Would You Invest in this Knowledge Company?
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“An investment in knowledge always pays the best interest.” Benjamin Franklin.
According to published industry data, the U.S. higher education market has declined by 2.7% since January and grown only slightly by 1.2% for the 12 months ending July. Keeping in mind this continuing trend; Wiley has outperformed the market, with revenues flat for the calendar year-to-date and growth of 2.5% for the rolling 12-month period. Let’s analyze it on a broad basis.
John Wiley & Sons, (NYSE: JW-A) and (NYSE: JW-B), a global provider of knowledge in areas of scientific, technical, medical, and scholarly research, professional practice, and global education reported results for its fiscal 2013 first-quarter, where it missed estimates on revenues and whiffed on earnings per share.
Taxation, Reconstruction, and Numbers Analysis
For the quarter ended July 31, the company reported a 29% decline in profit and earned $36.1 million, or 60 cents per share, down from $50.8 million, or 82 cents per share in the same quarter last year; reflecting lower revenues as well as higher costs and expenses that include restructuring charges. The results were impacted by higher royalty and technology costs. Total costs and expenses for the quarter rose 3% to $371.74 million and include restructuring charges of $4.84 million.
Given the company's ongoing transition and transformation to digital, the above charges relate to the discontinuation, outsourcing, and relocation of certain activities across all of the company's businesses. The recent quarter's results included a tax benefit of 14 cents per share and restructuring charges totaling 6 cents per share. The tax benefits were derived from two consecutive legislative reductions in the United Kingdom corporate income tax rates. The benefits had no current cash tax impact. As a result, Wiley has recorded a $4.8 million charge for redundancy and related separation benefits in the first quarter, which are expected to be fully recovered within 18 months.
Revenue dropped 4% to $410.7 million from $430.1 million a year ago. Excluding the effects of exchange rates, the company said its revenue fell 2%. The company said its revenue was hurt by the timing of production at its journals business, which it expects to resolve this year, and continued soft demand from the higher education market that stemmed from book seller concerns about possible changes in student book-buying behavior and the impact of online book ordering.
John Wiley, like other companies that do significant business outside the U.S., can be hurt by a rising dollar because income earned in foreign currencies shrinks when it's translated back into a stronger U.S. dollar. Adjusted for those factors, earnings totaled 52 cents per share due to top line results and higher operating and administrative expenses. The per-share results would have been lower in the recent quarter, if the company had not reduced its number of outstanding shares by about 2% through repurchases.
What to expect?
For the full year, John Wiley said it still expects to post a profit of $3.50 to $3.55 per share, excluding all unusual tax benefits and the first quarter restructuring charge. Excluding the effects of exchange rates, the company said it expects to post "mid-single-digit" revenue growth.
Wiley continues to seek out buyers for its trade assets. In August, Wiley announced the sale of its Frommer’s travel guide business to Google. The assets had been for sale for five months before the Frommer’s deal was announced. Google bought Frommer’s for $22 million in cash. Wiley repurchased 218,000 shares this quarter at a cost of $10.6 million.
Who wins the race?
Wiley faces threat from various companies, for which it needs to work to adapt to the changing trends if it does not wish to suffer a loss. Scholastic Corporation (NASDAQ: SCHL) website, scholastic.com, is a leading site for teachers, classrooms and parents and an award-winning destination for children. In recent years, there has been a shift from books to eBooks and other digital content. Since nearly half of the company's revenue comes from print publishing, the company needs to work on it to sustain its business.
McGraw-Hill Companies (NYSE: MHFI) has a market cap of $14.42 billion and is part of the services sector and media industry. The company has a P/E ratio of 17.9, above the average media industry P/E ratio of 16.4 and above the S&P 500 P/E ratio of 17.7. The company has a reputation for reliable publications and is used by educational institutions across the globe. By year end, however, McGraw-Hill will become a more focused and reinvigorated company: It will split into two independent companies–McGraw-Hill Financial and McGraw-Hill Education–through a tax-free spin-off of the education business.
Pearson PLC (NYSE: PSO) is a media and education company. Pearson's year on year strong earnings reflect the growing demand for educational services from emerging economies and in digital formats. The demand for Pearson's combination of eBooks and digital learning platforms – eCollege and MyLabs – has been growing fast, but this past year that pace exploded. It consists of three worldwide businesses: Pearson Education, The FT Group and The Penguin Group.
Is it paying the best interest?
Free cash flow for the first quarter was the use of $106 million, that's $47 million greater than the prior year. First quarter free cash flow was also affected by lower cash earnings as a result of decline in revenues, acceleration of calendar year 2012 cash collections into fiscal year 2012 and higher capital spending on technology. And debt was $365 million at the end of the quarter compared to $353 million a year earlier. Moreover, Wiley increased its quarterly dividend by 20% to $0.24. It was the nineteenth consecutive annual increase, and follows a 25% increase in the previous year.
Thus the saying of Benjamin Franklin holds true and in conclusion, I remain confident that Wiley will weather the ups and downs of these challenging market conditions through the balance of fiscal year 2013.
Riddhi2406 has no positions in the stocks mentioned above. The Motley Fool owns shares of The McGraw-Hill Companies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.