Earnings Jump Causes Big Rise for Learning Tree Stock.

LEARNING Tree International Inc. took analysts by surprise last month when it reported fourth-quarter earnings that beat the consensus estimate by more than 30 percent.

It's no secret that Wall Street is hypersensitive to earnings surprises, both good and bad, so the announcement caused its stock to jump more than 15 percent. Shares have continued to climb ever since.

After dipping as low as $6.38 a share in early March, Learning Tree shares as

of last week were trading near $25.

"They've had a great run, and I don't think it's over yet," said Robert Peterson, an analyst with U.S. Bancorp Piper Jaifray.

Not everyone agrees. In spite of better-than-expected earnings, analysts are divided over whether the upward trajectory can be maintained. Of the five analysts who track the stock, two recommend it as a "buy" and three rate it a "hold."

Behind the earnings uptick has been a combination of restructuring and an improved outlook for the company's software-training business.

"They've refined their cost structure so that growth in sales will translate more directly into their bottom line," explained Peterson. "Also, the timing is more in their favor now. Windows 2000 will create a huge demand for their products, and once we get further away from Y2K, sales should improve even further."

For the fourth quarter ended Sept. 30, net income was $5.7 million (26 cents per diluted share), compared with $3.9 million (18 cents) for the like period a year earlier. First Call/Thomson Financial's consensus was for EPS of 21 cents.

For the year, net income was $12.4 million (57 cents), up from $10.5 million (48 cents) in 1998. That 18.1 percent improvement in 1999 net income came despite essentially flat revenues ($189.3 million vs. $187.2 million in fiscal 1998).

Learning Tree President Eric Garen cited two reasons for improved earnings amid negligible sales growth.

"We've been very focused on controlling our expenses," said Garen. "In the first place, we have refocused our marketing and sales efforts on those segments of the market where we get the best responses. Secondly, because we outgrew our existing educational centers during 1997, we had to build new facilities while renting additional space in 1998. Most of these new facilities have come on line this year, and as a result, we have lowered our direct costs."

Learning Tree provides training and education for information technology professionals. Garen says 90 percent of the revenues come from instructor-led classroom training, and the remaining 10 percent from computer-based training (CBT) programs. In July, the company announced that it would not introduce any new CD-ROM-based CBT materials -- part of a switch to Internet-based programs.

"The trend is going to be away from CD-ROM toward the Internet," Garen said. "We had our first pilot (Internet-based training program) this fall, and we'll have a second one in either January or February."

Developing Internet-based courses is deemed less capital intensive than developing CD-ROM-based ones. "We're not going to invent our own technology," Garen said. "We've partnered with a technology provider to develop the infrastructure, so we can concentrate on our core competency, which is to provide the content."

Peterson said Learning Tree's flat revenue was a result of the information technology industry's preoccupation with Y2K. As businesses were busy preparing for the millennium changeover, there were few resources left to invest in new software programs and training. Hence, next year is expected to bring a renewed interest in IT-related educational programs, Peterson predicted.

In addition, Learning Tree's move into Internet-based training should also help boost sales, he said.

                        Learning Tree International
YEAR (Sept. 30)                 1999   1998
Revenue (millions)            $189.3 $187.2
Operating Expenses (millions)   97.9   93.9
Operating Income (millions)     14.7   13.3
Net Income (millions)           12.4   10.5
Earnings Per Share             $0.57  $0.48

SUMMARY

Business: Information technology training

Headquarters: Century City

CEO: David Collins

Market Cap: $535.7 million

Dividend Yield: N/A [*]

Total Liabilities: $65.1 million

P/E Ratio: 42.98

Long-Term Debt: None

(*.) Learning Tree does not pay dividends.