(Bloomberg) — Technical colleges are betting a surge in demand for skilled workers will lift profits, though the payoff may take time as they expand campuses and programs to accommodate more students.
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Employers racing to build data centers, expand manufacturing and automate factories are fueling demand for trained workers, lifting enrollment at schools including Universal Technical Institute Inc. and Lincoln Educational Services Corp.
That growth is starting to strain existing capacity, forcing schools to spend heavily now, but that will take several quarters to translate into earnings, according to Eric Wold, a Texas Capital Securities analyst.
At UTI, some heating, ventilation and air conditioning, welding and aviation programs have waitlists, said Todd Hitchcock, executive vice president of strategy, growth and operations. That’s requiring some students to delay their start until the next class begins.
Both schools have said they’re investing to address those constraints, raising capital spending plans to accelerate campus and program expansion, or even buy additional properties.
That should improve margins over time, Hitchcock said. Adding more welding booths is an upfront cost, but “the margin improves overall because if you think about it, it’s the same number of instructors.”
Biting Costs
Expanding programs is difficult because technical training requires costly equipment, specialized labs and instructors who can make competitive wages working in the field, said Michael Shiels, associate vice provost of academic affairs at Waukesha County Technical College in Wisconsin.
So far, costs are biting more than the margin gains. While capacity constraints have given the schools more pricing power, there’s a risk that higher costs for students push some toward cheaper alternatives.
Lincoln said student starts slowed sharply last quarter after it failed to clearly communicate costs and financial aid, while AI search tools may have also steered applicants toward lower-cost community colleges.
“Sometimes the AI models are simplistic, and what they look at is the cost,” Chief Executive Officer Scott Shaw said on the back of second-quarter earnings. The company is now updating its website to improve how AI models present information to prospective students.
Employers aren’t waiting for schools to churn out their next batch of skilled workers. Dycom Industries Inc. is building a training center in Georgia that’s expected to open next year, while HVAC manufacturer Carrier Global Corp. has opened training centers and pledged to hire and train more workers.
Lincoln hasn’t seen an impact so far, Shaw said, adding that his company is “certainly having more and more discussions with our existing employers as well as finding new employers.”
Not all companies have apprenticeships in place, and many of those who don’t still rely on community and technical colleges, said Laura Ullrich, Indeed’s director of economic research. “You still have to have certain coursework to get the licenses.”
For now, execution remains the more immediate hurdle. UTI cut its forecasts last quarter, citing a shortage of admissions representatives in high schools and a shift in student interest toward skilled-trades programs from its longer and more profitable automotive and diesel courses.
The company has hired more recruiters, but new ones take time to become productive, said Texas Capital’s Wold, who downgraded UTI to hold in September. “The demand is there, but they need to be prepared to fill that.”
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