New Oriental Education Technology Group (EDU), a private educational service provider in China, Tuesday, reported a 63.9% decline in net income for the second quarter, despite a 23.8% rise in revenues. The sharp decline is attributable to higher costs related to increase in number of schools and learning centers as well as the negative impact from the H1N1 flu pandemic and increased marketing expenses for brand promotion. Going forward, the company expects third quarter net revenues to grow up to 30% from last year.
Net income for the quarter declined 63.9% to $1.11 million or $0.01 per share from $3.06 million or $0.02 per share last year. Net income per ADS was $0.03 compared to $0.08 last year.
Adjusted net income, which excludes share-based compensation expenses, was down 25.8% to $5.47 million or $0.14 per ADS from $7.38 million or $0.19 per ADS last year.
On average, six analysts polled by Thomson Reuters expected the company to report earnings of $0.05 per share. Analysts' estimates typically exclude special items.
Total net revenue improved 23.8% to $61.19 million from $49.43 million a year ago, mainly driven by an increase in number of student enrollments. Six analysts were looking for revenue of $61.83 million for the quarter.
Total student enrollments in language training and test preparation courses increased 5.1% to approximately 307,000 from 292,200. Total number of schools remained at 48 and the number of learning centers increased by 11 to 250 as of November 30, 2009.
Operating costs and expenses for the quarter were $62.11 million compared to $48.56 million, a 27.9% increase year-over-year. Cost of revenues increased by 28.1% to $27.82 million from $21.72 million, primarily due to the increased number of courses and the greater number of schools and learning centers in operation.
Operating margin was a negative 1.5%, compared to 1.8% in the prior-year period. Non-GAAP operating margin was 5.6%, compared to 10.5% last year, primarily due to the negative impact from the H1N1 flu pandemic and the increased marketing expenses for brand promotion, especially for new programs such as U-Can and the customized learning program.
For the first six months, net income improved 21.3% to $58.17 million or $0.38 per share from $47.97 million or $0.31 per share last year. Earnings per ADS was $1.50 compared to $1.25 last year. Adjusted net income rose 17.9% to $66.24 million or $1.71 per ADS from $56.16 million or $1.46 per ADS a year ago.
Net revenue was $210.56 million compared to $167.69 million last year, an increase of 25.6%
Looking ahead, the Haidian, Beijing-based company expects third quarter total net revenue to be in the range of $82.5 million to $85.1 million, representing a 26% to 30% growth year-over-year. In the third quarter of last year, the company reported net revenue of $65.45 million. Analysts currently expect third quarter revenues of $86.56 million for the company.
EDU closed Monday's regular trading at $72.13 on the NYSE.
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