Scholastic Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended February 28, 2022. The filing covers fiscal 2022, notwithstanding the request metadata’s “2021 Q3” label. Amounts are in millions of dollars except per-share data.
Financial performance
| Metric | Three months ended Feb. 28, 2022 | Prior-year quarter | Nine months ended Feb. 28, 2022 | Prior-year period |
|---|---|---|---|---|
| Revenue | $344.5 | $277.5 | $1,128.5 | $898.9 |
| Operating income (loss) | $(19.5) | $(24.2) | $31.9 | $(32.4) |
| Net income (loss) attributable to Scholastic | $(15.3) | $(13.9) | $28.8 | $(18.6) |
| Diluted EPS | $(0.44) | $(0.41) | $0.80 | $(0.54) |
| Cost of goods sold as % of revenue | 49.2% | 49.0% | 47.9% | 49.0% |
Quarterly revenue rose $67.0, driven mainly by U.S. book fairs returning to in-person activity. Operating loss narrowed, but the net loss attributable to Scholastic increased and diluted loss per share widened. For the nine-month period, the company returned to operating and net profitability. Nine-month results included a $6.2 gain on sale of a facility and $6.6 of insurance recoveries related to a prior-year legal settlement.
Segment trends: Children’s Book Publishing and Distribution revenue was $201.0 for the quarter and $669.3 for nine months; operating income was $5.0 and $68.5, respectively. Education Solutions revenue was $77.2 and $236.8; operating income was $13.1 and $36.0. International revenue was $66.3 and $222.4; it recorded a $5.0 quarterly operating loss and $2.0 nine-month operating income. Overhead expense was $32.6 for the quarter and $74.6 for nine months.
Cash flow and liquidity: Nine-month operating cash flow was $178.5 versus $36.5 a year earlier. The increase reflected higher collections, a $63.1 federal tax refund and $6.6 insurance recoveries, partly offset by the $20.0 legal settlement payment, increased costs and inventory purchases. Investing cash outflow was $30.5; financing cash outflow was $202.9, including $175.0 of U.S. credit-agreement repayments and $19.5 of share repurchases. Cash was $308.9 at February 28, 2022, down from $366.5 at May 31, 2021.
Total debt was $13.7, all classified as current, including $6.9 of UK loans and $6.8 of international credit-line borrowings. The company had no outstanding borrowings under its $300.0 U.S. revolving facility and reported covenant compliance. It disclosed $299.6 availability under the U.S. facility and UK loan agreements, plus $27.0 availability under short-term credit facilities. Current liabilities were $659.2 against current assets of $991.3.
Outlook, commentary and risks
- Management expected fourth-quarter in-person book fairs to run at about 70% of pre-pandemic levels, with higher revenue per fair. It anticipated continued book-club customer re-engagement and a strong Education Solutions quarter, including summer-reading demand and further New Worlds Reading Initiative shipments. The filing provides no numerical earnings or revenue guidance.
- Management cited continuing inflation and cost pressure in paper, printing, freight, fuel and labor, as well as supply-chain constraints. It expected these pressures to continue during the fourth quarter and described mitigation efforts including pricing, vendor diversification, product rationalization, route optimization and automation.
- International results remained exposed to COVID-related restrictions and China’s restrictive regulations, which weighed on Asia; management expected continued softness there while expressing optimism about recovery in Canada, the UK, Australia and New Zealand.
- The business is highly seasonal, and school instruction patterns and the continuing effects of COVID-19 remained uncertain. Management said liquidity should be sufficient for anticipated operating and financing needs.
- The company paid a previously accrued $20.0 intellectual-property settlement in September 2021 and received $6.6 in insurance recoveries; additional recoveries were possible, but the amount was not estimable. It also recognized a $6.2 gain on sale of its Lake Mary facility and expected a gain from a separate facility sale in the fourth quarter.
- The company repurchased $19.5 of shares during the nine-month period, including 300,000 shares from the Robinson estate for $12.2 at a 4.2% discount to the share price when the agreement was signed. A $0.15-per-share fourth-quarter dividend was declared.
Key facts for investors to verify
- Whether book-fair activity, revenue per fair and school-based demand meet management’s fourth-quarter expectations.
- Whether paper, printing, freight, fuel and labor inflation continues to pressure margins as higher-cost inventory is sold.
- Whether Asia’s COVID-related and regulatory headwinds persist, and whether recovery in other international markets offsets them.
- How much operating cash flow reflects recurring operations versus tax refunds, insurance recoveries and seasonal working-capital movements.
- The repayment or refinancing of the $6.9 UK loans due July 31, 2022, and the company’s use of its revolving credit availability.
- The final outcome and amount of any additional insurance recoveries on the legal settlement, and the expected gain on the pending facility sale.