The Real Cost of Prisons Weblog

The company attributed the rise in profit to a 5.0% reduction in operating expenses to $67.7 million during the quarter from $71.3 million during the year-ago period, which more than offset the 2.1% drop in revenue to $92.1 million from $94.1 million a year earlier.

But Cornell’s shares have fallen 22.9% since the beginning of 2008 as jittery investors sell off shares amid a shaky U.S. economy. Yet it is precisely the weakened economy that have made companies like Cornell and its competitors Corrections Corp of America, the nation's largest privatized prison operator and the only pure play on adult prisons, and Geo Group good buys. Geo added 15 prisons and 8,000 beds when it bought competitor Correctional Services in 2005. In October 2006, Geo announced the acquisition of CentraCore Properties Trust, a prison REIT.

Corrections Corp. was named Forbes' best business services and supplies company for 2007.

The sagging U.S. housing market has hurt public budgets, causing local governments to look to privatize services they traditionally have performed. By outsourcing a prison, states can save money, boosting profits for companies that provide these services.

With federal and state prisons packed with 33% more inmates than they were built to house and the Department of Homeland Security cracking down on illegal immigrants by imprisoning those they catch, demand for prison beds is soaring. Most prisons are still owned and operated by federal and state governments; fewer than 10% are outsourced to the free-marketeers. But with the government slow to build new lockups, the increased demand is enabling private operators to expand and to charge government more to handle the overflow. Prison contracts pre-2006 were in the $40-per-bed-per-day range, now they're over $60.

Shares of both Corrections Corp., and Geo have reflected this. On Thursday Corrections' shares closed up 0.5%, or 12 cents, to $26.70, and are up 3.8% over the past 12 months. Geo's shares closed up 0.5%, or 14 cents, to $26.06, and are up 16.7% for the past 12 months. Both have outperformed the Standard & Poor's 500 over the past year, which has returned -4.5%.

Meanwhile, Cornell’s revenue was impacted by a previously announced withdrawal of inmates by the Bureau of Immigration and Customs Enforcement (ICE) from the Regional Correctional Centre in New Mexico in July 2007. It was also affected by the management contract terminations at the Alexander Youth Services Center and the Donald W. Wyatt Detention Center, the company said.

Cornell said it expects to earn between 27 cents and 31 cents per share during the first quarter.

Analysts polled by Thomson Financial, on average, forecast earnings of 31 cents per share for the quarter.

For the full year, Cornell expects earnings to range between $1.21 and $1.27 per share, compared with analysts’ average estimate of $1.27 per share.

Reuters contributed to this article. ttp://www.forbes.com/2008/03/13/cornell-corrections-update-markets-equity-cx_ra_0313markets40_print.html