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Capital Investment Update: Scholastic Corporation (NASDAQ: SCHL)

Scholastic Corporation (SCHL), a part of Services sector and belongs to Publishing – Books industry; ended its day with loss -4.47% and finalized at the price of $40.35. During its last trading session, Stock traded with the total exchanged volume of 0.24 million shares. The average volume stands around 0.15 million shares. The average numbers of shares are traded in a security per day, during the recent 3-month period. The stock has relative volume of 1.58. Relative volume is ratio between current volume and 3-month average value, intraday adjusted.

Scholastic Corporation (NASDAQ: SCHL) declared results for the Company’s fiscal 2018 q2 ended November 30, 2017.

Revenue in the q2 was $598.3 million, compared to $623.1 million a year ago, a decrease of $24.8 million, or 4%. Operating profit from continuing operations for the q2 of fiscal 2018 was $107.2 million versus $112.1 million in the previous year period. The Company stated q2 earnings per diluted share from continuing operations of $1.60 versus $1.92 in the previous year period, including one-time expenses of $0.32 in the current period and $0.07 in the previous year period. Not Including these one-time items, q2 earnings from continuing operations per diluted share was $1.92 versus $1.99 in the previous year period.

“Improved digital marketing capabilities in clubs and our fairs segmentation strategy both helped to raise profitability in the school-based channels during the quarter. We are expanding our CRM investments with the goal of providing sales teams in the field with substantially improved consumer information, ultimately contributing to higher revenue per fair in our book fairs business, as well as better pipeline information and raised market share in the education business.  These new systems should lead to a important raise in sales and profitability in fiscal year 2019 and beyond. A major ERP upgrade in finance will also take effect next spring.”

Cash Flow and Cash Position

Net cash provided by operating activities was $120.8 million in the current fiscal quarter compared to $179.7 million in the q2 of fiscal 2017. The Company had free cash flow (as defined in the accompanying tables) of $90.7 million in the current quarter, which was in line with the Company’s expectations, compared to free cash flow of $164.1 million a year ago when the Company realized a higher level of consumer remittances from the important sales of new Harry Potter publishing in the first half of fiscal 2017.

At quarter end, the Company’s cash and cash equivalents exceeded the Company’s total debt by $376.5 million, compared to $435.6 million a year ago. The lower net cash position is primarily Because of the Company’s before reported capital spending program to upgrade its facilities and technology.

The Company distributed $5.3 million in dividends and repurchased $8.6 million of its ordinary stock in open market transactions over the course of the q2.

Capital Investment Update

During the q2, the Company spent $21.3 million of capital including $9.1 million towards the redesign and upgrade of its headquarters building to create more efficient workspaces and new retail space, and $7.8 million towards planned technology development and deployment as part of its before reported multi-year transformational technology investment program. Fiscal year-to-date, the Company has spent $54.0 million of capital including $29.8 million in construction-related investments and $17.8 million in new planned technologies, as planned. The Company is on schedule to complete the majority of the office upgrades by the end of calendar year 2017 with most of the staff now in 557 Broadway.  The remaining floors are predictable to be completed in early 2018.

One-Time Items

Non-recurring items reflected in the Company’s operating income for the q2 included $3.7 million in one-time severance and stock compensation charges. The previous year period pre-tax results included a one-time severance charge of $3.9 million associated with the Company’s cost reduction programs. Not Including the one-time items, q2 operating income was $110.9 million, compared to operating income of $116.0 million in the q2 of fiscal 2017.  In addition, the Company took a $15.4 million non-cash partial settlement charge below the operating line associated with the before stated termination of its domestic defined benefit pension plan (see below).

Fiscal 2018 Outlook Affirmed

Scholastic affirmed its fiscal 2018 outlook for total revenue of $1.65 to $1.70 billion and earnings per diluted share from continuing operations in the range of $1.20 to $1.30, not including one-time items. The Company continues to expect free cash use in the range of $10 to $20 million.

Q2 Results

Children’s Book Publishing and Distribution. Section revenue in the q2 was $411.8 million, compared to $432.5 million in the previous year period, a decline of $20.7 million or 5%.  The lower revenues were anticipated given the strong front list performance of Fantastic Beasts and Where to Find Them™: The Original Screenplay, released in the q2 of the previous fiscal year, and Harry Potter and the Cursed Child, Parts One and Two, the best-selling book in North America last year. Partially offsetting this decline were strong sales of Harry Potter and the Prisoner of Azkaban: The Illustrated Edition, Dav Pilkey’s Dog Man series, and tie-in titles to the best-selling video game Five Nights at Freddy’s series, as well as Harry Potter: A Journey Through a History of Magic.  Book Fairs remained on plan posting revenues of $231.0 million, a $4.5 million or 2% raise over the previous year period, and while revenue in Book Clubs was $99.9 million, down $7.6 million or 7% compared to the previous year period, the division achieved greater profitability as a result of lower cost digital marketing and improved efficiencies in consumer service and fulfillment. The results in the Company’s clubs and fairs channels were achieved despite the disruption to school consumers caused by the September hurricanes in Texas and Florida in the important back-to-school season. The q2 operating income for the section was $115.1 million versus $121.1 million in the previous year period, primarily as a result of the lower Harry Potter sales in the trade channel, as predictable.

Albert Frak has been writing on business investment topics and personal finance for more than 17 years. He holds a bachelor degree from University of Virginia and an MBA degree from Ohio State University. He started out as a way to establish himself as a serious writer in a relatively business field quickly. To this day, Albert still has literally hundreds of journals that he wrote in as a young man. Writing has always been a way for him to express himself and share business ideas. The biggest complaint Albert wife has that he spends too much time watching business news on television.

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