It has been about a month since the last earnings report for John Wiley & Sons (JW.A - Free Report) . Shares have lost about 6.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is John Wiley & Sons due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
John Wiley & Sons Q2 Earnings & Revenues Decline Y/Y
John Wiley & Sons came out with second-quarter fiscal 2019 results, wherein both top and bottom lines deteriorated year over year and also fell short of the Zacks Consensus Estimate for the second straight time. The company reiterated its previously issued drab earnings outlook for fiscal 2019.
Continued softness in Publishing revenues and costs related to increased growth investments remained deterrents for the company in the second quarter. Moreover, revenues, operating income and the bottom line were somewhat hurt by foreign currency headwinds.
Q2 in Detail
John Wiley & Sons’ adjusted earnings of 89 cents per share tumbled 13.6% year over year, and dropped 9% on a constant-currency (cc) basis. Earnings were mainly hit by costs associated with growth investments to enhance performance across Research and Education Services. The bottom line also came a penny below the Zacks Consensus Estimate, which marked the company’s second consecutive miss after seven straight quarterly beats.
Revenues of $448.6 million dipped close to 1% year over year (up 1% on a cc basis). Further, the top line missed the Zacks Consensus Estimate of $453 million. Results were hurt by persistent weakness at the Publishing division, while Solutions segment continued with its robust show. Meanwhile, sales at the Research segment remained flat.
Adjusted operating income came in at $67.5 million compared with $79.4 million in the year-ago quarter. Adjusted operating income plunged 10% at cc. The downside primarily stemmed from increased investments in growth efforts. Adjusted operating margin contracted 260 basis points to 15%.
Research revenues remained flat year over year, while it rose 3% at cc. Results were fueled by double-digit improvements in Open Access and Atypon Publishing Technology Services. Journal subscriptions remained flat at cc. The segment’s adjusted contribution to profit declined 7% at cc on account of greater society publishing royalties and growth investments.
Publishing revenues dropped 5% on a reported basis and 3% at cc, due to soft performance by Educational Publishing, STM and Professional Publishing. This was somewhat compensated by growth in WileyPLUS and Test Preparation. Adjusted contribution to profit dipped 2% at cc, owing to soft revenues.
The company posted an 8% increase in Solutions revenues, which jumped 9% at cc. The upside was backed by robust performance by Professional Assessment and Corporate Learning. Performance of Education Services was fueled by same-school growth, though it was countered by termination of various underperforming contracts. Solutions segment’s adjusted contribution to overall profit jumped 22% at cc, courtesy of improved revenues and efficiency. This was partly negated by growth investments.
Other Financial Update
The company used $121.1 million of cash from operating activities in the first half of fiscal 2019. Further, the company used free cash flow (net of Product Development Spending) of $163.5 million. Capital expenditures (including Technology, Property, and Equipment and Product development spending) were $42 million.
In fiscal 2019, capital expenditures are expected to be lower than $150.7 million incurred in fiscal 2018. Management expects cash provided by operations to decline in 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 first half, the company bought back shares worth roughly $25 million and paid $38 million as dividends.
Other Developments & Guidance
Wiley acquired The Learning House on Nov 1, which is set to solidify the company’s position in the fast-growing education services market, worth nearly $10 billion. Further, management expects to gain from its solid university partners, new research publishing ventures and focus on expanding in growth areas. The company’s focus on enhancing operational efficiency and reducing costs also bode well.
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 in mid-single digits from $3.43 in the previous fiscal, 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 $3.07 and $1.8 billion, respectively.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months.
Currently, John Wiley & Sons has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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 #4 (Sell). We expect a below average return from the stock in the next few months.