Stock in the Spotlight: Houghton Mifflin Harcourt Company’s (NASDAQ: HMHC)

Shares of Houghton Mifflin Harcourt Company’s (NASDAQ: HMHC) closed with gain/decline of -2.26% to $9.53. Recent traded volume was 1,398,735 shares versus to it an average volume of 749,448 shares. The company holds 123.55 million shares outstanding and market cap of 1.178B. The stock’s day range was recorded between a low of $9.46 and a high $9.84.

Global learning company Houghton Mifflin Harcourt (HMHC) recently reported its operating and financial results for the third quarter ended September 30, 2018.

Operating Highlights:

  • Re-affirming 2018 guidance 1
  • New programs on track for authorization in upcoming 2019 adoptions
  • Total Company billings growth of 1.5% in THIRD QUARTER and flat year to date
  • Education billings down only marginally in THIRD QUARTER and year to date
  • Extensions billings growth of 8% in THIRD QUARTER and 10% year to date

Third Quarter 2018 Financial Results:

Net Sales: HMH stated net sales of $516M for the third quarter of 2018, a slight raise contrast to the same quarter of 2017. The net sales raise was driven by a $15M raise in our Trade Publishing section offset by a $15M decrease in our Education section. Within our Trade Publishing section, the raise was primarily Because of licensing income driven by a new contract pertaining to our classic backlist titles 1984 and Animal Farm. Within our Education section, the decrease was primarily Because of lower net sales from Core Solutions, which declined by $34M from $277M in 2017 to $243M.  The decrease was primarily Because of decreases in sales relating to disciplines reaching the end of their product lifecycle that are planned to be replaced next year with newer programs. Partially offsetting the decrease in our Core Solutions sales was an raise in sales from our Extensions businesses, which primarily consist of our Heinemann brand, intervention, and supplemental products as well as professional services. Extensions businesses net sales for the current period raised $19M to $207M in 2018 primarily driven by higher Heinemann net sales. The primary driver of the raise in our Heinemann net sales was sales of the Fountas & Pinnell Classroom product, which benefited from additional product launches during the quarter.

Cost of Sales: Overall cost of sales reduced 3%, or $7M, to $238M in the third quarter of 2018 from $245M in the same period of 2017, primarily Because of a $7M reduction in publishing rights and pre-publication amortization.

Selling and Administrative Costs: Selling and administrative costs raised $3M to $176M for the third quarter of 2018 from the same period of 2017, primarily Because of variable expenses such as commissions attributable to the Heinemann billings, and depository fees which is driven by geographic sales mix.

Operating Income: Operating income for the third quarter of 2018 was $92M, a $3M improvement from the same period of 2017 primarily Because of aforementioned changes in cost of sales.

Net Income: Net income of $86M in the third quarter of 2018 was $4M, or 5%, lower contrast to a net income of $91M in the same quarter of 2017.  Net income from continuing operations in the third quarter was $84M, a $5M decrease from the $89M in the same quarter of 2017, due primarily to the same factors impacting operating income and an unfavorable change in our tax provision of $6M, from a benefit of $10M for the same period in 2017 to a benefit of $4M in 2018. The reduction in benefit was primarily Because of the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) resulting in a lower yearly effective tax rate and our ability to utilize indefinite-lived deferred tax liabilities as a source of future taxable income in our assessment of realization of deferred tax assets.  Income from discontinued operations, net of tax, raised by $1M to $2M from the same period in 2017.

Operating Loss: Operating loss for the first nine months of 2018 was $16M, a $30M improvement from the $46M operating loss recorded in the same period of 2017 primarily Because of the $33M decrease in the charge associated with our 2017 Restructuring Plan, which primarily occurred in 2017, and the reduction in cost of sales partially offset by the aforementioned changes in net sales.

EPS growth for this year is 38.70% and EPS growth for next year is expected to reach at 35.20%. EPS growth in past five years was -41.00% while EPS growth in next five years is projected to arrive at 5.00%. Sales growth past 5 years was measured at 1.80%.

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