Sales rose 3% to $283.8 million, from $276.3 a year ago, in the first quarter of fiscal 2015 at Scholastic Corporation, which reported its financial results this morning.
Scholastic’s loss per share stands at $1.05, up from $0.94 during the same period last year, with the company citing weaker performance in its Educational Technology division as well as severance charges resulting from restructuring efforts.
In a conference call with investors today, Scholastic’s President and CEO Richard Robinson attributed some of the year-over-year decline in Educational Technology to the launch last year of a new line of products, making for a steep comparison. Adding that sales of math technology products are strong, Robinson said “we are confident” those results will pick up over the course of the year.
Scholastic’s CFO Maureen O’Connell, also joining this morning’s call, said an “increased focus on independent reading” among educators helped drive sales of classroom books and guided reading materials. She said Scholastic continues “to expect revenue growth and enhanced profitability” across all divisions.
Because schools are not in session during the first quarter, Scholastic typically records a loss.
Scholastic Reports First Quarter Fiscal 2015 Results
NEW YORK, Sept. 25, 2014 /PRNewswire/ — Scholastic Corporation (NASDAQ: SCHL), the global children’s publishing, education and media company, today reported results for the Company’s fiscal 2015 first quarter ended August 31, 2014
Revenue in the first quarter was $283.8 million, compared to $276.3 million a year ago, an increase of $7.5 million, or 3%. The Company reported first quarter loss per share of $1.05, versus a loss per share of $0.94 in the prior year period. Results for the first quarter of fiscal 2015 included one-time expenses of $0.02 per share related to severance as a result of the Company’s cost reduction programs. The prior year period included one-time expenses of $0.04 per share. Scholastic typically records a loss in its fiscal first quarter, when most U.S. schools are not in session.
First quarter revenue increases primarily reflected gains in guided reading and classroom book collections, educational technology math products and programs, international channels, and school clubs and fairs. While the first quarter is not significant for clubs and fairs since most schools are not in session, their combined 20% revenue growth reflects a continuing positive trend. In Educational Technology, most of the revenue decline compared to the prior year came from a tough comparison due to the launch of a new slate of products in the first quarter of last year, including a significant delivery of the Company’s Common Core Code X® middle school language arts print curriculum for New York City. First quarter operating loss increased $7.5 million, or 16% compared to the loss in the prior year period, primarily due to lower results in the Company’s Educational Technology segment, including higher amortization costs related to the new programs, and slightly higher losses in certain international markets, as well as in the Company’s media operations due to higher amortization costs for new programming.
Free cash use (as defined) for the first quarter was $76.9 million, compared to $93.8 million in the prior year period, mainly due to improved collections and more favorable negotiated terms with the Company’s suppliers. At quarter end, the Company’s net debt (as defined) was $183.5 million versus $13.4 million a year ago. The higher net debt balance was attributable to the Company’s strategic purchase of its headquarters location in New York City in February 2014.
“In our Educational Technology segment this quarter, we further strengthened our field sales organization by adding critical new sales management, and we intensified sales efforts on our core reading and mathematics intervention programs, including services to support the professional growth of teachers. We expect to see higher revenues from these initiatives over the remainder of the fiscal year,” said Richard Robinson, Chairman, President and Chief Executive Officer. “Meanwhile, strong results in classroom books and our guided reading products show that schools are expanding their use of customized reading programs for grades K−5, while encouraging independent reading and the use of children’s literature programs, which are the hallmark of Scholastic. As a whole, our education business is performing well, as our offerings are aligned with the broader trends in education. In addition, our school-based clubs and fairs are also benefiting from the renewed concentration on independent reading as a gateway to improved student motivation and achievement.”
Scholastic affirmed its fiscal 2015 outlook for total revenue of approximately $1.9 billion and earnings per diluted share from continuing operations in the range of $1.80 to $2.00, before the impact of any one-time items associated with cost reduction programs or non-cash, non-operating items. The Company continues to expect free cash flow in the range of $65 to $85 million.
First Quarter Results
Children’s Book Publishing and Distribution. Segment revenue in the first quarter was $54.7 million, compared to $54.6 million in the prior year period. Trade revenues were bolstered by strong frontlist titles including the Minecraft handbook series, in which the third book Combat was shipped during the quarter, Sisters by Raina Telgemeier, the 11th book in the successful Captain Underpants series, Star Wars: Jedi Academy (Book 2), and the multi-platform Spirit Animals™. The performance of these titles was more than offset by lower sales of The Hunger Games trilogy, as anticipated, and Harry Potter, which had strong sales in the prior year period when paperback editions featuring new cover art were released. Although this is the smallest revenue quarter for the segment’s school channels, the Company showed a $2.2 million, or 35% increase over prior year in book clubs, driven by higher orders and revenue per order, and a $1.1 million, or 10% increase in its book fair operations from higher revenue per fair. The seasonal operating loss for the segment improved to $60.5 million, from $61.5 million a year ago, primarily as a result of lower book clubs operating costs.
Educational Technology and Services. Segment revenue for the first quarter was $89.4 million, compared to $94.8 million in the prior year period, a 6% decrease, primarily reflecting lower sales of the Company’s reading technology programs and its Common Core Code X curriculum print product, which sold over $4 million in the first quarter of last year, including a major sale which was not repeated this year. These declines were partially offset by improved sales of the Company’s math products, in both print and digital offerings, including Do The Math®, MATH 180®, and Scholastic Math Inventory (SMI), the Company’s computer-adaptive math assessment program. Segment operating income declined 16% to $30.3 million, compared to $36.2 million in the prior year period, due to lower revenues and higher amortization expense in the current year period.
Classroom and Supplemental Materials Publishing. Segment revenue was $42.8 million, an increase of $5.0 million, or 13%, compared to $37.8 million in the prior year period. This increase was driven by higher sales of the Company’s classroom books and guided and leveled reading programs, including the Guided Reading Blue 2nd Edition with a non-fiction focus. Segment operating loss improved to $0.5 million, compared to the prior year operating loss of $1.6 million, due to the increased sales of the segment’s guided reading programs and classroom books in the current quarter.
International. Segment revenue in the first quarter increased to $86.3 million, from $78.7 million in the prior year period, an increase of $7.6 million, or 10%, as a result of higher media and technology sales in Australia, improved performance across all key channels in the United Kingdom, and higher direct sales in Malaysia and Thailand. Foreign currency exchange rates favorably impacted revenue by $1.3 million in the quarter. Segment operating loss was $1.9 million, compared to a loss of $0.7 million in the prior year period, mainly as a result of a high margin education sale in the prior period along with costs associated with a one-time write-off of certain inventory and higher bad debt reserves in Canada in the current quarter, as well as increased investments associated with the segment’s education publishing for international markets.
Media, Licensing and Advertising. Segment revenue in the first quarter was $10.6 million, up from $10.4 million in the prior year period, primarily as a result of higher sales of the Company’s original animated programming, WordGirl® and Astroblast!™, and from increased advertising in the Company’s consumer magazines group, as well as higher audio book sales. These results were partially offset by lower sales of interactive products and media content to streaming platforms. Segment operating loss was $3.9 million, compared to a loss of $1.9 million last year, primarily due to higher cost of product in consumer magazines and higher amortization of production expenses for new programming.
Other Financial Results. Corporate overhead was $16.9 million, compared to $16.4 million in the prior year period, including one-time items of $1.2 million and $1.4 million, respectively, related to severance charges taken in conjunction with the Company’s restructuring cost savings initiatives.
As previously announced, the Company’s Board of Directors declared a quarterly cash dividend of $0.15 per share on the Company’s Class A and Common Stock for the second quarter of fiscal 2015. The dividend is payable on December 15, 2014 to shareholders of record as of the close of business on October 31, 2014.
To supplement our financial statements presented in accordance with GAAP, we include certain non-GAAP calculations and presentations. Please refer to the non-GAAP financial tables attached to this press release for supporting details on special one-time items and other financial measures included in this release. This information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.
The Company will hold a conference call to discuss its results at 8:30 am ET today, September 25, 2014. Scholastic’s Chairman, President and CEO, Richard Robinson, and Executive Vice President, CAO and CFO, Maureen O’Connell, will moderate the call.
The conference call and accompanying slides will be webcast and accessible through the Investor Relations section of Scholastic’s website, www.scholastic.com. Participation by telephone will be available by dialing (877) 654-5161 from within the U.S. or +1 (678) 894-3064 internationally. Shortly following the call, an archived webcast and accompanying slides from the conference call will also be posted at investor.scholastic.com. An audio-only replay of the call will be available by dialing (855) 859-2056 from within the U.S. or +1 (404) 537-3406 internationally, and entering access code 88381484. The recording will be available through Friday, October 3, 2014.
Scholastic Corporation (NASDAQ: SCHL) is the world’s largest publisher and distributor of children’s books and a leader in educational technology and related services and children’s media. Scholastic creates quality books and ebooks, print and technology-based learning materials and programs, magazines, multi-media and other products that help children learn both at school and at home. The Company distributes its products and services worldwide through a variety of channels, including school-based book clubs and book fairs, retail stores, schools, libraries, on-air, and online at www.scholastic.com.