Sylvan stock price drops on earnings

Sale of tutoring business complicates the situation

April 25, 2003|By Andrew Ratner | Andrew Ratner,SUN STAFF

Sylvan Learning Systems Inc., which recently announced the sale of its well-known tutoring business to enable it to concentrate on buying and building colleges outside the United States, saw its stock price dip yesterday after an earnings report that was encouraging but complicated by the transformation of the company.

The company reported a loss of 39 cents a share for the quarter that ended March 31, an improvement over the $2.01 loss per share posted for the first quarter a year earlier.

Sylvan included in its calculations only the foreign and Internet-based universities that it intends to keep, and not the kindergarten-to-12th grade tutoring centers. It plans to sell that business by June for about $285 million to Apollo Management LP, a New York-based investment fund and its former partner in an unsuccessful venture capital investment.

Quarterly revenue from the university operations was $108.7 million, a 28 percent increase from $84.9 million last year. Net loss for those operations in the quarter was $16 million, an 80 percent improvement from the $79.1 million loss a year earlier.

The company said it is on track to meet earnings projections it previously announced for the full year of 80 cents to 82 cents a share, and revenue of $450 million to $475 million.

Sylvan shares closed yesterday at $17.51, down 74 cents, or 4 percent, after falling 7 percent earlier in the day.

Douglas L. Becker, chairman and chief executive officer of the Baltimore-based education services company, acknowledged in a conference call that Sylvan's finances will remain complicated at least through this spring as it leaves its most prominent business, tutoring, and reorganizes as a private higher-education provider serving 76,000 students.

"We're going from a 12-page earnings release to a six-page earnings release," said Becker, pointing to a sign of simplification, "and we're on our way to a three-page earnings release."

Yesterday's report showed an $8.4 million profit for Sylvan's six colleges in Latin America and Europe. The company lost $2.5 million on its Internet-based degree programs for students in Canter distance learning, Walden University and National Technological University.

Sylvan said it was pleased with double-digit enrollment growth at its campuses in Chile, where it has become that country's largest private university, and in Mexico, whose government expects a need for 2 million more college slots in the country by 2008, Becker said.

But Becker also pointed out that enrollment gains were slim at the first college it bought, in Spain. A year ago, he envisioned that country's higher-education demand as strongly as he describes Mexico now.

Trace Urdan, an analyst for ThinkEquity Partners in San Francisco, said the Spanish market for private colleges might have been hurt by recent changes that require minimum requirements for high school graduates whether they go on to private colleges or the most prestigious public universities.

Sylvan might see greater gains in more developing lands, such as Chile and India, but its stock could be hampered by the fact that doing business there includes more risk and unknowns than in North America, Urdan said.

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