Reed Elsevier Reports First Half

It all seems to be coming good for Reed - other than the Educational market that is. Reed released their mid term results this week and they are quite good. (McGraw Hill also seems to be having a good year and Pearson is to report on July 31th). Revenues are up 8% and profit is up 14%. While they are not over exuberant about the full year, it would seem they are in a strong place to exceed their full year budget. Here is their presentation.

Their first half was expected to be stronger but they haven't down played the full year results. Sir Crispin:

"The first half of 2006 has seen a good financial performance and further
encouraging progress in the development of our business in an increasingly
digital environment. Trusted information, technology enabled, and increasingly
integrated into customer workflows, is making our customers more effective
professionally and making Reed Elsevier a more valued partner. The first half
financial performance provides a good platform to meet our 2006 financial
goals."

Organic growth is 1% greater than their budget at 6% over the first half last year and their adjusted EPS is up 16% versus their budgeted expectation of 10%. The EPS number has been due to more favorable tax payments and better performance in Exhibitions versus last year. They are however cautious and expect some of this to reverse in the second half.

All their business segments performed with strength with the exception of Harcourt which had much lower operating profits than expected. Management suggests that the second half is far stronger for revenues and profit - although they would have budgeted that way. Operating margin was down more than 1ppt versus last year while revenues were actually higher. Management is also saying that operational issues are being addressed.

Reed also mentioned that they may speed up and add to the share repurchase plan thay have in place. (Incidentally McGraw Hill also have a similar repurchase effort underway). Reed have also built up an employee share benefit plan. The divisional results were summarized as follows:

• Elsevier: Good subscription renewals and growing online sales
• LexisNexis: Strong growth in legal digital solutions, risk and international
• Harcourt Education: Encouraging success in US textbook adoptions; supplemental building; assessment underperformed
• Reed Business: Strong growth in online and Exhibitions; benefit from biennial show cycling
• Phasing of business this year benefits first half growth
• On track to meet 2006 financial targets
• Reed Elsevier PLC and Reed Elsevier NV dividend up 11%; total of £288m/€420m shares repurchase

McGraw Hill Reports Second Quarter; Scholastic FY 2006

McGraw Hill:
McGraw Hill reported their second quarter results and they are quite good. They have now had two strong quarters this FY and as a result they have improved thier guidence for the full year EPS. Terry McGraw:

"Our new EPS guidance for 2006 is $2.44 to $2.49, and again that also excludes
the incremental impact of all stock-based compensation. To be clear, that
excludes $0.13 per incremental stock-based compensation this year and $0.04 for
the one-time charge for the elimination of the restoration stock option program,
which was already announced in the first quarter. With more robust opportunities taking shape next year, we expect to return to double-digit earnings growth in 2007."

This is a transcript of the call from SeekingAlpha.com. Later in the call they discuss the education unit which they indicate has later adoptions this year but which they must believe will be stronger than budget. During their second half is education represents a larger percentage of total revenue, but margins are lower than their information business. The information businesses appear to be driving their first half growth.


Scholastic FY 2006: Revenue up 10% versus 2005.
Scholastic reported their full year last week and the 2006 results retained some revenue from Harry Potter but not for the entire year. Here is their corporate presentation. In the presentation, management spoke of a challenging year and in looking forward spoke about an expense reduction plan designed to hold operating margins and EPS. Revenues for FY 2007 are forecasted to be flat ($2.3bill versus $2.1Bill and EPS lower (1.66 versus a range of $1.55 - $1.85). Management of the Scholastic balance sheets is a significant positive story for the year. They have $300mill in debt maturing in 2007 but multiple options to fund or refinance this debt.

American News

I wrote a post a few month ago about the type of news reporting on offer by the US networks. Here is another more authoritative view point by the Director of The New Media Certer at Amercian University in Cairo. Given all the time and effort spent by network news in gathering and reporting, there seems to be a moron filter applied immediately before broadcast. It's almost like we can't handle the truth.

Laurence Pintak spent some time on vaction in California but was astounded at the lack of depth and base knowledge given to some of the reportage of the current Lebanese crisis. For example:

"At times, the coverage has seemed as much a fantasy as Disney's Space Mountain, and the level of Middle East knowledge on the part of some television anchors
only a few notches higher than that of the tattooed biker couple waiting in line
for the Pirates of the Caribbean ride".

He goes on further to address the lack of basic geographic knowledge and the rush to salaciousness in the declaration of "World War Three". Given the proliferation of news channels and reporting it is bizarre that so little time is given to each story no matter how important. (Although if you are pretty, blond and dead you might get more coverage). Just last night on the BBC news at 7pm, fifteen full minutes was given over to the Lebanese situation - interestingly from a Southern Lebanese view point. Nothing like the coverage on NBC that evening.

It is however great that we have The Daily Show and The Colbert Report to keep us all grounded. On the brink of war? it was Jon Stewart (here from Youtube) who told us he was scared as crap about the events and quite stark in his explanation. It is Steven Colbert who routinely makes fun of other reporters inability to correctly pronounce the names of foreign leaders, lack of basic knowledge and general yypocrisy. Here he is on World War 3 or 4.

It is not too surprising that generally speaking, as Laurence Pintak points out the US public really lacks an understanding of the issues at hand in the Middle East and elsewhere.

Floyd Landis - It's all about the Hip

Who will end up with the book deal. Most had barely heard of Landis three weeks ago, and it is amazing to believe that the Tour de France could have created as compelling a story as Lance Armstrong in back to back years. Collectively, we wondered if we would bother to watch this year after Lance retired, but this effort by Landis was incredible. Here is the Landis web site. Will the book deal publish now or wait until he has the surgery and makes his comeback? Either way there must be an announcement in the works.

Coping with Rejection

Having completed your version of The Great American novel, you mail it off to your favorite publishers. You may be happy to receive a response like ..."it will take us three months to review this." After all, at least you got a response and against the other nine rejections this may not seem so bad. That is unless you happen to have won a Nobel prize for literature and are one of your country’s preeminent cultural icons; namely author Patrick White of Australia.

With apparently little else to do except embarrass a number of large Australian publishing houses, The Australian set out to prove that Patrick White couldn't get published in Australia today. The article doesn’t' really get that far but nevertheless all kinds of recriminations and navel gazing have erupted from the story. Some may recall that the UK Sunday Times conducted a similar "survey" using a title by V.S. Naipaul.

Since A Fringe of Leaves has been sitting on my parents bookshelf since publication, I thought I would look up what is said about White and his style. Here is a review of Fringe which suggests this may be a hard book to get into and understand. Words like complex and [un]pleasant are used to describe an allegorical story. Perhaps I will give this a go. Of course, White won the Nobel for his body of work, but here is a review of Eye of the Storm which is the book The Australian used for its "experiment".

Missing from the Australian article is any reference to the significant amount of new Australian publishing that these publishers are partially responsible for. Examples include, Tim Winton, Peter Carey, Shirley Hazzard and Andrew McGahan. (Even Bryce Courtney - for some anyway). In a weird way, I am not sure this scam could be tried in the US because I don't think the American public has a view on 'literary' heroes the way the UK, other European nations and Australia seem to.

Perhaps some in the US would get excited if under similar circumstances Portnoy's Complaint was rejected; I hate to say it but I think largely the story would disappear rapidly.

Harpercollins Does Video Trailer

Londonstani, a book released recently in the UK which is generating critical discussion, is about to be released in North America. HC Canada is doing something unique in creating movie trailers for new book releases. This is something more publishers should do and is perfect for a YouTube type application - why leave it buried on their web site? While HC get an A for effort they get a C for execution. This needs to work as easily as YouTube. That's what we are used to; the download took way too long. But I should not be so critical since this use of video and audio to sell books in the staid world of publishing is innovative and Harpercollins deserves credit for developing this promotion. As far as I can tell they started this in March, and I hope they not only continue the effort with many other new releases but also push the content to other web sites and make the downloads faster.

As book readers become more readily identifiable via reading groups and sites like librarything.com, publishers will have a ready market to focus promotional activities on. Enabling some level of direct contact with readers has represented nirvana to large trade publishers and in recent years, aided by the growth of internet use, publishers are finding ways to get direct access. For example, it is now very easy to gain reader notes and book club questions for front list titles from all the major trade publishers. Not so long ago, most readers didn't give a thought to who the publisher of their book was (unless it was Harlequin). There will be much more integration of audio and video content to sell books in the short term. Additionally, I hope we will also see low production 30+ minute video programs similar to the material produced by the BBC to promote The Big Read promotion in the UK a few years ago. Unfortunately, I can't seem to find any video examples of the books the BBC committed to video. (These were not the Masterpiece Theater type productions). They were great and were an important component in driving enthusiasm for The Big Read programs.

Rent A Book

At the Columbus, Ohio airport, Paradies Bookstore has a decent book collection for a store selling snacks, mementos and books. Having spent an unfortunate amount of time milling around the airport, I am reasonably familiar with the store and I was a little taken aback recently when I saw sticking out of every hardcover book this bookmark. While this is not a unique idea, what is interesting about this program is that it is national. This may be a chain you haven't heard of. You can buy your book in Columbus, read it on the way to San Francisco and return it at their store at SF International for a 50% refund. Repeat the process for the return home. It would be interesting to know what the stats on this program are. As a concept this isn't new; however, I suspect that this is more marketing gimmick than anything. Buyers may think they will return a title but I am betting that only a small percentage actually do so. Purchasers think of the 50% discount and impulsively make a purchase decision. Generally there are few discounted titles at your typical airport store and adding the discount to a return is an interesting way to use discounting without giving money away on every purchase.

Paradies has also announced a partnership with The New York Times to launch NYT branded stores at airports.

What's next a book version of NetFlix - perhaps not so far off.