Scholastic(SCHL) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenues increased by 1% to $551.1 million in the second quarter, with operating income improving to $95 million from $78.9 million in the prior year period [22][23] - Adjusted EBITDA grew by 13% to $122.5 million compared to $108.7 million a year ago, while net income rose to $66.3 million from $52 million [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] - Trade Publishing revenues rose by 7% to $110.4 million, supported by new releases, particularly the latest Dog Man title [24] - Scholastic Education segment revenues decreased 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 growth driven by new titles and favorable foreign currency exchange [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 growth-oriented, shareholder-focused entity, with significant changes in leadership and organizational structure [4][5] - Strategic initiatives include the acquisition of 9 Story Media Group and the implementation of a disciplined capital allocation approach, returning nearly $500 million to shareholders since fiscal 2022 [7][8] - The company aims to leverage its unique strengths in brand, IP, and channels to drive long-term growth and value creation [9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of fiscal 2026, expecting revenue growth in school reading events and entertainment divisions, despite anticipated lower revenues in trade and international segments [31] - The company remains cautiously optimistic about the education segment, anticipating improvements in the sales pipeline and federal funding disbursements [18][31] - Management highlighted the importance of maintaining operational efficiencies and preparing for market recovery in the education sector [56][58] Other Important Information - The company closed two sale-leaseback transactions, unlocking over $400 million in liquidity, 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 [30] Q&A Session Summary Question: Use of proceeds from the sale-leaseback transactions - Management indicated that the first step is to increase the share buyback authorization, with plans to return cash to shareholders as shares are currently viewed as undervalued [41][43] Question: Guidance on top-line revenue changes - Management noted that the education business is experiencing softness due to funding issues, but expects growth in book fairs to help offset this [48] Question: Expectations for trade channel sales - Management confirmed that trade channel sales are expected to be in line with the previous year, despite tough comparisons due to major releases last year [49] Question: Performance in the education solutions segment - Management acknowledged the challenges in the education segment but highlighted cost management efforts that have helped stabilize the business [56][58]