Scholastic(SCHL) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In the second quarter, revenues increased by 1% to $551.1 million, with operating income improving to $95 million from $78.9 million in the prior year period, reflecting cost-saving initiatives [22][23] - Adjusted EBITDA grew to $122.5 million, up from $108.7 million a year ago, while net income rose to $66.3 million compared to $52 million in the prior year [22][23] - Adjusted earnings per diluted share increased to $2.57 from $1.82 last year [23] Business Line Data and Key Metrics Changes - Children's Book Publishing and Distribution revenues increased by 4% to $380.9 million, driven by strong performance in Book Fairs, which generated $242 million, a 5% increase [23][24] - Book Clubs revenue decreased to $28.5 million from $33.2 million, reflecting lower teacher sponsorships [23] - Trade Publishing revenues rose by 7% to $110.4 million, supported by new releases, including the latest Dog Man title [24] - Scholastic Education segment revenues fell to $62.2 million from $71.2 million, reflecting lower spending on supplemental curriculum products [25] Market Data and Key Metrics Changes - International segment revenues increased to $89.5 million from $86.7 million, with adjusted operating income improving to $12.8 million from $7.1 million [26] - The company anticipates modest declines in revenues and profitability in the international segment following strong performance in fiscal 2025 [27] Company Strategy and Development Direction - The company has focused on transforming into a more growth-oriented, shareholder-focused entity, with significant changes in leadership and organizational structure [4][5] - Strategic initiatives include the acquisition of Nine Story Media Group and a disciplined approach to capital allocation, returning nearly $500 million to shareholders since fiscal 2022 [7][8] - The company aims to leverage its unique strengths, including its brand and intellectual property, to drive long-term growth and value creation [9] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for the second half of fiscal 2026, anticipating revenue growth in school reading events and entertainment divisions, despite modest declines in trade and international revenues [31] - The company expects to benefit from improved execution and new products in the education segment, with a focus on stabilizing the top line [18][31] - Management highlighted the importance of the spring selling season and the potential for increased federal funding to support growth [57] Other Important Information - The company closed two sale-leaseback transactions, unlocking over $400 million in net proceeds, which will be used for share repurchases and other capital allocation priorities [8][29] - The board has authorized an increase in the open market share repurchase program to $150 million [29][30] Q&A Session Summary Question: Can you provide any color or timing around the $80 million increase in the buyback authorization? - Management indicated that the increase in buyback authorization is a first step following the successful sale-leaseback transaction, with plans to continue returning cash to shareholders [41][43] Question: What is driving the decline in the education business? - Management noted that the education segment is experiencing softness due to funding issues, but expects an uplift in the second half based on improved sales pipeline and federal fund disbursements [47][48] Question: Is trade channel sales expected to be flat to moderately lower for fiscal 2026? - Management confirmed that trade channel sales are anticipated to be in line with the previous year, despite tough comparisons due to major releases last year [49][50] Question: How do dividends play into the capital allocation strategy? - Management stated that the goal is to return capital efficiently, with a consistent quarterly dividend payout of about $0.20 per share [63][64] Question: Is there a decline in Adjusted EBITDA expected in the second half? - Management clarified that Adjusted EBITDA is expected to show growth when adjusted for prior year comparisons, despite the impact of sale-leaseback transactions [65]