A month has gone by since the last earnings report for John Wiley & Sons (JW.A). Shares have lost about 0.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is John Wiley & Sons due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
John Wiley's Q3 Earnings & Revenues Miss, Down Y/Y
John Wiley & Sons released third-quarter fiscal 2019 results, wherein both the top and bottom-line decreased year over year and also fell short of the Zacks Consensus Estimate for the third straight time.
Continued softness in Publishing revenues and costs related to increased growth investments remained deterrents for the company in the quarter under review. John Wiley & Sons also reiterated its previously-issued drab earnings outlook for fiscal 2019. Such downsides were enough to mar investors’ confidence in the stock, which decreased more than 16% during the trading session on Mar 5.
Q3 in Detail
John Wiley & Sons’ adjusted earnings of 61 cents per share tumbled approximately 30% year over year and dropped 22% on a constant-currency (cc) basis. The bottom line also missed the Zacks Consensus Estimate of 78 cents, which marked the company’s third consecutive miss after seven straight quarterly beats.
Revenues of $449.4 million dipped 1% year over year (up 1% on a cc basis) and also missed the Zacks Consensus Estimate of $469 million. Results were hurt by persistent weakness at the Publishing division, while the Solutions segment continued with its robust show. Revenues in the Research segment also increased.
Adjusted operating income came in at around $50 million compared with $67.6 million in the year-ago quarter. Adjusted operating income plunged 21% at cc. The downside can be primarily attributed to higher spending on marketing and enrollment services. Also, adjusted operating margin contracted 370 basis points to 11.1%.
Research revenues increased 1% year over year, while it rose 5% at cc. Results were fueled by double-digit improvements in Open Access and Atypon Publishing Technology Services. Journal subscriptions declined 1% on a cc. The segment’s adjusted contribution to profit increased 8% at cc on account of higher revenues.
Publishing revenues dropped 14% on a reported basis and 13% at cc due to dismal performance by Educational Publishing, STM and Professional Publishing. This was somewhat offset by growth in WileyPLUS as well as Test Preparation and Certification. Adjusted contribution to profit dipped 28% at cc due to soft revenues.
At the Solutions segment, revenues increased 25%, which grew 26% at cc. The upside was backed by gains from the Learning House buyout as well as advancements in Professional Assessment, Corporate Learning and Education Services. However, the Solutions segment incurred a loss of $3.4 million due to high marketing expenses and the dilutive impacts from the acquisition of Learning House.
Other Financial Update
John Wiley & Sons generated $47.6 million of cash from operating activities in the nine months (ended on Jan 31, 2019). Further, the company used free cash flow (net of Product Development Spending) of $16.6 million. Capital expenditures (including Technology, Property, and Equipment and Product development spending) totaled $64 million.
In fiscal 2019, capital expenditures are expected to decrease by $50 million compared with $150.7 million incurred in fiscal 2018. Management expects cash provided by operations to decline mid-teen digits from the year-ago level of $381.8 million.
John Wiley & Sons raised its quarterly dividend to 33 cents in June, 2018. In the nine months, the company bought back shares worth roughly $35 million and paid $57million as dividends.
Other Developments & Guidance
The company has made significant progress during the quarter and is set to strengthen its partnership with Germany’s DEAL. Further, management expects to gain from university partners, new research publishing ventures and focus on expanding in growth areas. The company’s focus on enhancing operational efficiency and reducing costs also bode well.
For fiscal 2019, management reiterated its earnings and revenue guidance. Revenues are expected to be flat year over year at $1796.1 million. Furthermore, the company completed its acquisition of The Learning House on Nov 1, 2018, which is expected to contribute around $30 million to revenues and boost earnings by 15 cents.
Adjusted earnings (at cc) are anticipated to decline mid-single digits from $3.43 in the previous fiscal.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 9.78% due to these changes.
At this time, John Wiley & Sons has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
John Wiley & Sons has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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