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Scholastic (SCHL) Q2 Earnings Beat Estimates, Decline Y/Y

Zacks Equity Research

Scholastic Corporation SCHL reported second-quarter fiscal 2020 results, wherein both top and bottom lines surpassed the Zacks Consensus Estimate. However, both metrics fell year over year.

Sluggishness in book club sales, owing to lesser number of teacher sponsors, affected quarterly results. However, the company witnessed higher number of transactions per fair on better fair quality and selection, and the e-wallet digital payment facility. Further, it remains on track with the Scholastic 2020 program. Additionally, management retained its fiscal 2020 view.

Q2 Details

The company’s adjusted earnings of $2.06 per share surpassed the Zacks Consensus Estimate of $1.77. However, the bottom line decreased 1.4% year over year.

In the reported quarter, its revenues were $597.2 million, down 1% year over year. Meanwhile, the figure surpassed the consensus mark of $591 million. Although soft book club sales hurt the top line, decent performance in book fairs, classroom collections, and consulting services in Scholastic Education, Asia trade and education as well as robust U.S. trade provided some cushion.

Adjusted operating income increased 4% to $107 million in the quarter under review. Adjusted operating margin expanded 90 basis points (bps) to 17.9%, backed by improvements in book fair operations, effective cost management in clubs and reduced overhead expenses related to technology. Moreover, adjusted SG&A expenses were $207.8 million, marking a decline of 6.5% from $222.3 million reported in the year-ago quarter. 

Adjusted EBITDA advanced 5% to $129.3 million from $123.3 million reported in the prior-year quarter.

Segment Details

Revenues in the Children’s Book Publishing and Distribution segment edged down 1% to $413.6 million. Operating margin for the segment improved 110 bps to 26.5%.

The Education segment’s revenues were $69.9 million, down 2% from the year-ago quarter. Operating margin contracted 270 bps to 8.9%.

International revenues fell 1% year over year to $113.7 million. Operating margin contracted 100 bps to 10.3% in the reported quarter.

Scholastic Corporation Price, Consensus and EPS Surprise

 

Scholastic Corporation Price, Consensus and EPS Surprise

Scholastic Corporation price-consensus-eps-surprise-chart | Scholastic Corporation Quote

Other Financial Aspects

The company ended the reported quarter with cash and cash equivalents of $277.8 million, long-term debt (excluding current portion) of $2.6 million, and total stockholders’ equity of $1,261.3 million. Further, cash flow from operations amounted to $111.9 million. Also, it generated free cash flow of $87.7 million. Moving on, the company bought back shares worth $7.1 million in the fiscal second quarter.

Capital expenditure was $17.2 million in the quarter. Capex is expected to be $75-$85 million in fiscal 2020.

Moreover, management approved a quarterly dividend of 15 cents per share, payable Mar 16, 2020, to shareholders of record as of Jan 31, 2020.

Outlook

The Zacks Rank #3 (Hold) company continues to anticipate revenues of $1.67-$1.7 billion for fiscal 2020, whereas it reported $1.65 billion in fiscal 2019. Additionally, adjusted EBITDA is still projected to be $140-$160 million, suggesting a significant improvement from $121.3 million reported last year.

Price Performance

We note that shares of this company declined 3.5% in the past three months underperforming the industry’s growth of 4.7%

 

 

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