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Pearson PLC (ADR) (PSO), Scholastic Corp (SCHL), John Wiley & Sons Inc (JW.A): Getting a Read on the Prospects of Three Large Publishers

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Pearson PLC (ADR) (NYSE:PSO)The publishing industry has been in the doldrums for a number of years, and not just because of the recession in the United States. Consumers of both fiction and nonfiction literary works, students and educators and corporate customers alike, seem to be demanding that the industry evolve and deliver information and entertainment in new ways that better meet their needs. The questions are how is the industry going to evolve, and how long will it take before the changes result in noticeable profit gains?

Today we will look at three large publishers that have been very successful but face headwinds to achieving faster growth. Each of these companies has demonstrated great staying power–after all, the youngest was established in 1920.

The global information giant

On its website, Pearson PLC (ADR) (NYSE:PSO) describes itself modestly as “The World’s Leading Learning Company.” Its products and services are marketed in more than 70 countries. Its Education Division distributes educational materials and learning technologies, including educational software. It also operates schools and Pearson PLC (ADR) (NYSE:PSO) publishes fiction and non-fiction books through Penguin Books.

In a presentation of 2012 results, the company reported continued weakness in demand for print publications in the developed world, offset by stronger demand in emerging countries. Pearson PLC (ADR) (NYSE:PSO) also cited the growth in digital products and services. For the year, its sales were up 5% and operating profit was up 1%. The North American Education division revenues rose 2% whereas the industry experienced a 10% decline. Penguin revenues were up just 1%, but e-books now account for a healthy 17% of that division’s sales.

Where kids rule

Scholastic Corp (NASDAQ:SCHL) publishes children’s books, classroom magazines, interactive games, curriculum-based materials, learning technologies and software. Its distribution channels include school-based book clubs, retail stores and the Internet. One of this company’s big success stories was the Harry Potter series, and more recently it published The Hunger Games trilogy.

For the third quarter, revenues of $381 million were down a full 18% from the same quarter in 2012. Its quarterly net loss of $20 million was double that of the previous year’s. The decline was mainly due to lower sales of children’s books, which were $80 million below what had been sold during the same quarter of 2012. For the first three quarters, the company did manage a net profit of $10 million, still well below the previous year’s $48 million. Favorable developments in the third quarter included a revenue increase of $2 million in the Educational Technology and Services segment, and a $5 million increase in Classroom and Supplemental Materials revenues.

The company was hurt by significantly lower than expected sales of The Hunger Games and a decline in revenue per order from its book club distribution channel. Scholastic Corp (NASDAQ:SCHL) hopes that technology will help right the ship. In a presentation of third quarter results, the company cited increased investment in digital publishing and five new educational technology products.

Talk about longevity

John Wiley & Sons Inc (NYSE:JW.A) has been publishing since 1807 — two years before Edgar Allan Poe was born. It creates and distributes content and content-enabled digital services including journals, books, reference works and laboratory manuals. The third quarter ended January 31 and a presentation and analysis of the results can be viewed here.

It reported an overall revenue increase of 6% to $461 million, compared to last year’s third quarter. Operating income was up 8%. The company has three business segments. The largest is the Scientific, Technical, Medical and Scholarly (STMS) segment, accounting for more than half of total revenues. The biggest revenue source in that category, journal subscriptions, fell 2% and sales of print books dropped 5%. The bright spot was digital book sales which rose 20%.

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