Surprising Reaction to Oriental Education's Earnings

| About: New Oriental (EDU)

Strange reaction in the stock of New Oriental Education (NYSE:EDU), plus 6 percent- I guess expectations were just low enough that beating expectations for this quarter, along with lower future guidance is ok to keep the stock pumped up. I have only a tiny position at this point in this name, but it was nice to see a return to from for this stock after an abysmal last quarter [Jan 15: New Oriental Education Solid Report, Stock Trashed] - I thought the winter storms in China would cause more of a problem...

  • Beijing-based New Oriental Education and Technology Group Inc., a provider of private educational services in China, said Wednesday that third-quarter earnings grew 38 percent as enrollment and deferred revenue jumped.
  • Third quarter earnings rose to $11.6 million, or 29 cents per American Depositary Share, from $8.4 million, or 22 cents per ADS, a year ago. Revenue surged 47 percent to $48.1 million for the fiscal quarter ended Feb. 29, from $32.8 million in the prior year.
  • Analysts surveyed by Thomson Financial expected third-quarter earnings of 23 cents per share on revenue of $44.3 million.
  • New Oriental Chief Financial Officer Louis T. Hsieh noted that severe winter storms forced the company to close dozens of schools and learning centers in late January and early February.
  • He said most affected students chose to defer their enrollments to future quarters rather than cancel their registrations. As a result, student enrollments surged 35 percent to 268,400 during the quarter, and deferred revenue balance, or money collected from students for classes in future quarters, more than doubled to $35.8 million at the end of the quarter.
  • The company also noted that it has agreed to acquire a 60 percent equity stake in Mingshitang, a Beijing-based private school that specializes in tutoring students who want to retake the gaokao exam, the Chinese college entrance test.
Guidance
  • Beijing-based New Oriental Education and Technology Group Inc., a provider of private educational services in China, predicted fourth-quarter revenue below Wall Street expectations on Wednesday after third-quarter results exceeded forecasts.
  • New Oriental expects fourth quarter revenue to range from $32.1 million to $33.4 million, which represents a growth range of 29 percent to 34 percent. Analysts surveyed by Thomson Financial forecast quarterly revenue of $35 million.

Another case study of how we have absolutely no advantage trying to predict how the masses will react to earnings information. Even if I had known they were going to beat this quarter but guide down in the next, I would of had no idea how the stock would react. They did the exact same thing last quarter, beating expectations and put out conservative guidance and the stock was mutilated [Jan 15: Horrific Fall in New Oriental Education]. Three months later they repeat the same situation and the stock is up - mystifying. This is why this time of year (earnings season) is simply gambling when you place bets ahead of earnings...


Disclosure: Long New Oriental Education in fund; no personal position