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Corinthian Warning Sends Stock Down 45%

The education firm says it missed its profit target and the trouble will carry over to fiscal 2005.

August 03, 2004|Dawn Wotapka | Times Staff Writer

Corinthian Colleges Inc. said Monday that it fell far short of its earnings target for its fiscal fourth quarter and warned that the trouble would carry over into the new fiscal year.

The revelations sent Corinthian's stock plummeting 45%.

The Santa Ana-based company said it expected to earn 19 to 20 cents a share in the quarter, which ended June 30, well below its April forecast of 27 cents.

For the 2004 fiscal year, profit should be 86 to 87 cents a share, less than Corinthian's earlier estimate of 94 cents. And in fiscal 2005's first quarter, the current quarter, Corinthian said it anticipated earnings of 17 to 19 cents a share. The consensus of analysts surveyed by Thomson First Call had been 25 cents.

Actual fourth-quarter earnings results won't be posted until Sept. 1.

"This type of earnings shortfall is unprecedented in our view and reflects a lack of internal controls for the company," J.P. Morgan Chase & Co. analyst Bradley Safalow said in a note to investors. He was one of several analysts who downgraded the stock Monday.

Investors responded by wiping out more than $760 million in stock market value. In Nasdaq trading Monday, Corinthian shares sank $8.43 to $10.29.

The sell-off spilled over to other for-profit educational companies. Market leader Apollo Group Inc., which operates the University of Phoenix and other schools, saw its shares drop $6.22, or 7.4%, to $77.33. Career Education Corp., which teaches subjects including cooking and computers, saw its stock fall $4.21, or 12.5%, to $29.60. Both companies trade on Nasdaq.

Corinthian, which operates about 130 colleges and corporate training centers across the United States and Canada, blamed much of the bad news on a costly advertising campaign. The ads were designed to combat bad publicity from lawsuits brought by students at the company's Florida Metropolitan University system who claimed they had trouble transferring credits to other schools.

Also cited were higher-than-expected costs for salaries, rents, classroom supplies and bookstore expenses, particularly at campuses that opened in fiscal 2004 or underwent relocations, expansions or remodels.

In addition, Corinthian said fourth-quarter revenue fell short of targets as student enrollment grew more slowly than expected.

Corinthian is one of several education companies facing inquiries by U.S. officials amid allegations of fraud and records manipulation.

In June, Corinthian disclosed that the Department of Education found that officials at the company's Bryman College campus in San Jose failed to comply with federal financial-aid requirements. On Monday, the company said it had voluntarily met with representatives of the California attorney general's office to provide information about three lawsuits that have been settled. The company didn't disclose the nature of the suits.

"We believe this revelation raises questions as to the motives of the California attorney general, and thus increases Corinthian's overall litigation risk," wrote Piper Jaffray & Co. analyst Mark A. Morastica in a note to investors. He also downgraded the company's stock.

ITT Educational Services Inc. of Carmel, Ind., and Career Education of Hoffman Estates, Ill., also are facing federal probes. The investigations may jeopardize the companies' accreditation and their ability to collect federal money.

Corinthian Chief Executive David Moore said Monday that he still had faith in the company's business model and management team.

"I am confident that the company will meet these challenges," he said in a statement.

Bloomberg News was used in compiling this report.

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