John Wiley & Sons (JW.A) Q3 Earnings & Sales Beat Estimates

John Wiley & Sons, Inc. JW.A posted better-than-expected results in the third quarter of fiscal 2018, wherein both the top and bottom line surpassed the Zacks Consensus Estimate. While earnings delivered a sixth consecutive quarter of positive surprise, sales marked its fourth straight beat.

Despite the earnings and sales beat, not much movement was witnessed in the stock yesterday. However, this Zacks Rank #3 (Hold) stock has rallied 25% in the past six months, outperforming the industry’s gain of 19.7%.

Q3 in Detail

John Wiley & Sons reported adjusted earnings of 87 cents per share, outpacing the Zacks Consensus Estimate of 84 cents. However, the bottom line decreased 2.2% from 89 cents in the year-ago quarter. Also, on a constant currency (cc) basis, adjusted earnings were down 14% year over year.

On a GAAP basis, the company recorded earnings of $1.19, which surged 45% from the prior-year quarter, mainly driven by US tax reforms.

Further, revenue of $455.7 million improved about 4% year over year (down 1% on a cc basis) and outpaced the Zacks Consensus Estimate of nearly $446 million. The year-over-year increase can be attributable to sales growth at the Research and Solutions segments, partly offset by decline at the Publishing division.

Adjusted operating income came in at $69.6 million compared with $60.3 million in the year-ago quarter. The upside was primarily driven by technology-savings as well as prior restructuring activities. The metric also grew 2% on a cc basis. The adjusted operating margin jumped 150 basis points to 15.3%. However, cost of sales increased 7.5%, and operating and administrative expenses inched up 0.6%.

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

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

Segmental Details

Research: Sales at this division came in at $223.5 million and increased 9% year over year, fueled by solid contributions from Open Access. On a cc basis, top line at this segment was up 1%. Furthermore, rise in Licensing, Reprints, Backfile and Other revenues as well as Publishing Technology Services (Atypon) contributed to sales growth. The segment’s adjusted contribution to profit was $60 million compared with $53 million recorded in the prior-year quarter. On a cc basis, the same declined 2%.

Publishing: At this division, the top line dipped nearly 1% to $170.2 million (down 3% on cc basis) on account of soft performance of Course Workflow (WileyPLUS); Test Preparation and Certification; Licensing, Distribution, Advertising and Other as well as Educational Publishing. The decline was somewhat offset by sales growth at STM and Professional Publishing. While adjusted contribution to profit surged 21% to $48.1 million, the same rose 16% on a cc basis.

Solutions: Top line at this segment increased 5% year over year to $61.9 million (up 2% on a cc basis), backed by robust performance of Education Services/Online Program Management and Corporate Learning, partly offset by a decline in Professional Assessment revenues. The division’s adjusted contribution to overall profit was $7.7 million, up from $4.7 million in the year-ago period. Also, on a cc basis, the same surged 67%.

Other Financial Update

John Wiley & Sons ended the quarter with cash and cash equivalents of $128.2 million, long-term debt of $428.2 million and shareholders’ equity of $1,168.3 million.

Notably, the company provided $190.1 million of cash by operating activities in the first nine months of fiscal 2018. Further, the company reported free cash flow (net of Product Development Spending) of $80.7 million at the end of the quarter compared with $119.5 million in the year-ago period.

Management projects cash provided by operations to be up $35 million or more for the fourth quarter and roughly $350 million for fiscal 2018.

Furthermore, the company did not buy back shares in the reported quarter. However, on a year-to-date basis, it bought back 551,000 shares for $29.3 million and paid dividends of $55.1 million.

Guidance

Management reaffirmed its guidance for fiscal 2018. Both revenues and adjusted operating income (at cc) are anticipated to be nearly flat year over year. Adjusted earnings (at cc) are expected to be down by low-single digits. The Zacks Consensus Estimate for fiscal 2018 is pegged at $3.35.

Meanwhile, cash from operations is anticipated to be at least $350 million (at cc) compared with $314.5 million in fiscal 2017. Further, capital expenditures (on a cc basis) are expected to be slightly lower than $148.3 million incurred last year.

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