Sales rose 22 percent at Pearson for the first half of their fiscal year, at 2.398 billion pounds, with earnings of 28 million pounds, compared to a loss of 62 million pounds this time a year ago. Education, which comprises over 60 percent of the total revenues, was up 29 percent for the period.
Penguin sales of 452 million pounds were up 11 percent from a year ago, or 44 million pounds, though operating profit for the division fell 19 percent to 21 million pounds, down from 26 million pounds a year ago. The sales gain was due entirely to the rise in the dollar versus the pound compared to a year ago. (The pound plunged last fall as part of the worldwide economic crisis.) On a currency-neutral basis, Penguin sales dropped 8 percent.
Penguin Group ceo John Makinson says the drop in profits “reflects the phasing” of the company’s publication schedule, with expectations of a strong second half of the year, “and the impact of the decline in reference publishing, which has been pretty marked.” Charges for the recently announced reorganization in the UK, which focused on repositioning of the company’s reference lines, will not be taken until the second half of the fiscal year, and are expected to be “on the order of 10 million pounds.” Makinson says there were “no significant credit issues” in the just-announced results. He notes “we are trying to take a fairly prudent view in our P&L of potential credit issues. I don’t think we’re completely out of the woods on either side of the Atlantic, but we’re feeling a little more confident than we were six or nine months ago.”
The company says that “Penguin traded well, and in line with expectations, in the first half. It continued to face challenging market conditions, particularly in the reference category, and also faced tough comparisons against an exceptionally strong first half of 2008. Penguin has a good publishing schedule for the second half, and has announced a series of organizational changes designed to strengthen its publishing, reduce costs and accelerate the transition to digital production, sales channels and formats and to lower cost markets for design and production.”
In Penguin’s own release, US ceo David Shanks Shanks notes, “We achieved a reduction in returns in both our frontlist and backlist businesses. The frontlist in general remained healthy, overall the backlist business grew, and backlist market share increased, year-over-year.” Shanks tells us the first six months were ahead of his own expectations given the economy and notes that “Charlaine Harris alone made great strides in making my comparisons look better” than expected. With expectations of a number of big releases in the second half of their year, Shanks says he is not concerned about the flood of high-profile titles on the way: “Anything that brings people into the stores for us.” He says that average sell-in has remained lower but notes that “one of the reasons returns are down for us, and probably most people, is this cautious buying, which I think is baked into the model for our industry now, and that’s a good thing.” eBooks do now exceed 1 percent of sales, though the company isn’t saying by how much. In the US Penguin has 7,400 ebooks available and expects to have 10,000 titles by later this year.
Last year Penguin USA rode two big Oprah Winfrey picks, first Ken Follett and then Eckhart Tolle, to strong results–which raises the question of when Oprah will resume her book club selections. Her last endorsement was for the Kindle in late October, which was supposed to fuel her reading. Her last book club selection, David Wroblewski’s The Story of Edgar Sawtelle, came over 10 months ago.
Companwide gains were also due primarily to currency exchange, with sales up 1 percent on an underlying basis. Pearson said their forecast for the full year remained the same despite a recent rise in the pound, which was considered an effective increase in expected earnings per share by 3 pence. Shares were up over 10 percent in this morning’s trading. (Full disclosure: I purchased Pearson stock on Friday, and sold it this morning.)