John Wiley & Sons (JW-A) Stock Up On Q2 Earnings & Sales Beat

John Wiley & Sons Inc. JW.A delivered solid second-quarter fiscal 2018 results, wherein both the top and bottom line improved year over year and also beat the Zacks Consensus Estimate. While sales marked its third straight surprise, this was John Wiley & Sons’ fifth consecutive quarter of positive earnings surprise. Following the result, the company’s shares increased 2.7% on Dec 6. In fact, in the past three months the stock has gained 15.5%, outperforming the industry’s growth of 14.3%.

Q2 in Detail

John Wiley & Sons delivered adjusted earnings of $1.03 per share that beat the Zacks Consensus Estimate of 83 cents and also increased 32.1% year over year. On a constant currency (cc) basis, adjusted earnings rose 22% year over year. Increase in earnings was driven by driven by lower interest expenses and rise in operating income. Including one-time charges, the company reported earnings of $1.04 against a loss of 20 cents in the prior-year quarter.

Further, revenues of $451.7 million climbed about 6% year over year (up 3% on a cc basis) and also outpaced the Zacks Consensus Estimate of nearly $429 million. Results were backed by gains from Atypon’s buyout, robust performance of Research Journals, STM and Professional Publishing, and Education Services/Online Program Management.

Adjusted operating income advanced by 29% to $81.4 million buoyed by increase in revenues and decline in technology expenses. Moreover, the same surged 16% on a cc basis. However, cost of sales increased 4%, while operating and administrative expenses declined 1%, on a cc basis. The adjusted operating margin jumped 310 basis points to 18%.

Segment Details

Research: The division’s adjusted revenues of $228.9 million increased 11% year over year, fueled by solid contributions from Atypon that was acquired in October 2016, and improved Open Access revenues. Further, increase in higher Licensing, Reprints, Backfile and Other revenues also drove the segment’s revenues higher. On a cc basis, revenues at this segment were up 5%. The segment’s adjusted contribution to profit was $70.8 million that increased 17% from last year. This can be attributed to enhanced revenues, partly negated by increased royalty costs and expenses related to Atypon.

Publishing: Revenues at the division inched up 1% to $165 million (flat on cc basis) on account of solid performance of STM, Professional, along with Educational Publishing and growth in Test Preparation and Certification & Licensing, Distribution and Advertising. Adjusted contribution to profit surged 16% to $42.5 million.

Solutions: Revenues increased 3% year over year to $57.9 million (up 2% on a cc basis), boosted by robust performance of Education Services/Online Program Management, partly offset by a dip in Corporate Learning. The division’s adjusted contribution to overall profit was $6.7 million, up from $5.8 million in the year-ago period. This was aided by higher revenues and enhanced operating efficiency.

Other Financial Details

John Wiley & Sons ended the quarter with cash and cash equivalents of $72.9 million, long-term debt of $563 million and shareholders’ equity of $1,047 million.

Notably, the company used nearly $46.4 million of cash for operating activities in the first six months of fiscal 2018. Further, the company reported free cash flow (net of Product Development expenses) of negative $117.8 million at the end of the quarter, compared with negative $155.4 million in the year-ago period. This improvement was backed by the favorable cash collection and payments timing. However, free cash flow for John Wiley & Sons is usually negative in the first half of the year, due to the timing of journal subscription collections.

Nevertheless, the Zacks Rank #3 (Hold) company bought back 285,599 shares for $15.2 million in the reported quarter, leaving nearly 3.2 million shares pending under the standing authorization.

John Wiley & Sons, Inc. Price, Consensus and EPS Surprise

Outlook

Management reaffirmed its not so impressive outlook for fiscal 2018, which could be a cause of concern for investors.

The company remains on track with its efforts to provide better digital products and services to professionals, researchers and educators worldwide. It is also undertaking plans to realign its cost structure; reinvest in particular areas with growth potential and efficiently allocate resources. These efforts are expected to bear fruit fiscal 2019 onwards. Moreover, these are likely to generate gross run-rate savings of about $45 million from fiscal 2019.

Well, John Wiley & Sons reiterated fiscal 2018 guidance. Both revenues and adjusted operating income (at cc) are expected to be nearly flat year over year. The company expects adjusted earnings (at cc) to be down by low-single digits. Currency translations are likely to have a positive impact on the results.

Meanwhile, cash from operations is expected to increase to at least $350 million, in comparison with $314.5 million. Capital expenditure is anticipated to be slightly lower than the year-ago level of $148.3 million.

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