Scholastic Sales Up Slightly in Second Quarter

December 13, 2010
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Dec 13 – Dec 20, 2010 Edition Scholastic Sales Up Slightly in Second Quarter

NEW YORK/AUTHORLINK NEWS VIA PRNewswire/December 16, 2010–Scholastic Corporation (Nasdaq:SCHL – News), the global children’s publishing, education and media company, today reported results for the fiscal 2011 second quarter ended November 30, 2010.

Revenue for the second quarter was $675.7 million, up 2% from $660.1 million a year ago. Earnings per diluted share from continuing operations were $2.19 versus $1.54 in the prior year period, which included one-time expenses of $0.75 per share primarily associated with non-cash asset write-downs. Results in the current period reflected lower sales of educational technology relative to a year ago, as well as higher promotion spending in School Book Clubs and increased investment in digital initiatives. Consolidated earnings per diluted share were $2.14 in the quarter compared to $1.51 a year ago.

During the second quarter the Company repurchased approximately 5.2 million shares of its common stock at $30.00 per share, returning approximately $156 million to shareholders, funded with cash and a temporary draw-down under its credit facility, which was repaid by quarter end. The Company had total debt of $231.2 million at the end of the second quarter, down from $279.6 million a year ago, and approximately $44.5 million still authorized for additional share repurchases. As announced yesterday, the Company also approved an increase in its regular quarterly dividend to $0.10 per share from $0.075 per share on the Company’s Class A and Common Stock, beginning in the third quarter of fiscal 2011.

“Last quarter, as we celebrated Scholastic’s 90th birthday, our core children’s book business performed strongly, and we moved forward with key digital initiatives. The Company also remains committed to returning capital to shareholders, completing a significant share repurchase and increasing its dividend, as we leverage a strong balance sheet and free cash flow,” commented Richard Robinson, Chairman, President and Chief Executive Officer. “The Children’s Books segment reflected robust gains in School Book Fairs and Trade, with Clubs maintaining last year’s sales and teacher participation levels. Sales of educational technology did not reach last year’s record, when we benefited from the 2009 federal stimulus program, but were up over 50% compared to pre-stimulus levels two years ago, driven by our expanding customer base. Last quarter we achieved continued growth in online ordering by teachers and parents, following implementation of the new Clubs ordering platform. In addition, we began testing our children’s ebook offering with children and families, as well as previewing it with the publishing community, in preparation for a spring beta launch and full rollout next fall.”

Mr. Robinson continued, “While positive, these results were below our plan, reflecting lower spending by school districts and lower than expected revenue in Clubs. For the remainder of the fiscal year, we expect sustained higher service revenue and new products will enable us to hold sales in Scholastic Education level with those a year ago. In addition, we believe increased online ordering, as well as the effects of this fall’s increased promotion, will generate modest growth in Clubs during the remainder of the year. We have lowered our outlook for fiscal 2011 based on these factors, but remain optimistic about Scholastic’s opportunity for profitable growth, as we build on our unique positions in children’s books and educational technology.”

Based on its year-to-date results and current outlook, Scholastic now expects fiscal 2011 revenue of $1.9 to $1.95 billion and earnings per diluted share from continuing operations of $1.80 to $2.05, before the impact of one-time items. This outlook includes a benefit of approximately $0.15 per diluted share associated with the Company’s share repurchase pursuant to the tender offer. The Company has maintained its outlook for free cash flow of $90 million to $100 million.

Children’s Book Publishing and Distribution. Segment revenue in the quarter increased 5% to $387.3 million, compared to $368.8 million in the prior year period. In School Book Fairs, revenue rose 8%, as a continued focus on reading awareness and family engagement contributed to higher revenue per fair. Fair count also increased modestly. Trade Publishing revenue increased 8% compared to a year ago, reflecting continuing strong sales of Suzanne Collins’ The Hunger Games trilogy and the multi-platform series, The 39 Clues®, as well as higher sales of Harry Potter titles driven by the release of the seventh movie in the series. Increased promotional spending and enhanced service, as well as the successful implementation of a new online ordering platform, helped School Book Clubs sustain last year’s revenue and teacher participation levels, although higher order volumes were offset by a decline in average revenue per order. These factors impacted segment profitability, as did a planned increase in spending on digital initiatives of approximately $6 million, partially offset by the strong performance in Fairs and Trade. As a result, segment operating income declined by $10.5 million to $97.3 million in the quarter.

Educational Publishing. Second quarter segment revenue was $101.6 million, compared to $122.6 million in the prior year period, primarily reflecting lower sales of educational technology products compared to a year ago, when the Company benefited significantly from federal stimulus funding. While some federal stimulus funds, including School Improvement Grants and Race to the Top awards, remain to be distributed, uncertainty about state and local budgets caused school districts to decrease or delay purchases in the current period. Segment operating income increased to $11.0 million from a loss of $4.1 million in the prior year period, which included a non-cash asset impairment charge of $36.3 million ($0.60 per share). Current period results reflect lower sales of higher margin technology products, partially offset by increased service sales to a larger customer base.

International. Segment revenue in the second quarter was $145.9 million, up from $130.9 million in the prior year period, reflecting strong performance in Australia, Canada, Asia and Export. Foreign exchange positively impacted segment revenue by $5.8 million in the quarter. The improved results in these operations also contributed to higher segment operating income of $25.3 million compared to $14.8 million a year ago, when the Company incurred one-time expenses of $5.7 million ($0.15 per share).

Year-to-Date Results

For the first half of fiscal 2011, revenue was $966.6 million compared to $975.7 million in the prior year period. Earnings per diluted share from continuing operations in the first half of the fiscal year were $1.19 compared to $0.88 a year ago, including one-time, mostly non-cash charges of $0.03 and $0.75, respectively. Lower results primarily reflected a decline in sales of educational technology, as well as planned investments in digital initiatives. Including continuing and discontinued operations, the Company reported consolidated earnings per diluted share in the first half of $1.11, compared to $0.88 a year ago.

Scholastic Corporation (NASDAQ:SCHL – News) is the world’s largest publisher and distributor of children’s books and a leader in educational technology and children’s media. 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 and school-based book fairs, retail stores, schools, libraries, television networks and the Company’s internet site, www.scholastic.com.

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