Sylvan offers rosy outlook for revenue

Company projection for this year beats analyst expectations

Profit estimate disappoints

But education bill, just signed by Bush, promises a windfall

January 09, 2002|By Andrew Ratner | Andrew Ratner,SUN STAFF

Sylvan Learning Systems Inc. met or bettered investment analysts' expectations yesterday with its revenue outlook for the year and also learned that a windfall from Washington is all but on the way.

The sweeping $26 billion education bill that President Bush signed into law at an Ohio public school yesterday includes assistance for private tutoring for students in failing schools and teacher development - among areas served by the Baltimore-based education services company. Other companies expected to benefit include Kaplan Inc. of New York and Huntington Learning Centers Inc. of New Jersey.

"Sylvan Learning Systems looks forward to supporting the goals of this legislation by continuing to do what the company has always done: provide the highest-quality and most effective education services to our nation's students, teachers and schools," Paula Singer, president and chief executive officer of Sylvan's online higher education division, said in a statement.

Although any financial impact wouldn't occur until at least fall, Brandon Dobell, an investment analyst in Chicago, thinks education-related companies will benefit simply because the issue will regain some of the national focus it lost after the terrorist attacks of Sept. 11.

"From a stock perspective, the education bill has a good impact, probably even more so than the actual business it will bring" to Sylvan, said Dobell, with Credit Suisse First Boston.

Sylvan's shares rose 9 cents to $25.12 on the Nasdaq stock market yesterday. The shares have been recovering to their levels of three months ago.

Yesterday morning, the company projected earnings of 93 cents to 95 cents a share for the year. That was slightly below analysts' consensus of 77 cents to 85 cents, after adding 18 cents per share for write-offs of good will and other intangible assets under new accounting rules.

But analysts said they were impressed with better-than-expected estimates for revenue and operating income. They said that reflected strength in Sylvan's K-12 tutoring centers, its online training programs and its growing network of universities in foreign countries.

Sylvan reported that it expects operating income, excluding Sylvan Ventures, of $74 million to $77 million, on revenue of $568 million to $592 million for the year that ends Dec. 31, 2002.

In a Thomson Financial/First Call survey, eight analysts had estimated revenue for 2002 of $551.2 million.

Sylvan Ventures in red

The company said it expects a loss of $25 million to $30 million in its Sylvan Ventures' arm, which invests in businesses related to education and technology. Investment losses have slowed from a year ago and analysts said they were not concerned. Some had predicted losses for 2002 slightly higher than the company did.

"Their core business is going extremely well," said Jeffrey M. Silber of Gerard Klauer Mattison in New York.

"Some of their non-operating income like interest is lower, but most investors discount that since anyone can make money in a bank account."

Loan deal probably helped

Trace Urdan, an analyst with ThinkEquity Partners in San Francisco, said the company's arrangement with a Sallie Mae subsidiary to provide loans for customers of the tutoring program probably helped.

Otherwise, the recession might have kept more families from laying out $2,000 or so a year to bolster their children's education.

"I believed that the tutoring business had to suffer in context of the economy, but in fact it has been performing very well," Urdan said.

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