A month has gone by since the last earnings report for John Wiley & Sons (JW.A). Shares have added about 1.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is John Wiley & Sons due for a pullback? 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 Q1 Earnings Lag Estimates, Revenues Up Y/Y
John Wiley & Sons posted its mixed first-quarter fiscal 2020 results. Notably, the bottom line missed the Zacks Consensus Estimate and declined year over year. Also, management trimmed its earnings view for the fiscal. Adjusted earnings per share are projected in the range of $2.35-$2.45, down from the previous expectation of 2.45-$2.55.
Coming back to the quarter’s outcome, the top line surpassed the consensus mark and rose year over year. The upside can be attributed to solid performances in the Research and Education Services segments. However, sluggishness in Education Publishing & Professional Learning exerted pressure on results to some extent.
Q1 in Detail
John Wiley’s adjusted earnings of 21 cents per share plunged 51% year over year and 53% on a constant-currency (cc) basis. The downside was caused by lower adjusted operating income. Further, the bottom line lagged the Zacks Consensus Estimate of 25 cents.
Revenues of $423.5 million advanced 3.1% year over year (up 5% at cc) and beat the Zacks Consensus Estimate of $423 million. Strength in Research Publishing & Platforms and Education Services was partly countered by weakness in the Education Publishing & Professional Learning division.
Adjusted operating income came in at nearly $15.3 million compared with $30.1 million in the year-ago quarter. Adjusted operating income fell 52% at cc. The downside was due to investment in growth initiatives and technology along with higher operating expenses in Education Publishing. Also, adjusted operating margin contracted 370 basis points to 3.6%.
During the quarter, the company implemented structural changes in segments to reflect management shifts. The Research Publishing & Platforms segment consists of Research publishing and Atypon businesses. In the first quarter, revenues in the category grew 2% year over year and rose 3% at cc. Results were fueled by growth in Research Publishing (up 3%) and Atypon platform services (up 10%). The segment’s adjusted contribution to profit increased 3% at cc.
The Education Publishing & Professional Learning segment includes the company’s former Publishing unit along with corporate training businesses. Revenues in the segment dropped 7% on a reported basis and 6% at cc due to dismal performance in the books businesses and test prep. This was somewhat compensated by growth in corporate training. Adjusted contribution to profit slumped 64% at cc due to investments related to the acquisitions of zyBooks and Knewton.
The Education Services segment includes the company’s online program management business. During the first quarter, revenues in this segment surged 69% on a reported basis and at cc. The upside was backed by gains from the Learning House buyout. Also, adjusted contribution to profit from the Solutions segment advanced 2% at cc.
Other Financial Update
John Wiley ended the quarter with cash and cash equivalents of $104 million, long-term debt of $724.3 million and total shareholders’ equity of $1,132 million.
The company generated $94.2 million of cash used in operating activities in the reported quarter. Further, it generated free cash flow (net of Product Development Spending) of roughly $125 million. For fiscal 2020, the company still anticipates free cash flow in the range of $210-$230 million.
In June 2019, John Wiley hiked dividends by 3% to 34 cents per share. During the quarter, it bought back 217,511 shares for nearly $10 million. This brings the remaining authorization for share repurchases to nearly 1.7 million.
Other Developments & Guidance
John Wiley has acquired zyBooks and Knewton in the fiscal first quarter in a deal worth $73 million. These buyouts will enable the company expand its base and strengthen its position in high-growth areas of education, including digital courseware and adaptive learning for high-demand disciplines and low-cost, high impact offerings.
Moving on, management has updated its fiscal 2020 view that includes the impacts from the addition of zyBooks. The company now anticipates revenues for fiscal 2020 in the range of $1.86-$1.89, up from the earlier view of $1.84-$1.87 billion. This includes $15 million from zyBooks.
John Wiley currently expects adjusted EBITDA for fiscal 2020 in the band of $357-$372 million compared with the previous outlook of $360-$375 million.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
At this time, John Wiley & Sons has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. 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 #4 (Sell). We expect a below average return from the stock in the next few months.
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John Wiley & Sons, Inc. (JW.A) : Free Stock Analysis Report
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