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Original Source: FD (FAIR DISCLOSURE) WIRE
. Kyle Good, Scholastic Corporation, VP, Corporate Communications . Dick Robinson, Scholastic Corporation, Chairman, President & CEO
. Mary Winston, Scholastic Corporation, EVP & CFO . Judy Newman, Scholastic Corporation, SVP, Book Clubs and Scholastic At Home
. Barbara Marcus, Scholastic Corporation, EVP & President, Children's Book Publishing and Distribution . Margery Mayer, Scholastic Corporation, EVP & President, Scholastic Education
In 3Q05 SCHL reduced its net loss by $0.13 to $0.02 per diluted share and total revenues rose 2%. This month, SCHL began rolling out Parent COOL or Club ordering online. For the full year, SCHL continues to expect revenues of approx. $2.1b. SCHL plans to earn between $1.50-1.70 per diluted share in FY05. Q&A Focus: Club business, education, and guidance.
A. Key Data From Call 1. 3Q05 free cash flow = $37m. 2. 3Q05 net debt to capitalization = 35%. 3. FY05 expected revenues = approx. $2.1b. 4. FY05 expected earnings = $1.50-1.70.
S1. Opening Comments (D.R.) 1. Highlights: 1. SCHL continues to make progress toward the goal established at the beginning of the year, which is improving margins and free cash flow.
2. In 3Q05, SCHL achieved higher profits and margins in all
operating segments. 3. Though 3Q05 is typically the second smallest of the year, the Co. was close to break even and significantly reduced net loss from a year ago. 4. These results reflects:
1. Growth in higher margin sales. 2. Lower returns and bad debt expense. 3. Improvements in operating efficiencies.
5. Revenues also rose modestly in 3Q05 on growth in Education,
International and Children's Book Publishing and Distribution.
6. In the latter, solid revenue gains in trade and fairs were
partially offset by lower continuity revenues, which declined
as a result of: 1. The Co.'s strategy to focus on fewer, more productive customers. 2. By 1% lower Book Club revenues.
7. Last qtr., SCHL generated positive free cash flow. 2. Trade Publishing: 1. Higher profits in Children's Book Publishing and Distribution were led by Trade, which had higher net revenues and profits in 3Q05. 2. By working closely with the retailers to adapt to their inventory management needs, SCHL saw returns decline significantly vs. a year ago. 3. Gross sales were also up last qtr., particularly with best selling backlist titles like, InkHeart, Chasing Vermeer and, Harry Potter. 4. On the front list, SCHL has been pleased by sales of a number of titles, including: 1. Patrick Carman's, The Dark Hills Divide.
2. New York Times bestseller The Dragon Rider by Cornelia Funke.
3. Klutz Knitting. 4. The first title from the Co.'s new graphic novels in print, Bone, Out From Boneville by Jeff Smith.
3. School Book Fairs: 1. Improved product availability and merchandising drove higher revenue per fair in School Book Fairs in 3Q05, which is typically the second smallest of the year in that business.
2. Fair count also rose with a greater number of schools hosting
second fairs. 4. School Book Clubs: 1. After 15% revenue growth in School Book Clubs in FY04, SCHL's principal goal for Clubs this year has been to improve profitability. 1. In particular, the Co. is focused on pricing and cost control.
2. Last qtr., SCHL achieved higher revenue per item, but this was
offset by slightly lower order sizes, resulting in a drop of
1% in revenues. 1. Based on this trend, SCHL now expects club revenues this year to hold approx. even with last year's very strong results and profitability to increase. 3. For next year, the Co. sees a number of opportunities to drive topline growth; especially in revised strategies, product selection, and pricing.
4. This month, SCHL began rolling out Parent COOL or Club
ordering online, which should be available through all teachers by this fall. 1. Parent COOL allows parents to go online and place orders directly with their child's teacher. 2. Carefully applied, this will open many opportunities to grow the club business and build relationships with families. 5. Continuities: 1. Last qtr., SCHL's targeted strategy improved the quality of customer relationships. 2. Aggregate bad debt and returns were down as a percent of revenues, while customer pay rates were up. 3. The Co. is making progress stabilizing this business and customers are responding to its new formulation, value proposition, and improved customer service. 4. Building on what learned, SCHL is testing new products to grow revenues once again. 1. The Co. is extending some of its most popular product lines like, The New Book of Knowledge, Encyclopedia. 2. SCHL is adapting innovative products from Education business. 1. Recently SCHL began selling a newly packaged phonics based reading program. 3. The Co. is strengthening its …