John Wiley & Sons Inc. JW.A succumbed to a negative earnings surprise in the second quarter of fiscal 2016, after beating the Zacks Consensus Estimate for nine consecutive quarters. Adjusted earnings per share decreased 13.3% year over year to 78 cents and also missed the Zacks Consensus Estimate of 81 cents primarily due to high-margin journal backfile sale during the same period last year, increase in expenses due to ERP planning and deployment, and investment in online program management.
Quarterly revenues of $433.4 million also fell short of the Zacks Consensus Estimate of $467 million and declined 9% from the prior-year quarter. Following the company’s dismal show in the fiscal second quarter, its share price went south by 10.4% yesterday.
On a constant currency basis, adjusted earnings fell 10% year over year while revenues declined 5%. Including one-time charges, earnings per share of 74 cents were down 18% year over year.
Adjusted operating profit came in at $64 million, down 16% (declining 13% on a constant currency basis) from the year-ago quarter, whereas adjusted operating margin expanded 110 basis points to 14.8%.
Segment Details (Constant Currency Basis)
Research: The division’s adjusted revenues of $238.4 million were down 5% year over year, primarily due to $10 million journal backfile sale during the same period last year as well as 11% fall in Books and References revenues. The decline was somewhat offset by growth in Author-Funded Access and Journal Subscriptions. The segment’s adjusted direct contribution to profit was $111.4 million compared with $122.7 million in the year-ago quarter. After allocating shared services and administrative expenses, the division’s adjusted contribution to profit was $67.6 million, down 16% from the prior-year quarter.
Education: Revenues for the division declined 8% year over year to $95.8 million, mainly due to a sharp 22% decline in revenues from Print Textbooks and 25% decline from that of Custom Material, which offset growth in Online Program Management (Up 18%), and Digital Books (Up 12%). Adjusted direct contribution to profit was $36.1 million, down 12% year over year, whereas contribution to profit after allocating shared services and administrative expenses was $15.6 million, declining 21% year over year.
Professional Development: Revenues fell 3% to $99.2 million, mainly due to 6% decline in Books revenues which was offset by 13% and 7% growth in Online Test Preparation and Corporate Learning, respectively. The division’s adjusted contribution to overall profit came in at nearly $41.7 million, up 11% year over year. Adjusted contribution to profit after allocating shared services and administrative expenses was $19 million, up substantially by 93% from the year-ago quarter.
Other Financial Details
The company reported cash and cash equivalents of $308.2 million, inventories of $58.2 million and long-term debt of $739.1 million along with shareholders’ equity of $1,067.7 million for the quarter.
John Wiley, which shares space with Pearson plc PSO, reported negative free cash flow of $192.7 million in the first half of fiscal 2016, as against negative free cash flow of $140.7 million in the year-ago period.
Nevertheless, the company bought back 637,717 shares for $32 million in the reported quarter.
Outlook
The company has reaffirmed its fiscal 2016 earnings guidance. The company expects earnings per share growth rate to remain flat year over year on a constant currency basis. However, due to transitional impact of shifting to time-based journal subscription agreements and foreign exchange currency headwinds, the company lowered its revenue outlook from low-single digit growth to flat. Nevertheless, this Zacks Rank #3 (Hold) company believes this shift will not have any impact on free cash flow. This change will shift nearly $35 million of revenues as well as 35 cents of earnings per share to fiscal 2017 from fiscal 2016.
Stocks to Consider
Some better-ranked stocks include The New York Times Company NYT and RR Media Ltd. RRM. Both the stocks hold a Zacks Rank #2 (Buy).
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