July 19, 2013 Last Updated 12:45 pm

Children’s publisher Scholastic reports 25% decline in revenue in quarter, as Hunger Games revenue declines

NEW YORK, July 18, 2013 /PRNewswire/ — Scholastic Corporation (NASDAQ: SCHL), the global children’s publishing, education and media company, today reported results for fiscal 2013 ended May 31, 2013. The Company also outlined its fiscal 2014 plan to improve profitability while continuing to invest in key areas of long-term growth, including children’s book distribution and educational content and services, as well as to enhance operating efficiency and maintain strong free cash flow.

SCHOLASTIC LOGORevenue for the fourth quarter was $506.9 million, compared to $676.6 million a year ago. The Company reported fourth quarter earnings per diluted share from continuing operations of $0.76 versus $1.86 in the prior year period. Results for the fourth quarter of fiscal 2013 include one-time expenses of $0.21 per diluted share related to cost reduction and restructuring programs. Consolidated earnings per diluted share were $0.66 in the quarter, compared to $1.76 a year ago. Fourth quarter results primarily reflected lower U.S. and international sales of The Hunger Games trilogy, lower Book Clubs revenue per order compared to the prior year period, and strength in the Company’s education businesses. Education sales growth included slightly higher Educational Technology sales as well as strong Supplemental Materials Publishing results due to growing purchases of customized product packages by school districts implementing the Common Core State Standards.

In fiscal 2013, revenue was $1,792.4 million, compared to $2,139.1 million a year ago, largely driven by lower U.S. and international sales of The Hunger Games trilogy that were partially offset by stronger Education sales in the second half of the year. For fiscal 2013, earnings per diluted share from continuing operations excluding one-time items were $1.37 versus $3.68 in fiscal 2012, exceeding the Company’s revised guidance range of $1.10 to $1.30 per diluted share, excluding one-time items. Including one-time expenses of $0.27 and $0.29 per diluted share, respectively, related to cost reduction and restructuring programs, earnings per diluted share from continuing operations were $1.10 in fiscal 2013 versus $3.39 in fiscal 2012. Consolidated earnings per diluted share were $0.95 for the fiscal year, compared to $3.21 in the prior year.

Free cash flow for the fiscal year was $59.4 million, exceeding net income, compared to $147.6 million in fiscal 2012, exceeding the Company’s revised guidance range of $45 to $55 million. At year end, cash and cash equivalents exceeded the Company’s total debt by $85.4 million, compared to $35.6 million a year ago.

“Despite the decline in U.S. and international sales of The Hunger Games, Scholastic achieved the high end of our revised guidance range for fiscal 2013 revenue and exceeded our revised earnings per diluted share and free cash flow guidance due to strong sales of our education programs in the fourth quarter,” said Richard Robinson, Chairman, President and Chief Executive Officer. “We are operating at a time of significant change in the book business and in education, and we are well-positioned to capitalize on the opportunities presented by evolving needs in the classroom and buying behavior in children’s books. With fewer retail outlets for children’s books, third-party industry research indicates that parents are increasingly relying on our Book Fairs and Book Clubs channels to find age-appropriate, quality print and ebooks for their children. Additionally, educators are looking to us for customized print and digital curriculum packages and technology-based programs and content that support their instructional needs as they implement the more rigorous Common Core State Standards – and we are meeting that demand.”

Mr. Robinson continued, “Our significant role in the reading and learning lives of children both at school and at home continues to be a core strength of the Company. We expect to drive growth in fiscal 2014 by capitalizing on further opportunities to deliver books to families that help link children’s independent reading to Common Core State Standards, and to provide teachers and administrators with customized curriculum packages and professional development solutions that now cover grades pre-K to 12. Key to this growth is the introduction of our five major new education technology products, especially to the numerous school districts which have enthusiastically embraced READ 180® for more than a decade. At the same time, we are aligning resources in both our education and children’s book businesses to serve customers in a unified way. As a result, we are well-positioned to continue to be the trusted, proven provider that can best meet the evolving needs of parents, teachers and children.”

Fiscal 2014 Outlook
In fiscal 2014, Scholastic expects to improve profitability, enhance operating efficiency and maintain strong free cash flow. Scholastic’s revenue and profit growth will be driven primarily by the Company’s education businesses as a result of the introduction of new Educational Technology products, including System 44® Next Generation, MATH 180TM, iReadTM, Common Core Code XTM and READ 180 for iPad®, coupled with growing demand for our customized programs. These customized programs, tailored for the K-8 English Language Arts block, include print and digital resources for instructional reading and writing, along with Classroom Magazines and other product and professional development offerings to meet districts’ specific needs.

In Scholastic’s children’s book businesses, we are aligning resources to serve customers in a unified way and introducing grade-specific marketing in School Book Clubs. Children’s book revenue is expected to decrease slightly compared to fiscal 2013, as lower year over year sales of The Hunger Games trilogy are expected to be partially offset by increased revenue per fair in our School Book Fairs and new titles released through our Trade business. The Company expects Book Clubs revenue to be flat compared to fiscal 2013. As planned, fiscal 2014 investments in Storia®, the Company’s ereading platform and delivery system, will decrease. Platform development for Storia is substantially complete and future investments will focus on content delivery and enhancements, including features designed to make the application more useful in the classroom.

The Company is continuing to implement programs to enhance operating efficiency and to align its cost base with its revenue growth expectations.

As a result of the above factors, the Company expects total revenue in fiscal 2014 of approximately $1.8 billion, and earnings per diluted share from continuing operations in the range of $1.40 to $1.80, before the impact of one-time items.

Fiscal 2014 free cash flow is expected to be approximately $60 to $80 million. This outlook includes capital expenditures of $55 to $65 million, compared to $56.0 million in fiscal 2013, and prepublication and production spending of approximately $65 to $75 million, compared to $73.7 million in fiscal 2013.

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