Please ensure Javascript is enabled for purposes of website accessibility

Why Houghton Mifflin Harcourt Stock Is Plunging Today

By Evan Niu, CFA – Nov 5, 2020 at 3:41PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The textbook publisher reported disappointing third-quarter results.

What happened

Shares of Houghton Mifflin Harcourt (HMHC) are plunging today, down by 20% as of 2:45 p.m. EST, after the company reported third-quarter earnings. The educational textbook specialist missed analysts' expectations by a mile.

So what

Revenue in the third quarter declined by 32% to $387 million, far short of the consensus estimate of $516.6 million. That resulted in a net loss per share of $0.10, while Wall Street was looking for positive earnings per share of $0.53. HMH posted billings of $506 million.

A laptop next to some textbooks

Image source: Getty Images.

"We are supporting teaching and learning nationwide whether done in person, fully remote or hybrid," CEO Jack Lynch said in a statement. "Even as the near-term pressures of the COVID-19 pandemic impacted our billings for the third quarter, we are seeing very strong growth across the key indicators of our digital transformation, positioning HMH's SaaS offerings among the largest and fastest growing in the edtech market."

Now what

HMH also said it was exploring a potential sale of its consumer publishing business, HMH Books and Media. Lynch said the divestiture would allow the company to focus on expanding its learning technology portfolio. It had announced a strategic restructuring plan last month that included a 22% head count reduction.

HMH provided outlook for the full year, with billings expected in the range of $1.05 billion to $1.1 billion in 2020. Free cash flow should be negative $5 million to negative $15 million. The company believes that it can achieve positive free cash flow in 2021.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.