In last week's Foolish Forecast, I laid out the criteria that would make a successful quarterly report for educational publisher Scholastic
Early Tuesday morning, Scholastic delivered on all of the above. The firm not only grew its revenues -- it grew them twice as fast as Wall Street had predicted, with sales rising nearly 6% to $735.5 million for the fiscal second quarter. But that alone wouldn't have sufficed to kick profits up 11% to $1.75 per share, as Scholastic did. To accomplish that feat, the firm kept its operating costs under tight control, allowing them to rise less than 5%, and enabling operating margins to expand 70 basis points to 17.2%. Finally, while inventories did not decline, they did at least grow less quickly than sales, and were up less than 5% year over year by quarter-end. (See our Fool by Numbers for a complete breakdown.)
By segment, the firm got its biggest objective boost from improvements in its biggest business -- children's book publishing -- where revenue growth of 4% year over year translated into a 12% boost in operating profits. Relatively, though, the star of the quarter was Scholastic's second-largest business segment: international. There, a weak dollar helped drive sales 14% higher year over year, and operating profits up 55%.
And now, the F's
Segment-wise, where Scholastic underperformed during the quarter was in educational publishing. There, decreased school spending on paperbacks, library materials, and classroom magazines helped produce a 2% decline in sales. The "paperbacks" part of this segment appears to be higher-margin than the others, though, because Scholastic singled paperbacks out for special blame in the segment's outsized 21% decline in operating profits.
Finally, you may recall that six months ago, CEO Richard Robinson promised to reduce "overhead spending by $40 million annually by fiscal 2008" as part of his cost-cutting program. In our September Foolish Forecast on the company, I suggested this might take a while to accomplish. Well, it is. According to Scholastic's report, overhead spending actually increased 25% last quarter, up $3.9 million year over year. That canceled out the improved overhead picture of Q1, and has Scholastic's overhead now running $2 million higher in this year's first half than in last year's.
What did we expect to see out of Scholastic last quarter, and what did it produce? Find out in:
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Fool contributor Rich Smithdoes not own shares of any company named above.