Scholastic shares tumble on guidance cut
NEW YORK (AP) — Shares of Scholastic Corp. tumbled more than 20 percent Wednesday morning, after the publisher of children's and educational books cut its full-year earnings guidance, saying that schools are holding back on orders and fear federal spending cuts.
THE SPARK: The New York-based company said late Tuesday that it now expects to earn $1.40 to $1.60 per share for the year ending May 31, down from its prior forecast of $2.20 to $2.40 per share. Revenue is now expected to total between $1.8 billion to $1.9 billion, down from an earlier outlook for $1.9 billion to $2 billion.
THE BIG PICTURE: Scholastic said schools are spending money on training to get ready for Common Core, a set of uniform benchmarks for math and reading. That's leaving less money for spending that would go to its profitable educational technology products.
Scholastic also said schools are delaying spending decisions "due to continued uncertainty regarding the federal budget." A series of automatic spending cuts and tax increases are set to take effect at the beginning of 2013 unless Congress and the White House can make a deal to avert them.
Meanwhile, sales of Scholastic's Hunger Games trilogy of young adult novels have been lower than expected and Superstorm Sandy hurt business in its School Book Fair and School Book club businesses in the Northeast, the company said.
THE ANALYSIS: Stifel Nicolaus analyst Drew Crum rated the company at "Hold."
Crum slashed his 2013 predictions for Scholastic to earnings of $1.51 per share on revenue of $1.87 billion from his previous $2.24 per share and $1.92 billion in revenue. He also lowered his 2014 predictions to earnings of $2.30 per share on $1.98 billion in revenue from his previous $2.76 per share on $2.04 billion in revenue.
Crum said that while he's more positive about the company's prospects in 2014, the funding outlook for education publishing and the shift toward digital consumer books will make things tough for the company.
THE SHARES: Down $6.21, or 20 percent, to $25.63 in morning trading, after dropping as low as $25.23 shortly after the markets opened. Over the past 52 weeks, the company's shares have traded between $24.20 and $40.18.
The shares have gained about 6 percent since the beginning of this year, but are down about 15 percent from their March high of $37.51.