut Hill, Mass., last week offered to acquire NEC in a cash transaction valued at $740 million.

Glazar said yesterday that NEC's board has not yet met to evaluate the Harcourt proposal and make its recommendation to its shareholders.

Sylvan stock closed yesterday at $29.50, up 50 cents.

Pub Date: 4/25/97

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