Publishers' Profits Lagged in 2000

Publishers' profitability took a slight hit in 2000: eight of the 15 companies tracked by PW had a decline in profit margins in their most recent fiscal years, while seven posted an increase. Moreover, operating income at five companies fell last year, and three publishers -- Golden Books, Simon & Schuster and HarperCollins -- had a drop in sales, although HC was still able to boost its operating margin in the year.

The benefits of being in the educational publishing segment were clearly evident in last year's numbers, with four publishers involved with education all achieving margins of better than 15%. A fifth major education publisher, Houghton Mifflin, pushed its operating margin up, from 11.8% to 13.6%. The lone trade publisher to crack the 15% level was Harlequin; the romance publisher recorded higher sales and lower promotional and developmental costs.

Pearson's 15.1% margin represents sales and earnings from Pearson Education and Penguin Group. Pearson Education had the highest margins of all companies tracked last year, at 16.9% results that excluded figures from National Computer Systems, which Pearson bought in the year. Person Education's margin in 1999 was 13.9%. Penguin's margin fell in the year, from 11.5% to 10.5%. Penguin's profits would have fallen further if integration costs associated with merging Dorling Kindersley into Penguin had been included.

Another example of education and high-end professional publishing out-performing trade within the same company was John Wiley. Wiley's STM group had a 45.8% margin in fiscal 2001; its higher education group had a 31.5% margin; and its professional/trade group had a 20.7% margin. Wiley's corporate margin of 15.5% which includes corporate overhead and other expenses was its highest in recent years.

A 54% increase in operating earnings at Harcourt's education group paved the way in increasing its corporate operating margin in the year to 15.3%, up from 13.0% in 1999. The slight decline in operating margin at the McGraw-Hill Education group was due largely to costs associated with integrating Tribune Education into its operations.

A one-time charge of $72.9 million, tied to its decision to phase out its Literary Place program, dropped Scholastic's operating margin to 5.0% for the fiscal year ended May 31, 2001, from 7.1% in fiscal 2000; excluding the charge, Scholastic's margin would have been 8.8%. Special charges and a loss in its gifts division ate into Thomas Nelson's earnings in fiscal 2001, resulting in a decline in its operating margin to 4.9% from 7.7%. Falling response rates were a major contributor in dropping earnings and margins at Reader's Digest's North American Book and Home Entertainment group in the fiscal year ended June 30, 2001. Costs associated with establishing its own infrastructure as well as lower distribution fees contributed to reducing Simon & Schuster's operating margin to 8.3% from 8.9%.

Higher sales to both its library and trade customers, plus a reduction in expenses, turned an operating loss of $200,000 at Millbrook Press in fiscal 1999 into an operating profit of $1.8 million and an operating margin of 8.4% in the fiscal year ended July 31, 2000.

Operating Performance of Publicly Held Book Publishers, 1999 2000 ($ in Millions)