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John Wiley & Sons (JW.A) Lags Q3 Earnings, Tops Revenues

John Wiley & Sons Inc.JW.A reported the second consecutive quarter of a negative earnings surprise in its third-quarter fiscal 2016. Adjusted earnings per share (EPS) in the quarter decreased 32.3% year over year to 67 cents and also missed the Zacks Consensus Estimate of 76 cents primarily owing to higher expenses because of ERP planning and deployment and also due to the increase in legal provisions.

On the other hand, the company reported better-than-expected revenues, after witnessing four straight quarters of revenue miss. Quarterly revenues of $436.4 million surpassed the Zacks Consensus Estimate of $433 million but declined 6% from the prior-year quarter.

On a constant currency (cc) basis, adjusted earnings fell 26% year over year while revenues declined 3%. Including one-time charges, earnings per share of 61 cents were down 15% year over year.

Adjusted operating profit came in at $53.3 million, down 32% (declining 27% at cc) from the year-ago quarter, whereas adjusted operating margin contracted 460 basis points to 12.2%.

Segment Details (at cc)

Research: The division's adjusted revenues of $224.7 million deteriorated 5% year over year. However, revenues increased 7% excluding the $29 million transitional effect from the shift to time-based journal subscriptions primarily due to robust growth at Licensing, Reprints, and Backfiles, Author-Funded Access and Books and References. The segment's adjusted direct contribution to profit was $97.2 million compared with $114 million in the year-ago quarter. After allocating shared services and administrative expenses, the division's adjusted contribution to profit was $57.4 million, down 17% from the prior-year quarter.

Education: Revenues at the division increased 1% year over year to $108.3 million, mainly buoyed by a 20%, 13% and 6% increase in Custom Material, Online Program Management and WileyPLUS Course Workflow, respectively. The upside was however overshadowed by a 16% decline in revenues at the Print Textbooks segment. Adjusted direct contribution to profit by the division stood at $45.4 million, down 1% year over year. Meanwhile, contribution to profit after allocating shared services and administrative expenses was $24.3 million, down 7% year over year.

Professional Development: Revenues dropped 1% to $103.4 million, mainly impacted by unfavorable reporting in comparison with the prior-year quarter, when Corporate Learning reported five months of results. The division's adjusted contribution to overall profit was nearly $41.8 million, up 10% year over year. Adjusted contribution to profit after allocating shared services and administrative expenses was $18.4 million, up a substantial 47% from the year-ago quarter.

Other Financial Details

The company reported cash and cash equivalents of $535.9 million, inventories of $53.7 million and long-term debt of $814.7 million along with shareholders' equity of $1,016.1 million in the quarter under review.

John Wiley, which shares space with Pearson plc PSO and Thomson Reuters Corporation TRI , reported free cash flow of $18.9 million in the first nine months of fiscal 2016, in comparison with free cash flow of $80 million in the year-ago period.

Nevertheless, the company bought back 347,961 shares for $15 million in the reported quarter.

Outlook

The company has reaffirmed its fiscal 2016 earnings guidance. The company expects earnings to remain flat, at constant currency, on a year-over-year basis. However, due to the transitional impact of shifting to time-based journal subscription agreements and foreign exchange currency headwinds, the company expects flat revenues in fiscal 2016. Nevertheless, this Zacks Rank #3 (Hold) company believes that the shift will not impact its free cash flow. Meanwhile, this change will move nearly $37 million of revenues and 40 cents of EPS to fiscal 2017 from fiscal 2016, up from the previous estimate of $35 million of revenues and 35 cents of EPS from fiscal 16 to fiscal 17.

A Stock to Consider

A better-ranked stock in the same space is New Media Investment Group Inc. NEWM with a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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