It has been about a month since the last earnings report for John Wiley & Sons (JW.A - Free Report) . Shares have added about 6.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is John Wiley & Sons due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
John Wiley & Sons Posts Dismal Q1 Earnings, FY19 View Intact
John Wiley & Sons disappointed investors with first-quarter fiscal 2019 results, wherein the top and the bottom lines crushed their solid surprise record and the latter also deteriorated year over year. Further, the company reiterated its previously issued drab earnings outlook for fiscal 2019.
Q1 in Detail
John Wiley & Sons’ adjusted earnings of 43 cents per share tumbled 27.1% year over year, mainly due to lower adjusted operating income. Earnings were also hurt by an increase in tax rate and share count. Further, the bottom line came below the Zacks Consensus Estimate of 50 cents, which marked its first miss after seven consecutive quarterly beats. On a constant currency (cc) basis, adjusted earnings crashed 29%.
Revenues of $410.9 million remained almost flat year over year (down 0.7% on a cc basis), though it missed the Zacks Consensus Estimate of $417 million. Prior to this, John Wiley & Sons delivered five consecutive quarters of positive sales surprise. Strength in the Research and Solutions segments were negated by weakness at the Publishing division.
Adjusted operating income came in at $30.1 million compared with $41.9 million in the year-ago quarter. The downside primarily stemmed from increased investments in growth efforts and technological advancements. Adjusted operating income plunged 27% at cc. Adjusted operating margin contracted 290 basis points to 7.3%.
Research revenues were roughly $225 million, up 1% year over year fueled by double-digit improvements in Open Access, partly offset by a dip in Journal subscriptions due to unfavorable publication timings. Management stated that improvements in article submissions, publication and usage fueled growth at this segment. At cc, Research revenues remained flat. The segment’s adjusted contribution to profit was $56.1 million compared with $65.3 million in the prior-year quarter and declined 13% at cc.
Publishing revenuesdropped nearly 5% to $124.9 million (on a cc basis as well) on account of soft performance by Educational Publishing, somewhat compensated by growth in STM and Professional Publishing. While adjusted contribution to profit declined 15% to $13.1 million, the same decreased 16% at cc.
The company posted an 8% increase in Solutions revenues, which reached almost $61 million (up 7% at cc). The upside came on the back of robust performance by Education Services, Professional Assessment and Corporate Learning. The company’s education services business is getting a boost from two new university partners in the U.K., two extended U.S. contracts and consumers’ favorable response to the company’s WileyPLUS courseware platform. Solutions segment’s adjusted contribution to overall profit was close to $3 million, up significantly from $0.8 million a year ago.
Other Financial Update
John Wiley & Sons ended the quarter with cash and cash equivalents of $113.1 million, long-term debt of $507.5 million and shareholders’ equity of $1,174 million.
The company used $149.5 million of cash from operating activities in the first quarter. Further, the company used free cash flow (net of Product Development Spending) of $169.5 million. Capital expenditures (including Technology, Property, and Equipment and Product development spending) were $20.0 million.
In fiscal 2019, capital expenditures (at cc) are expected to be modestly lower than $150.7 million incurred in fiscal 2018. Management expects cash provided by operations to decline high-single digits from the year-ago level of $381.8 million.
John Wiley & Sons raised its quarterly dividend to 33 cents in June. During the quarter, the company bought back shares worth roughly $8 million and paid $19 million as dividends.
Management reiterated its earnings and sales guidance for fiscal 2019. Revenues are expected to be flat year over year at $1796.1 million. A low-single-digit rise in Research and Solutions revenues is anticipated to be countered by a low-single-digit fall in Publishing revenues.
Adjusted earnings (at cc) are anticipated to decline mid-single digits year over year from $3.43 owing to escalated investments in revenue enhancement efforts, mainly in Research and Education Services. The Zacks Consensus Estimate for fiscal 2019 earnings and revenues is pegged at $3.20 and $1.7 billion, respectively.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months.
At this time, John Wiley & Sons has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
John Wiley & Sons has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.