Sylvan Learning rebounds to post 20 cents-a-share profit

3rd quarter is helped by a shift in strategy

October 26, 2001|By Andrew Ratner | Andrew Ratner,SUN STAFF

Sylvan Learning Systems Inc. reported solid results for its third quarter yesterday as the Baltimore-based education company expanded its international focus.

The company reported net income of $8.4 million for the quarter that ended Sept. 30, compared with a loss of $1.4 million posted for the corresponding period in 2000. Earnings per share were 20 cents, including investments in Sylvan Ventures, compared with a loss of 8 cents in 2000.

Income from continuing operations after tax, excluding investments in Sylvan Ventures, was $3.6 million, or 9 cents per diluted share. That compared with $3.7 million, or the same 9 cents per diluted share, in 2000.

The numbers reflected a shift in strategy for Sylvan, which is best known for its private tutoring services but has been acquiring universities in Europe and Latin America. "They had a strong quarter and it really solidifies their post-secondary strategy," said Fred McCrea, an analyst with Thomas Weisel Partners, an investment firm in San Francisco.

Revenue grew 80 percent in the quarter, to $107.7 million this year from $60 million last year. That was driven in part by Sylvan's International Universities, which reported revenue of $42.3 million for the quarter compared with $4.2 million a year earlier.

Sylvan's K-12 unit, which includes the nearly 900 tutoring centers, showed more modest revenue growth of 11 percent, to $38.1 million from $34.3 million.

Sylvan's third major area, online education, showed revenue growth of 28 percent, to $12.8 million from $10 million.

Higher education, overseas and online, creates about 65 percent of the company's revenue today and could grow to 75 percent in roughly a year, said Douglas L. Becker, Sylvan's chairman and chief executive officer.

Sylvan Ventures, which invests in education companies, gained $4.8 million in the third quarter. That included a $24.7 million gain from sale of its stake in Classwell Learning Group, an online company in Boston. However, for the first nine months, Sylvan Ventures reported a loss of $24.5 million. It lost $9.9 million in the comparable period last year. The unit had dragged down overall results in several recent quarters.

R. Christopher Hoehn-Saric, who bought Sylvan with Becker in 1988 and now heads Sylvan Ventures, told analysts that the weakened market allows the company to acquire more mature, profitable companies for sums that might have only bought more speculative startups last year.

"What really matters about Sylvan Ventures is the long-term return on investment," Becker said. "It's like a green banana. You're not going to eat it right now."

"They only need to hit one or two home runs to compensate for some of the strikeouts," said Howard Block, an investment analyst who follows the company for Banc of America Securities in San Francisco.

"The strength of management there is identifying niche opportunities and exploiting them," said analyst Trace Urdan of WR Hambrecht+Co. in San Francisco. "They've got great credibility because the numbers are growing in the way they guide people to. They offer specific guidance and they're pretty much dead on. It gives investors comfort that they know their business and they have visibility."

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