Tuesday, November 09, 2010

Recent Publishers' Financial Headlines

The past few weeks have seen a resurgence of sorts in the fortunes of some of publishing's biggest players. Here is a summary:

Pearson noted that their markets were 'subdued' however they continued to produce market gains their competitors probably envy (Press Release):
Demand in some of our markets remained subdued in the third quarter, and the macroeconomic outlook is still uncertain. Even so, Pearson increased sales by 7% and adjusted operating profit 15% in the first nine months of 2010*. All parts of the company continued to perform strongly, with sales growth of 5% in Penguin, 7% in education and 11% at the Financial Times Group.
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In North America, this strategy enabled us to gain share and grow faster than our market, with sales growth of 5% in the first nine months.

Our Higher Education business grew strongly once again. Its market remains healthy (industry sales up 10% in the first eight months, according to the Association of American Publishers) and our leadership in digital learning continues to produce market share gains. More than 3.5m students have enrolled in an online course provided by eCollege in the first nine months, an increase of almost 39% over last year. More than 6.5m college students have registered for our subject-specific digital learning tools (MyLabs), an increase of almost 34%.

Our Assessment and Information business remained resilient as we won or renewed a number of contracts including a teacher certification contract in Pennsylvania and student data systems in Utah.

The breadth of our School Curriculum business and its strength in digital is enabling us to grow despite weakness in state and local funding and uncertainty around the impact of new Common Core standards. We are planning on the basis that school funding remains under pressure in 2011 and that the total new adoption opportunity will be lower than in 2010. We are accelerating the transformation of our School business, investing to broaden the range of products and services we offer to schools to help them boost student performance and institutional efficiency.

Sales in International Education are up 8% after nine months. We are benefiting from strong demand in developing markets and for assessment services, English Language learning in China and digital, while developed markets and school publishing are generally soft. In the first nine months, MyLab registrations outside North America were up almost 40% on the same period last year to more than 460,000.
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At Penguin, sales are up 5%. Physical retail markets are tough, but are offset for Penguin by strong publishing and rapid growth in eBook sales (which have increased threefold). Penguin continues to lead the industry in innovation in digital publishing, with 16,500 eBook titles now available and a number of children’s apps for bestselling brands. The Fry Chronicles by Stephen Fry became a bestseller in five formats (hardback, ebook, enhanced ebook, app and audio), a publishing first. The fourth quarter is an important selling season in consumer publishing and Penguin has a strong line-up of bestselling authors including Tom Clancy, Patricia Cornwell, Barbra Streisand and Nora Roberts in the US; and Michael McIntyre and Jamie Oliver in the UK.
Hachette (Grand Central Books) reported declines attributed to reduced sales of the Stephanie Meyer 'saga' (Press Release):
As expected, the erosion in sales of Stephenie Meyer's Twilight saga (Twilight, New Moon, Eclipse and Breaking Dawn) had a marked impact on revenue trends not only in the United States, but also in France and the United Kingdom. In France, the postponement of deliveries of secondary school textbooks from the third quarter to the fourth quarter (due to the late announcement of new curriculums) also had a temporarily negative effect. And in Spain, the Education market was more challenging than last year.

After a like-for-like revenue fall of just 4.5% in the first half of 2010, there was a more marked fall (of 6.8%) in the nine months to end September; this was largely due to the sharp decline in the Stephenie Meyer phenomenon and the non-recurrence of the sale of the international rights to the saga, booked in the first half of 2010.

However, revenues for the first nine months of 2010 are slightly ahead of those for the comparable period of 2008, demonstrating the remarkable resilience of the Lagardère group. Numerous literary successes - James Patterson and Nicholas Sparks in the United States, David Nicholls and Sarah Waters in the United Kingdom, and Jacques Attali and Erik Orsenna in France - are testimony to the dynamism of our publishing houses.

Sales of e-books remain strong, accounting for some 9% of revenues in the United States in the first nine months of 2010.

Simon & Schuster (Part of CBS)

For the three months ended September 30, 2010, Publishing revenues decreased 6% to $217.7 million from $230.4 million for the same prior-year period reflecting lower book sales in the adult group from the soft retail market, partially offset by growth in sales of digital content. Best-selling titles in the third quarter of 2010 included The Power by Rhonda Byrne and Obama's Wars by Bob Woodward.

For the three months ended September 30, 2010, Publishing operating income increased 11% to $29.4 million from $26.6 million and OIBDA increased 10% to $31.1 million from $28.4 million for the same prior-year period reflecting the impact of cost containment measures, lower royalty expenses and lower production costs from a change in the mix of titles.

Nine Months Ended September 30, 2010 and 2009:

For the nine months ended September 30, 2010, Publishing revenues decreased 3% to $559.1 million from $573.5 million for the same prior-year period reflecting the soft retail market, partially offset by growth in digital sales of Publishing content.

For the nine months ended September 30, 2010, Publishing operating income increased 47% to $44.9 million from $30.6 million and OIBDA increased 36% to $49.9 million from $36.6 million for the same prior-year period reflecting the impact of cost reduction measures and lower production expenses from a change in the mix of titles, partially offset by higher royalty expenses. Restructuring charges of $1.8 million incurred during the nine months ended September 30, 2010 reflect severance costs associated with the elimination of positions.

NewsCorp is done separating out the Harpercollins unit from their other publishing assets. (SeekingAlpha)

McGraw-Hill Education and Professional publishing reported as follows (Press Release):

Education: Revenue for this segment increased by 5.5% to $1.1 billion in the third quarter compared to the same period last year. Including a $3.8 million pre-tax gain on the divestiture of a secondary school business in Australia, the operating profit for the third quarter grew by 19.9% to $357.5 million. Cost controls contributed to the increase in the segment's operating margin to 33.9%, the best third-quarter performance for McGraw-Hill Education since 2007. Foreign exchange rates had an immaterial impact on revenue and operating profit in the third quarter. Revenue for the McGraw-Hill School Education Group increased by 6.7% to $534.7 million in the third quarter versus the same period last year. Revenue for the McGraw-Hill Higher Education, Professional and International Group grew by 4.3% to $520.0 million in the third quarter, compared to the same period last year. A strong performance in the state new adoption market was the major factor in McGraw-Hill School Education Group's third quarter results. The McGraw-Hill School Education Group is on track to capture approximately 30% of the estimated $825 million to $875 million state new adoption market in 2010. In 2009, the state new adoption market was about $500 million.
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In professional publishing, online sales of books and digital products produced solid growth in the third quarter. Double-digit e-book sales were a bright spot in the sluggish retail book market, which continues to be buffeted by difficult economic conditions. More than 5,000 McGraw-Hill professional titles are now available to customers as e-books.

Harlequin a division of TorStar is often beset by forex changes (PR)
Book Publishing operating profit was $23.0 million in the third quarter of 2010, up $0.1 million from $22.9 million in the third quarter of 2009, as $1.4 million of underlying growth offset a negative $1.3 million from the impact of foreign exchange.

Year to date, Book Publishing operating profit was $66.1 million, up $3.0 million from $63.1 million last year as $6.2 million of underlying growth more than offset a negative $3.2 million from the impact of foreign exchange. In both the quarter and the year to date, operating results were up in the North America Direct-To-Consumer and Overseas divisions and down in the North America Retail division.
Earlier this month Wolters Kluwer reiterated their full year guidance (PR)
In the third quarter, growth in online and software solutions continued in all divisions. With improving retention rates across the business, subscription revenues, which represent 72% of total revenues, showed improvement over the prior year, especially for electronic revenues. This growth helped to offset the impact of print publishing declines and the continued pressure on advertising and pharma promotional product lines. Book performance improved in the third quarter driven by strong results in legal education and health book product lines.

The Health & Pharma Solutions division performed well, with strong growth noted at Clinical Solutions, Ovid, and books. Within Tax & Accounting, new sales and retention rates for software solutions grew at a solid rate which helped offset pressure on print-based publishing. Financial & Compliance Services saw double-digit growth in its audit risk and compliance product lines and cyclical revenues associated with mortgage lending improved in the third quarter. In the Legal & Regulatory division, transactional revenues at Corporate Legal Services continued to grow, reflecting the steady economic recovery underway in the U.S. While online and software products grew globally within Legal & Regulatory, macro economic conditions continue to put pressure on publishing and cyclical product lines such as training, consulting and advertising, particularly within Europe, offsetting the positive trends for electronic revenues.


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