Sylvan sees 1st-quarter loss narrow to 1 cent a share

Gains in international university division, core tutoring business noted

April 26, 2002|By Andrew Ratner | Andrew Ratner,SUN STAFF

Sylvan Learning Systems Inc., the Baltimore-based tutoring and education services company, narrowed its loss in the first quarter through gains in its international university division and smaller losses in its arm that invests in new businesses.

Sylvan reported a net loss of $416,000, or 1 cent per share, for the quarter that ended March 31. That compared with a loss of $11.6 million, or 31 cents per share, for the comparable period last year.

Excluding losses from its venture capital division, Sylvan said it earned 13 cents a share, or $5.2 million, up from 10 cents a share, or $3.9 million. That was in line with expectations by analysts surveyed by Thomson Financial/First Call.

Revenue for the quarter was up 16 percent, to $134.4 million from $116.2 million in 2001. Much of that was driven by a 26 percent gain in the company's division of five for-profit universities in Latin American and Europe.

Douglas L. Becker, chairman and chief executive officer, said the company plans to spin off that division in a separate public stock offering this year. He said the company hopes to announce one more university, possibly one focused on information technology that it would build from scratch in India, before a stock offering.

The stock closed down 40 cents to $27 a share on the Nasdaq exchange.

Analysts said they were impressed with gains overseas, but also with growth in the company's core K-12 tutoring business in North America.

Same-store growth in the tutoring chain rebounded to 10 percent from 6 percent last year, better than some analysts expected in a down economy for consumers. They also expect a boost later this year from millions of dollars in federal grants for tutoring assistance under President Bush's "No Child Left Behind" education reform.

An English-language tutoring chain called Wall Street Institute that the company owns, mostly overseas, gained 11 percent revenue for the quarter, year over year, but struggles in Spain where Sylvan has strong competition.

Becker said he believes that the business has great potential in China and Germany, "other than that train wreck we've been dealing with in Spain."

"For my pride's sake, I'd like to just close the nonperforming centers, but my brain says the investment of time and energy may not be as good as if we focused on other markets," he said. "I think Spain can be fixed."

Brandon Dobell, an analyst with Credit Suisse First Boston in Chicago, said that resolving the English-language tutoring problem in Spain will be necessary to build investor confidence before spinning out the international universities. The Wall Street Institute would be included in that stock offering.

Sylvan also continued to build business on the Internet.

Its eSylvan online tutoring tripled since September to 1,000 students. The company is assembling what it envisions as the largest online university, combining earlier e-degree programs it bought called Canter and Walden universities.

Sylvan's interest in Sylvan Ventures, which has other investors, lost $5.6 million for the quarter, compared with $15.5 million for the comparable period last year.

"The company's doing extremely well," said Peter P. Appert, an analyst with Deutsche Bank AG in San Francisco.

"Sylvan has really positioned itself well to take advantage of some of the key trends in the education market."

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