Fiscal cliff fears hit Scholastic's schools revenue

Thu Sep 20, 2012 8:32pm IST

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(Reuters) - Fears that the United States federal budget will fall off a "fiscal cliff", automatic spending cuts due at the beginning of next year, is already slowing spending by schools, children's book publisher Scholastic Corp warned on Thursday.

Scholastic, publisher of the "Harry Potter" and "The Hunger Games" series of children's books, said revenue from the education sector fell 17 percent in the latest quarter, contributing to a wider loss than a year earlier.

The company blamed some of the revenue fall on schools holding back spending ahead of the looming fiscal cliff, nearly $1.2 trillion in across-the-broad spending cuts, offset partly by tax hikes, that will hit the U.S. economy if Congress does not agree to changes.

"Many school districts are concerned about potential automatic cuts to the federal budget," CEO Richard Robinson said in a statement.

They held back spending over the summer, with upcoming new education standards also weighing on spending, he added.

Federal Reserve chairman Ben Bernanke trekked to Capitol Hill on Wednesday to warn Senate lawmakers on the economic dangers of the fiscal cliff.

The 92-year-old Scholastic, well known for its school-based book club business, sells teaching material to schools as well as magazines and books to school libraries.

Education sector sales slid to $80 million in the quarter from a year earlier, contributing to an overall 8 percent fall in revenue to $293.6 million.

Scholastic said the fall was also a reflection of a bumper quarter a year earlier, when it benefited from large, federally funded contracts and major product releases.

The net loss for the first quarter of fiscal 2013 (to August 31) widened to $32.1 million, or $1.02 per share, from a loss of $27.1 million, or 87 cents per share, a year earlier.

The New York-based company's shares fell 2 percent to $32.75 on the Nasdaq on Thursday, but recouped most of the losses to trade at $33.32 by mid-morning.

Scholastic executives said on a conference call with analysts that it would tackle the bleak school spending by launching more products and it expected sales to pick up as schools gained more clarity on federal funding.

The implementation of new U.S. wide standards, called the common core state standard and aimed at making learning more uniform across the country, will also help the company.

Scholastic has ridden a wave of success from the sale of the "Harry Potter" and "Hunger Games" books and is pinning its hopes for more success with young adult readers on two new series.

Early sales were promising for "Infinity Ring", a science fiction story about time travelers who battle disruptions to history (www.infinityring.com).

Scholastic has just launched the first book of a planned four in the second series, "The Raven Cycle". (r.reuters.com/sar72t)

"Hunger Games" books, especially ebooks, sold well in the first quarter and the company expects strong sales in the holiday season, a Scholastic executive said on the conference call.

The company, which also publishes the "Captain Underpants" series for younger children, reaffirmed its full-year 2013 earnings from continued operations of $2.20 to $2.40 per share, on revenue of $1.90 billion to $2.00 billion.

(Additional reporting by Shubham Singhal; Editing by Rodney Joyce)

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