New York,
NY (December
16,
2005) --
Scholastic Corporation (NASDAQ: SCHL) today announced its fiscal 2006 second quarter results.
For the quarter ended November 30, 2005, the Company reported revenues of $696.7 million, up 2% from $683.3 million in the prior year period. Net income was $66.9 million, down 8% from $72.5 million, and earnings per diluted share were $1.59 versus $1.80 a year ago.
Higher revenue in the second quarter was driven by growth in the Educational Publishing and Media, Licensing and Advertising segments, as well as favorable foreign exchange effects. Lower profits in the quarter reflected a decline in International results and modestly lower profits in Children’s Book Publishing and Distribution, partly offset by lower overhead costs.
Free cash flow in the second quarter was $286.2 million compared to $70.7 million in the prior year period, driven by strong cash receipts and working capital management. For the first half of the year, free cash flow was $107.9 million, compared to cash use of $37.5 million in the same period last year. These improvements were principally due to the impact of this year’s higher Harry Potter sales.
“The impact of hurricanes on the Company, challenges in School Book Clubs and Continuities, and investments to restructure our business in the United Kingdom were all factors contributing to lower profits in the second quarter,” commented Richard Robinson, Chairman, CEO and President of Scholastic. “Our business also showed many strengths, especially in School Book Fairs, Trade and educational technology sales. Significant free cash flow in the quarter also strengthened our balance sheet.”
Mr. Robinson added, “Responding to the challenges we faced in the second quarter, Scholastic’s management team is now implementing plans to improve performance in the second half of the year, particularly in the important fourth quarter. We are accelerating the U.K. turn-around efforts, streamlining Club promotions, booking new fairs, introducing new Continuity programs, trimming marketing costs and reducing overhead. Notwithstanding the challenges, we believe we will attain our financial goals for the year, based on these actions and strong first quarter performance. We expect to achieve revenues for the year of $2.3 to $2.4 billion, free cash flow of $85 to $95 million and earnings at the bottom end of the previously announced range of $2.30 to $2.50 per diluted share.”
Second Quarter Results
Children’s Book Publishing and Distribution. Segment revenues in the second quarter of fiscal 2006 were $424.2 million, down slightly from $425.0 million in the prior year period. Trade revenue rose 11%, driven by strong sales of Harry Potter backlist titles. School Book Fair revenue rose 7% on higher revenue per fair. School Book Club revenue was down 3% from fewer orders, partially offset by higher revenue per order. Continuities revenue decreased 19%, as a result of the Company’s continued strategy of focusing on its most productive customers. Profit in the segment declined 3% to $88.6 million from $90.9 million, reflecting the negative impact across the Company of hurricane-related school disruptions and higher fuel prices, as well as lower revenue and profit in the Clubs and Continuities businesses.
Educational Publishing. Segment revenue rose 5% to $99.2 million compared to $94.5 million in the prior year period, driven by a more than 25% increase in revenues from educational technology sales, partially offset by a decline in classroom magazine revenue from last year’s election-related increases. Profit in the segment rose slightly to $21.6 million from $21.5 million a year ago, with higher technology sales more than offsetting lower library and classroom magazine results.
International. Revenue in the segment rose 4% to $121.4 million from $116.2 million in the prior year period, primarily reflecting foreign exchange benefits of $4.2 million. Profit in the segment declined $6.4 million to $12.8 million from $19.2 million, due in part to lower results in the United Kingdom.
Media, Licensing and Advertising. Revenue in the segment was up 9% to $51.9 million from $47.6 million in the prior year period, primarily due to growth in Back to Basics Toys®. Sales of Scholastic-produced titles such as I Spy™ and Math Missions™ for Leapfrog’s Leapster and Where the Wild Things Are for Fisher-Price’s Read with Me DVD learning products were also strong. Profit in the quarter fell slightly to $7.7 million from $8.5 million in the prior period.
Other Financial Results. Overhead decreased 15% to $15.4 million from $18.2 million, reflecting lower salary-related expenses and expenses related to Sarbanes-Oxley compliance. The Company’s estimated effective tax rate in the second quarter rose to 37.0% from 35.5% in the prior year, primarily due to higher effective tax rates on foreign earnings and a higher state tax provision.
First Half Results
Net income for the first half of fiscal 2006 was $45.7 million or $1.10 per diluted share, up from $22.0 million or $0.55 per diluted share in the first half of fiscal 2005, which included $3.6 million or $0.06 per diluted share in severance charges related to a reorganization of the Continuities business. Revenues in the period rose 19% to $1,195.1 million from $1,007.0 million in the first half of fiscal 2005. The year over year difference in revenue and profitability primarily reflects higher Harry Potter revenues and educational technology sales, partially offset by declines in Clubs and International results.
Conference Call
The Company will hold a conference call to discuss its results at 8:00 am ET today, December 16, 2005. Scholastic’s Chairman, President and CEO, Richard Robinson, and Executive Vice President and CFO, Mary Winston, will moderate the call.
The conference call and accompanying slides will be webcast and accessible through the Investor Relations section of Scholastic’s website, scholastic.com. Participation by telephone will be available by dialing 888-338-6461 from within the U.S. or +1-973-935-8510 internationally.
Following the call, an audio replay of the call will be available from approximately 10:00 am ET, December 16, 2005 through December 23, 2005 by dialing 877-519-4471 and entering participant code 6737108. Slides from the conference call will also be posted in the Investor Relations section of scholastic.com.
Investor Conference
The Company is currently scheduled to make a presentation to investors at the Citigroup Salomon Smith Barney Entertainment, Media and Telecom Conference on January 10, 2006 in Phoenix, Arizona. Mary Winston, the Company’s CFO, is expected to speak. Further details, including information about a webcast, will be posted in the Investor Relations section of scholastic.com when available.
About Scholastic
Scholastic Corporation (NASDAQ: SCHL) is the world’s largest publisher and distributor of children’s books and a leader in educational technology. Scholastic creates quality educational and entertaining materials and products for use in school and at home, including children’s books, magazines, technology-based products, teacher materials, television programming, film, videos and toys. The Company distributes its products and services through a variety of channels, including proprietary school-based book clubs, school-based book fairs, and school-based and direct-to-home continuity programs; retail stores, schools, libraries and television networks; and the Company’s Internet site, scholastic.com.
Forward-Looking Statements
This news release contains certain forward-looking statements. Such forward-looking statements are subject to various risks and uncertainties, including the conditions of the children’s book and educational materials markets and acceptance of the Company’s products within those markets, and other risks and factors identified from time to time in the Company’s filings with the Securities and Exchange Commission. Actual results could differ materially from those currently anticipated.
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