Laureate adds Mexico sites and Chicago link

Schools owner reverses 2Q loss from operations

July 23, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

A Baltimore tutoring company-turned-higher education behemoth announced yesterday that it is adding two campuses in Mexico and affiliating with a Chicago college to launch its international hospitality management programs in the United States.

It's a two-pronged attack for Laureate Education Inc., which dropped the name Sylvan Learning Systems in May to shed the final piece of its kindergarten-to-12th-grade past. The company is trying to further capitalize on growing demand for college degrees in Latin America and hopes to turn its hotel-management division - the well-known Les Roches Hospitality Management School based in Switzerland - into a growth business.

It has increased its Mexico locations to 19 by acquiring a university in a Mexico City suburb and opening a new campus in the northeastern part of the country. At the same time, it licensed its hospitality programs to Kendall College in Chicago - although Laureate expects to buy the institution outright within two years and has an option to do so. That would add a brick-and-mortar operation to a company that has only virtual universities in the United States.

Laureate also reported sharply improved second-quarter results yesterday, with its operating income swinging to a positive $22.2 million, compared with a loss between April and June last year of $10.9 million.

Net income registered a 33 percent drop, but only because it had a one-time gain of $44.6 million in the corresponding period last year from selling the Sylvan tutoring centers and related K-12 operations. Net profit was $20.8 million, compared with $30.9 million in last year's second quarter.

Laureate's earnings of 50 cents per share from continuing operations handily beat Wall Street expectations of about 32 cents. It was above the mark even after subtracting 13 cents per share that came from the unexpected windfall of an early repayment of a loan it had made to Sylvan's buyer.

Still, shareholders were initially spooked by Laureate's earnings guidance for the third quarter, which at 18 cents to 19 cents per share is 5 cents to 6 cents lower than analysts expected. Investors sent the stock down more than a dollar before pushing it back up to end the day at $38.33, a gain of 40 cents.

Douglas L. Becker, Laureate's chairman and chief executive, said the company is taking on some extra costs in the third quarter - mainly associated with the new campuses in Mexico - to underwrite later growth.

But it shouldn't get them off track for full-year earnings because the second quarter was so good, he said.

"The company is making more money, and we can afford to expand more aggressively," he said. "We kicked on the afterburners because the company is really ... ahead of plan."

Trace Urdan, education analyst at ThinkEquity Partners in San Francisco, called the second quarter "very strong" and said Laureate is doing what it promised it would do - plow unexpected profit back into growth.

"I think investors have to get comfortable that that's the way the program works," he said.

Urdan, who has visited Kendall College's new facility in downtown Chicago, said the new alliance gives Laureate an interesting niche - though not one it expects much income from next year - because for-profit educators haven't moved into the hotel management field in this country.

"It's one of the very few areas in the U.S. that really hasn't been explored fully and offers potential for really rapid growth," he said.

Laureate operates 38 campus locations, mainly in Mexico, Chile and Europe, and runs online universities.

Campuses in Chile are now its single largest earner, surpassing Mexico and producing more than double the revenue they accounted for this time last year. But Laureate sees Mexico as largely untapped because it has campuses in only five of that country's top 20 markets.

Becker said he expects to open two to three new campuses there next year. "Mexico is absolutely our top priority," he said.

Revenue from online higher education - such as Walden University - increased 25 percent. Laureate said enrollment in online institutions jumped 17 percent in the second quarter, including a 33 percent growth in the new-student population.

Overall, Laureate's second-quarter revenue rose 36 percent to $158.3 million or $3.29 a share, up from the $116.2 million or $2.82 a share produced between April and June last year.

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