Earnings call transcript: New Oriental Q4 2025 beats EPS forecast, stock dips

New Oriental Education & Technology (EDU) reported strong Q4 FY2025 earnings, with EPS of $0.32 and revenue of $1.24 billion significantly beating analyst estimates by 10.34% and 4.2% respectively, and total revenue increasing 18.7% year-over-year. Despite a 59.4% surge in non-GAAP net income, the stock initially dropped 5.65% due to a 73.7% decline in reported net income, attributed partly to goodwill impairment, though it later showed aftermarket recovery. Looking ahead, EDU projects FY2026 revenue growth of 5-10%, driven by AI investments and cost control, and has initiated a three-year shareholder return program committing at least 50% of net income to dividends or buybacks.

Analysis

New Oriental Education & Technology (EDU) delivered a strong fourth-quarter fiscal year 2025, beating analyst estimates with an EPS of $0.32 and revenue of $1.24 billion, which grew 18.7% year-over-year. The market's negative initial reaction, a 5.65% pre-market stock decline, appears to be a response to the 73.7% drop in GAAP net income. However, this figure was distorted by a one-time, non-cash goodwill impairment of $58.3 million related to the kindergarten business. A more accurate reflection of operational health is the 59.4% year-over-year increase in non-GAAP net income and the 410 basis point expansion in non-GAAP operating margin to 6.5%, driven by cost controls and operating leverage. The company's forward guidance presents a mixed picture; while the full-year FY2026 revenue growth is projected at 5-10%, the Q1 guidance is a conservative 2-5% due to a high prior-year comparison base and business restructuring. Management anticipates growth will accelerate from Q2 onwards, but acknowledged that the overseas business faces headwinds from the macroeconomic environment, forecasting a 4-5% decline for that segment. A significant positive catalyst is the newly announced three-year shareholder return plan, which commits to distributing at least 50% of net income through dividends or buybacks, underscoring management's confidence and financial discipline.

Key Decisions for Investors

• Investors should look past the headline GAAP net income decline and focus on the robust non-GAAP metrics, particularly the 59.4% income growth and significant margin expansion, as a better indicator of core business profitability.
• It is crucial to monitor the Q1 FY2026 results closely to validate management's forecast of a growth acceleration in subsequent quarters, paying attention to whether the slowdown is indeed temporary and confined by the stated reasons.
• The new shareholder return policy, committing to return at least 50% of net income, provides a significant valuation support and a tangible cash return; this should be factored into investment models, especially given the stock's reported PEG ratio of 0.77.
• Consider the contrasting performance between business segments, weighing the strong growth in new educational initiatives and tourism against the newly guided weakness in the overseas business, to assess the credibility of the full-year 5-10% revenue growth target.