New Oriental Education’s profit drops 64 percent as company expands rapidly in China
By APTuesday, January 19, 2010
New Oriental profit falls with expansion
BEIJING — Shares of New Oriental Education and Technology Group Inc. jumped more than 10 percent Tuesday after the Chinese education and test preparation company announced plans to expand this year.
The jump was surprising given the pressure on margins the expansion will bring, said Amy Junker, an analyst who covers the company for Robert W. Baird.
But investors are likely betting that the expenditures this year will bring bigger returns in 2011, Junker said. Additionally, she noted that the stock was down Friday in anticipation of second-quarter results.
New Oriental shares rose $7.22, or 10 percent, to close at $79.35. The stock has ranged from $38.04 to $84.97 over the past year.
New Oriental Education said Tuesday it plans to continue its expansion in 2010 at a cost of between $4 million and $5 million. That will include the hiring of more than 1,000 full and part-time teachers for its U-Can program, almost tripling the current staff affiliated with the program.
The growth has already taken a toll on the company’s bottom line. In the second quarter, the company said costs for marketing and expansion led to a 64 percent drop in second-quarter profit. For the three months ending Nov. 30, the company earned $1.1 million, or 3 cents per share, down from $3.1 million, or 8 cents a share, in the same period last year.
Quarterly revenue rose by 23.8 percent to $61.2 million, from $49.4 million in the same period last year.
The performance missed Wall Street expectations of 5 cents per share on revenue of $61.7 million.
Michael Yu, New Oriental’s CEO, noted in a release that the spike was driven primarily by growth in the company’s middle and high school English, U-Can and POP Kids English programs.
Selling and marketing expenses increased by 40.8 percent year-over-year to $11.7 million. General and administrative expenses rose 21.9 percent to $22.6 million.
At the end of the quarter, the company had 48 schools in 40 cities and 250 learning centers
(This version CORRECTS that results missed analyst expectations.)
