Thomson Reports Second Quarter

It is reporting day today for a number of publishing companies. Earlier Reed reported decent gains in revenues and profit across business units and later in the day Thomson does the same.

• Revenues increase 11%; organic revenue up 6%
• Operating profit grows 15%; operating profit margin increases in all segments
• Diluted EPS increases to $0.58, from $0.26 a year ago
• Proposed acquisition of Reuters progressing

With the divestiture of Learning Thomson now divides itself into five operating units: Legal, Fiancial, Tax & Accounting, Scientific and Healthcare. Revenues were up sustantially in all segments with the big units Legal and Financial up 9% and 8% respectively. (Organic growth was up 6% and 4%). Double digit gains were seen in Tax (+23%) and Healthcare (+43%) indicating that while much smaller than the larger two units their revenue growth paths will soon materially impact topline revenues.

For the full six month period, revenues are up 11% and operating profit is up 12%. The company also stated that they continued to make significant product line investments and that these results included those investments. Additionally, the company expects to continue to make material improvements to operating margins into the future. CEO, Harrington:

"Building on a solid start to the year, the business continued to gain momentum in the second quarter. We achieved solid growth in revenues, operating profit, margins, and earnings. Organic revenue was up 6%, led by our Legal and Tax & Accounting business segments. “We also continued to make significant progress driving operational efficiencies throughout our company, resulting in a 15% increase in operating profit. Our success was reflected in substantial increases in operating profit margins in each of our business segments, which included the benefits of our THOMSONplus initiatives. THOMSONplus remains on track to generate run-rate savings of $150 million by the end of 2008,”

The company beat by 2cents the prevailing analyst forecast for EPS. The company is not making any detailed forecasts on performance until the Reuters deal is completed only to say things look good.

With respect to Reuters, the company detailed the deal and also noted the regulatory hurdles that the company must make both in the US and Europe.

“Given the complementary nature of the two companies’ businesses and the highly competitive nature of the financial information services industry, we remain confident that the transaction will be approved,” Mr. Harrington said. “Upon completion of the transaction, Thomson-Reuters will be well positioned to capitalize on the positive trends driving growth in our markets. The combined business will also benefit from significantly greater global diversification and a broader and more deeply integrated product mix. We are confident this combination will equip us to meet our customers’ growing needs in an expanding and dynamic worldwide market translating into faster growth and higher profitability.

Thomson Press Release
Bloomberg

Reed Elsevier Reports

Sir Crispin Davis noted that the sale of Harcourt was made on 'favorable terms' and it looks like the company will net over $2.0billion from this sale. Proceeds are said to be dividended to shareholders sometime next year. (In a related note, Pat Tierney the head of Harcourt will retire when the sale is completed).

The first half results as reported today were mixed with revenue flat but in excess of many analysts estimates. The company confirmed they are on target for a 10% increase in EPS. Revenues were up 6% and operating income up 10% in constant terms. All operating units performed consistently in revenue but Lexis Nexis lead the group in operating income growth of 13% and Business Information lagged at 7%. (The company is impacted by the weak dollar and taking into account currency changes total revenue growth was only 1% ).

Outlook:

• Elsevier: good momentum, strong renewals, good book revenue, growing online sales
• Lexis: positive outlook, good demand for online services and total solutions, and risk and analytics
• Business Information: cycling in of biennial shows, online revenue growth more than off-setting declines in print.

The company sees a positive market environment and good business momentum across all its businesses which will drive the EPS growth. Additionally, they have a renewed initiative on cost reductions across the businesses and have hired senior level managers to support particular initiatives.

Other highlights:

• Digital revenues are on target to represent 45% of total revenue
• To focus on additional cost efficencies the company has hired c-level positions in outsourcing, procurement and technology
• Davis commented to journalists that the company rejected a P/E approach for the business information division in 2006. The unit could be worth over $2.0bill
• Davis also said he continues to look for acquisitions and is particularly interested in those over $100mm.

Reuters
Reed Presentation
Hemscott

News Corp and Dow Jones

So we should find out within the next week whether the Brancroft family will accept the NewsCorp offer, but I have to wonder whether some type of all-points bulletin went out across the NewsCorp empire: "Don't publish anything low-brow, scandalous or let The Boss influence your thinking". At least until this business is over. It would be bad timing of a momentous nature that could have the Bancroft family perusing some questionable covers of The Post or The Sun or even reading some politically charged editorial in The Times while meeting to determine the fate of the company. And of course if for some reason they missed these indicators, there are rivals like The Daily News that joyously draw them to their attention.

Coincidentally, The New York Times released some private archive material of the owning family, Ochs Sulzberger to the New York Public Library. There is nothing recent yet (although additional material is anticipated to be made available soon) but there are interesting items relating to the relationship between the Editorial philosophy and that of the owners,

Many of the documents reveal the newsroom’s sometimes prickly relationship with its owners. “It’s difficult for me personally to take a position not in accord with the wife of the Publisher,” Edwin L. James, the managing editor, wrote to Arthur Hays Sulzberger on June 22, 1949, after Iphigene Sulzberger complained about placement of a story involving Cardinal Francis Spellman. (A spirited defense of the news desk’s judgment followed.)

Will we ever see Murdoch's personal archive...? Do we want to? What happens if the deal doesn't is not accepted? You can bet that News Corp has an alternative plan ready to roll if the Dow Jones bid fails.

Educational Text Book Bias: The Winners Get to Write History

We are not unfamiliar with 'activist' reviewers of textbook content in the US where it is not unknown for a textbook to have different versions depending on which state it is sold. The Lede (NYTimes blog) notes this is not an uncommon issue in international markets and notes a controversy in Israel but also goes on to say,

This seems to go on all over. After communism collapsed in Eastern Europe in the late 1980’s, for example, countries there began rewriting their history texts wholesale, to correct the distortions, omissions and ideological slant introduced by the dictatorships - and some of those efforts were then criticized for going too far in other directions. And such controversies are far from unknown in the United States, where everyone from Native Americans to Hindus have objected to the way they have been treated in some states’ history textbooks.

I read Lies My Teacher Told Me a few years ago and found it most interesting.

Keefs Book

Bill Wyman was ostracized, Mick lost interest, Pete has been blogging about it, but against the some rather considerable odds, Keith Richards may get $7.0mm for his story. On record as saying he doesn't remember some of the Exile sessions, I wonder what we will find out that we don't already know.

Yeah give me money, yeah, yeah, yeah (thats what I want)
Lots of money, yeah, yeah, yeah (oh yeah, thats what iWant)
If you want me to love you (thats what I want)
Give me money (oh yeah, thats what I want)
If you want me to squeeze you (thats what I want)
Give me money (oh yeah, thats what I want)
Thats what I want, oh yeah (thats what I want)
Thats what I want (oh yeah, thats what I want)

The Beatles also did that song...

McGraw Hill Posts Strong Quarter

McGraw Hill reported second quarter results this morning with their financial services group (Standard and Poors) reporting a 21% increase in revenue and a 28% increase in operating income versus the same period last year. Overall revenue and profit rose 12.5% and 25% respectively. Income per share was 79cents versus 60cents in the period last year.

The McGraw Hill School education division reflected industry growth trends and full year revenue growth is on track for a 5-6% increase.

"A very strong performance by Financial Services was a key factor in our second quarter," said Harold McGraw III, chairman, president and chief executive officer of The McGraw-Hill Companies. "We also benefited from the McGraw-Hill School Education Group's strong start in this year's state new adoption market and solid performances in higher education, professional and international markets.

In education, the company expects a strong adoption cycle to offset mediocre growth in open territories. The company is also seeing strong performance in College and international markets.

"Revenue for this segment increased 5.8% in the second quarter to $647.3 million compared to the same period last year. Operating profit grew by 18.6% to $80.4 million. Foreign exchange rates added $4.5 million to the growth in revenue, but had an immaterial effect on operating profit growth

The outlook for McGraw Hill is as follows:

"We expect to achieve our goal of double-digit earnings growth in 2007 even though the growth rate will probably slow during the second half of the year as compared to our very strong first half performance. Although we expect low double-digit growth from Financial Services in the second half, tougher comparisons will make the fourth quarter more challenging. Some operating margin compression may occur in our segments in the second half, but we still expect improved operating margins in all three segments for the full year".

Press Release
Investor Relations

Marchesano Joins Jordan, Edmiston

The Jordan, Edmiston Group announced today that Michael Marchesano, the media industry veteran and a former top executive at The Nielsen Company, is joining the firm as Managing Director, focusing on JEGI’s leading M&A advisory practice to the business information services sector. Mr. Marchesano commented,

“It is a great thrill for me to join the media and information industries’ leading and most active investment bank. Over the years, I have watched JEGI’s reputation grow and its deal volume increase. I very much look forward to helping the firm expand its footprint in the vibrant business information services sector, which offers its customers a growing number of must-have products and services.”

Prese Release

Scholastic: The Future

As the end of the Harry Potter era dawns - with millions still to be made from product extensions and paperback rights - some are wondering whether the time is ripe for the sale of the company. The most likely buyers would be (no surprise) private equity; however, there remains an obstacle in the form of the owner. Richard Robinson inherited the company from his father and has grown it into a $2.0billion diversified trade publisher and, while the company is public, he controls 4/5's of the board seats. It is unlikely that the company will be sold despite the arguments contained in this article by Bloomberg.com,

shares of Scholastic, the book's U.S. publisher, are trading at 0.66 times annual sales, compared with 1.04 times sales for rival U.S. book publishers. The shares would be worth more than $50 each, or 48 percent above their current price, if the company were to sell itself, Boyar and Stifel Nicolaus & Co. analyst Drew Crum said.

The Bloomberg authors argue that because Scholastic has not adequately reinvested the Potter windfall and found replacement revenue sources, now is the time to generate a high sale price. In reality, there can't be too much motivation to sell from Robinson since the company will continue to make reasonable profits and high cash flows. In addition, the company has had similar transitions before (Goosebumps and Clifford, the big red dog) - although the Potter franchise dwarfs earlier product successes - and at those junctures commentators wondered where the next earnings generator would come from.

The Bloomberg article does discuss continued operational issues most recently in their direct mail business,

Scholastic's latest stumble is in its direct-mail business, where subscriber delinquencies are rising. Yesterday, the company reported fourth-quarter profit of $40.4 million, or 93 cents a share, missing analysts' average estimate.

Nevertheless, the company has a plan to address these issues and shows no sign of preparing itself for an auction. As the largest Childrens' publisher, the company will have its pick of the best new children's products and, as it has in the past, will re-establish a new product franchise. The company may also acquire companies where the product mix could be leveraged to greater extent via Scholastic's distribution and management structure.

As a shareholder, there should be some concern over earnings growth in the next 12-24mths; however, assuming a premium will drive the stock price because of an anticipated acquisition would seem to be ill-advised.

Weekly Update: July 22

Publishing:
Dow Jones Yes or No? BBC
Dow Jones MySpace Revenge? PRNewswire
Gratuitous Potter Article: CNN
Christian Retail: WaPo

Information:
Thomson Financial using Generate to build Private Company and Executive Profiles: CMP
EBSCO's New Novalist Portal: Library Journal

E-Books
Wilkins in The Age
Japan's Tiny Books: Wired
Standards Program for Downloadable Media: MediaPost

Libraries:
If Libraries Didn't Exist Would they Be Invented Today? Freakononics

M/A
Acquire Media purchases NewsEdge from Thomson: PRNewswire

Online:
Interview with Vivian Schiller, NY Times.com: MediaPost

Derbyshire Bed & Breakfast

Well if the floods in Oxfordshire and Gloucester might have you rethinking the camping trip to the UK this summer how about a visit to a lovely b&b in the Derby hills. Here they treat you like family and indeed in my case they are. Hodgkinson's is run by my cousin (with some help from Gemma age 7) who was written up in the Guardian this weekend. This is somewhat of a double edged sword as will go unexplained.

Bureau Van Dijk: Sale Imminent - Update: SOLD

Reuters is reporting that Candover, the principle owner of BVD is likely to agree a sale with one of the two equity groups vying for purchase of the company. Sources tell Reuters that BC Partners and Cinven are the two remaining parties and they estimate that the purchase price will be under 700mm Euros. BVD has a strong market position where it competes but some companies that were initially interested expressed some concern that the data the company distributes isn't owned by BVD. It is hard to know how accurate or relevant this issue was in the sale process but it would seem that unless we see a last minute surprise on purchase price that there will not be a significant premium paid over the initial estimate which we have seen with some other recent media company sales.

Having said that Candover invested 300mm Euros in 2004 - not such a bad return. Management are going to do well also. Good on them.

UPDATE: Reuters is reporting BVD has been sold to BC Partners for a little less that $1.obill. The deal is expected to close in October pending regulatory approval. Reuters

Von Holtzbrinck Resigns from Dow Jones Board

Dieter von Holtzbrinck, the heir to German media conglomerate von Holtzbrinck has resigned in protest over the decision by the DJ board to recommend acceptance of the NewCorp bid for the company. von Holtzbrinck apparently abstained from the vote last week (Post) but had been vocal in recommending the company remain independent. Apparently, the Bancroft family (there are dozens of shareholders) will decide over the next few days/week whether to accept or not, the NewsCorp bid.

(For those unfamiliar with von Holtzbrinck, they are a family owned business operating newspapers, trade publishing, education and digital media businesses in over 80 countries. In the US they own FSG, St Martins, Henry Holt and in the UK they own Macmillan).

In related news, the company posted mixed results (Money) this week with traditional media showing decreases but with international, Barrons and some digital revenues up. Some analysts speculated that the continued softness in DJ's traditional sources of revenue may cause some Bancroft shareholders to take the money and run. In trading, the share price was down slightly based on doubts about whether the deal with NewsCorp would be completed.