Penguin Random House Posts Record Profit for 2015

Helped by the further integration of Penguin and Random House, the combined PRH posted a 23.7% increase in operating EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2015 over 2014 and an 11.8% rise in revenue. With EBITDA rising to €557 million and sales up to €3.32 billion, PRH’s operating margin rose to 15% in 2015, from 13.6% in 2014.

The success of the Random House–Penguin merger was a theme in the written remarks from executives at PRH parent company Bertelsmann, as well as from PRH CEO Markus Dohle. In his letter to PRH employees worldwide, Dohle said that many of the publisher’s “organizational and systems integrations” have been completed. (In addition to the Penguin–RH merger, PRH bought Santillana Ediciones Generales in 2014.) Dohle also said that “as the integration becomes smaller in the rearview, we can squarely focus on what’s ahead.”

Bertelsmann noted that the revenue increase at PRH was largely due to “positive exchange-rate effects,” and in its annual report the company said that while PRH had hundreds of bestsellers worldwide, sales from continuing operations fell 2.1% in the year. Favorable exchange rates accounted for 12.9% of growth, while sales from acquisitions added 1% to revenue.

Among the publisher’s top-selling books worldwide was Paula Hawkins’s The Girl on the Train, which sold more than seven million copies in the English- and German-speaking world across all PRH formats. Grey, the new E.L. James novel in the Fifty Shades series, sold 8.5 million copies in English, German, and Spanish. Exceptional bestsellers in children’s and young adult books included Dr. Seuss titles, which collectively sold 10.8 million copies, Bertelsmann said.

In the U.S., sales and earnings both rose in 2015 over 2014. America accounted for 56.8% of total PRH revenue last year (about $2.05 billion at year-end exchange rates, though PRH declined to confirm that number), compared to 55.6% of all revenue in 2014. Among the books that led sales in the U.S. were Rogue Lawyer by John Grisham, The Life-Changing Magic of Tidying Up by Marie Kondo, and Between the World and Me by Ta-Nehisi Coates. Numerous children’s books did very well, Bertelsmann said, including Paper Towns by John Green, and new titles by James Dashner and Rick Yancey.

Although the company did not report how e-book sales performed, it said that in the U.S. e-book sales were “affected by new retail sales terms.” In a press conference in Germany, Dohle said that e-books accounted for 25% of revenue in the U.S. He also noted that 50% of PRH’s total revenue—from both print and e-books—came from online retailers last year.

Outside of the U.S., the U.K. was PRH’s single largest market, accounting for 11.3% of revenue, down slightly from a 11.8% share in 2014. PRH UK “grew profitably,” Bertelsmann reported. The company’s annual report also noted that revenue from PRH’s global distribution business generated 3.8% of revenue, the same as in 2014.

With its margin rising between 2014 and 2015, PRH was one of two major trade publishers that reported financial results that had margin improvement last year. Simon & Schuster was the other publisher with margins that improved, increasing to 14.6% from 13% in 2014. S&S CEO Carolyn Reidy attributed the improvement in profits to a number of factors, including continued investment to make its operations more efficient. Higher sales of backlist titles and lower returns also contributed to the profit gain.

Margins at Lagardere Publishing, HarperCollins, and Houghton Mifflin Harcourt’s trade division all fell last year. EBIT rose by €1 million in 2015 over 2014 in Lagardere’s publishing group, while revenue rose 10.1% (1.7% when extraordinary items are excluded, such as the impact of foreign exchange). The company’s U.S. subsidiary, Hachette Book Group, finished the year with a small revenue decline of 0.3%. According to Lagardere, HBG had a “disappointing” profit performance, which it attributed to lower e-book sales. Like S&S, HBG said lower e-book sales had been largely offset by gains in sales of print books last year. HBG represented 25% of Lagardere publishing overall revenue (about $600 million) up from 24% in 2014. Revenue at HBG will certainly grow in 2016 thanks in part to its purchase of the publishing business of Perseus Books Group which is due to close at the end of March.

EBITDA fell 13.8% in 2015 at HarperCollins and with it the publisher’s margin dropped to 11.4% from 13.7% in 2014. HC completed its acquisition of Harlequin on Aug. 1, 2014, which helped lift revenue in 2015 by 3.6%. Sales in the second half of calendar 2015 (HC operates on a fiscal year ending June 30), were down 2.3% as HC faced difficult comparisons to the last six months of 2014, when the Divergent series and American Sniper were huge hits. E-book sales also softened in the second half of 2015, but print sales were strong over the 2015 holiday period, CEO Brian Murray said.

The HMH trade division had a tough 2015, as adjusted EBITDA fell 39.4%. HMH attributed the decline in earnings to higher costs, including higher royalty costs, which HMH said reflected a change in “product mix.” The revenue gain was led by higher sales of frontlist cooking titles, offset by prior year strong sales of titles such as the bestselling What If? and The Giver.

Operating Performances, 2013–2015