Scholastic Q3 Loss Narrows On Tax Benefit; Reiterates 2014 Outlook

Children's publishing, education and media company Scholastic Corp. (SCHL) on Thursday reported a loss for the third quarter that narrowed from last year, reflecting a one-time tax benefit.

Revenues for the quarter declined 1 percent, primarily due to lower sales of the company's higher-margin educational technology products. Looking ahead, the company reiterated its financial outlook for fiscal 2014.

Richard Robinson, Chairman, President and Chief Executive Officer said, "After a very strong first half, our education business was impacted in the third quarter by the combination of our educational technology and classroom and supplemental materials sales forces. The sales force integration is now largely complete and our team is fully focused on driving profitable sales in the fourth quarter and into the first quarter of next fiscal year."

Scholastic's net loss for the third quarter narrowed to $12.1 million or $0.38 per share from $20.1 million or $0.63 per share in the year-ago period. The narrower net loss reflects favorable settlement of outstanding federal tax audits that resulted in a one-time tax benefit of $13.8 million, or $0.43 per share in the latest quarter.

This one-time tax benefit was partly offset by one-time pre-tax expenses of $6.4 million, or $0.13 per share. The pre-tax expenses include an impairment charge of $4.7 million related to a minority equity investment in the UK and $1.7 million in severance costs mainly related to a voluntary retirement program for employees at the company's main distribution center.

Excluding items, loss from continuing operations for the quarter was $21.6 million or $0.68 per share, compared to loss of $18.1 million or $0.56 per share in the prior-year quarter.

The wider loss was due to lower sales of the company's higher-margin educational technology products in the third quarter, a seasonally lower revenue quarter for Scholastic that typically generates a net loss.

Revenues for the quarter declined 1 percent to $373.5 million from $378.6 million in the year-ago period.

Segment revenue at Children's Book Publishing and Distribution for the quarter rose 1 percent from last year to $190.0 million. However, in Trade, revenue declined 12 percent from the year-ago period that benefited from a favorable return reserve adjustment.

However, Educational Technology and Services segment revenue declined 14 percent to $35.8 million, mainly due to the amount of sales force time and resources devoted to the previously announced integration of the educational technology and classroom and supplemental materials units during the quarter.

Classroom and Supplemental Materials Publishing segment revenue increased 3 percent to $44.5 million, primarily driven by increased circulation for the company's classroom magazines.

International segment revenues declined 4 percent to $91.0 million, primarily due to an unfavorable foreign exchange impact of $6.7 million. Excluding this, trade revenues in the major markets, including the UK, Canada and Australia, increased primarily due to higher sales of "The Hunger Games" trilogy and popular locally published titles and stronger direct sales business in Asia.

Media, Licensing and Advertising segment revenue rose 4 percent to $12.2 million, as a result of higher sales of Parent & Child magazine, revenue recognized from a new season of the Emmy-award winning series WordGirlTM for PBS, in addition to programming library sales to Netflix and other streaming services.

Looking ahead to fiscal 2014, Scholastic reiterated its outlook for total revenue of about $1.8 billion and earnings per share from continuing operations of $1.40 to $1.80, excluding the impact of any one-time items associated with cost reduction programs or non-cash, non-operating items.

SCHL closed Wednesday's trading at $34.92, down $0.21 or 0.60 percent on a volume of 192,881 shares.

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