School Specialty Inc.
) first quarter fiscal 2013 adjusted earnings of $1.16 a share
surpassed the Zacks Consensus Estimate of 67 cents by 73% and the
prior-year quarter results by 55%. However, the earnings beat for
this leading provider of K-12 supplemental educational products and
curriculum was largely aided by a lower tax provision that resulted
in a gain of 46 cents.
However, School Specialty's total revenue decreased 8.7% year
over year to $252.1 million. Both the segments, Educational
Resources and Accelerated Learning, witnessed revenue declines
mainly due to constrained spending by schools, which eventually
negatively impacted the total revenue. Revenues fell short of the
Zacks Consensus Estimate of $268 million. The soft educational
market continued its uneven pace of recovery.
Quarter in Detail
School Specialty is at the midst of its busiest selling season.
The company enjoys significantly higher revenues and earnings
during the first two quarters of its fiscal year, i.e. from June to
October, which usually marks the start of each school year. Schools
usually prefer their school supplies being delivered before or
shortly after the commencement of the school year.
Gross profit in the quarter dropped 6.9% to $103.6 million due
to a fall in the top line. However, gross margin expanded 80 basis
points to 41.1% boosted by better gross margin in the Education
Resources segment, which compensated for the decline in the
Accelerated Learning segment.
Adjusted EBITDA declined 4% in the quarter. Adjusted selling,
general & administrative (SG&A) expenses declined 8% due to
the ongoing cost-savings program.
: Revenue at this educational supplies related segment declined
6.7% from the prior-year quarter to $173.7 million. Within this
segment, the Supplies category saw order growth as schools are
buying only those products that are absolutely essential. While
furniture related bookings and sales showed signs of recovery as
new school construction outlook improved, various specialty branded
products such as physical education, special needs, and early
childhood suffered weakness.
Gross profit for the segment came in at $60.6 million, up 0.2%
year over year. Gross margin improved 240 basis points to 34.9% due
to School Specialty's inventory planning and supply chain
: Revenue at this curriculum related segment fell 12.9% from the
prior-year quarter to $78.3 million. While curriculum related sales
in science division and the student planner business were soft,
intervention related sales showed double-digit increase. Gross
profit declined 14.5% to $42.9 million, while gross margin
contracted 100 basis points to 54.8% due to lower volumes and an
unfavorable product mix.
The company has witnessed significant revenue and margin
declines in the last few fiscal years due to the cautious spending
by schools. Strict state and local government budgets have limited
the school spending. Approximately 47% of school funding is
provided by states and 44% by local governments. Though state tax
receipts show modest signs of recovery, local taxes conto be
challenged. Given the cuts in state funding, school budgets and
spending on products and instructional solutions are being severely
School Specialty lowered its revenue expectations for fiscal
2013 due to a challenging market environment. Accordingly, the
company is expecting fiscal 2013 revenues to decline in low-single
digit from 2012 revenue of $732 million. The guidance was lowered
from prior expectations of 2013 revenues remaining in line with
2012 level. However, management continues to expect its fiscal year
2013 EBITDA results to be almost in line with 2012 results of
around $48 million, despite the anticipated revenue slip.
School Specialty's strategic initiatives like cost containment
efforts, effective working capital management and operating
efficiencies are expected to help achieve the EBITDA levels despite
the revenue shortfall.
We currently have a Neutral recommendation on School Specialty.
The stock carries a Zacks #3 Rank (a short-term 'Hold rating).
Consistent decline in the company's top line and a challenging
educational market create significant headwinds for School
Specialty. However, the company's diversified product and
geographic mix, strategic and cost-control initiatives, and its
product innovation efforts are the catalysts for long-term growth,
once the school spending trends return to more normal levels.
SCHOOL SPECIALT (SCHS): Free Stock Analysis
To read this article on Zacks.com click here.