What happened
Shares of New Oriental Education & Technology Group (EDU 4.85%) were down 15.5% as of 3:15 p.m. EDT Tuesday after the Chinese private educational services company announced weaker-than-expected quarterly earnings and underwhelming forward guidance.
More specifically, for its fiscal first quarter ended Aug. 31, New Oriental Education's revenue grew 30.1% year over year to $859.8 million, which translated to 14% growth in adjusted net income to $184.1 million, or $1.16 per share. By comparison, three months ago, the company told investors to expect lower revenue in the range of $830 million to $850 million. But most analysts were modeling higher adjusted earnings of $1.19 per share.
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So what
New Oriental Education's revenue growth was helped by a 13.2% year-over-year increase in quarterly student enrollments, which climbed to roughly 1,735,300. The company also added 201 new schools and learning centers over the past year, bringing its total to 1,100 at the end of the quarter.
"Guided by our well-proven 'Optimize the Market' strategy, we continued to deepen our market penetration in existing markets, by building out our capacity in cities where we see rapid growth and strong profitability," stated New Oriental CEO Chenggang Zhou.
But CFO Stephen Zhihui Yang also noted adjusted operating margins for the offline language training and test preparation business came under pressure this quarter due to higher costs related to a larger-scale summer promotion.
"We are confident that our robust ecosystem integrating both offline and online education will deliver sustainable value for our customers and shareholders over the long term," Yang added.
Now what
For the current fiscal second quarter, however, New Oriental expects revenue ranging from $568.5 million to $586.4 million. That's good for year-over-year growth of 22% to 26%, but it sits well below the nearly 30% growth most investors were modeling.
Of course, given its top-line beat this quarter, New Oriental could be underpromising with the intention of overdelivering. But coupled with its slight earnings miss relative to expectations this quarter, this guidance gave the market more than enough reason to bid shares down today.
