Stock of National Education Drops $1 After Flat Forecast

Although it anticipates a 17.5% earnings increase to about $14.7 million for the year, National Education Corp. said Wednesday that it expects its third-quarter net income to be almost unchanged from the $4.2 million reported a year earlier.

Officials of the Irvine-based company were quick to point out that the year-ago figure included a one-time gain of $430,000 from the sale of its health care subsidiary--meaning that earnings from ongoing operations actually are expected to increase about 10% for the three months ended Sept. 30.

But investors, apparently hearing only that the vocational training company’s third quarter would be flat, dumped 823,000 shares onto the market Wednesday, driving its price on the New York Stock Exchange down by $1.50 per share before it rallied slightly to close down $1 at $15.75 per share.

“I’m tearing my hair out,” said Fred Anschel, an analyst with Dean Witter Reynolds Inc. in New York.

Prediction of Boost in Earnings

“Not about the company’s announcement, about how the stock reacted . . . people don’t read beyond the headlines,” he said. “The first reaction was ‘Aha! A flat quarter!”’

Anschel and several other analysts had been predicting that National Education, which has been expanding at a furious pace in the past year, would boost its earnings for 1986 to about $1 per share from 85 cents a share last year.

Wednesday’s earnings projections by the company upheld those predictions.

And Jack Polley, a National Education vice president, said Wednesday that he is “not uncomfortable” with Anschel’s prediction that the company will earn $1.25 per share for 1987.

Several other analysts who cover National Education could not be reached for comment Wednesday, but Anschel said he believes “things are really going in line with” the investment community’s anticipations for the company. He said he does not understand why the market reacted to the company’s announcement with a substantial 6% drop in the per-share price of National Education’s common stock.

Bright’s Predictions

In his announcement Wednesday, H. David Bright, National’s president and chief executive officer, said that revenue for the year should hit $250 million, up 35% from $185 million in 1985.

Third-quarter revenue, he said, should climb more than 50% above the year-ago figure of $46 million--meaning it could top $70 million.

The company’s revenues have soared largely because of its acquisitions of Virginia-based Coastal Business Colleges’ chain of six training schools and of two training program units from Gulf & Western Industries.

But the costs associated with those acquisitions--particularly the $1.6 million in interest paid on the $90-million debt National Education assumed in order to finance the purchases--helped keep third-quarter profit from growing at a matching pace, Polley said.

The second factor dampening the third-quarter profit picture, he said, was National Education’s decision to double product development costs to $4 million for the period.

Polley said he expects the company to earn nearly $4.5 million in the current quarter. “The fourth quarter traditionally is a strong quarter for our (training) schools operation, and we also cut our debt service” costs with a recent $55-million debenture offering that enabled National Education to retire all but $35 million of its bank debt, he said.

That remaining debt is scheduled to be paid off during the next two years, Polley said, adding that the company--which will end the year with more than $30 million cash on hand, “plans to continue acquiring schools and training businesses”.