Fewer state adoptions and a disappointing performance in its basal reading program in the states of Oklahoma and Florida limited growth to 1.9%, to $577 million, in the McGraw-Hill Education Group in the second quarter ended June 30. Operating profit fell 5.8%, to $64 million.
Soft sales were limited to M-H's school education group, where revenues declined 1.4%, to $406.5 million. Gains in testing, science, math and supplementary reading were not enough to counter fewer adoption opportunities and weaker-than-expected reading sales.
M-H chairman Terry McGraw told analysts that because state funding for education will not be as strong as expected, the school segment "will not hit the high end" of the 0%—4% growth rate that had been projected earlier in the year. McGraw also said that M-H believes that the majority of the funds flowing from the No Child Left Behind Act will come in 2003.
Sales in the higher education, professional and international group rose 10.9% in the quarter, to $170.5 million. The higher education division did particularly well, led by a strong frontlist that included a growing array of products that combine text and technology. The division remains on track to finish the year with a double-digit sales increase. In the professional market, a new edition of the Encyclopedia of Science and Technology helped to offset continued weakness in computer book sales. The most notable performer in the international division was Mexico, where M-H posted strong secondary school gains.
For the first six months of the year, revenues in the education group fell 1.8%, to $858.6 million, and the unit had an operating loss of $7.8 million, compared to operating profit of $10.2 million in the first half of 2001.
The company noted that it continues to invest funds in order to simplify business procedures in the education group. Working with Oracle and Accenture, M-H is reengineering the customer service, production, inventory and data management functions. The implementation of the new system went live in Canada in June and will roll out in the U.S. next year.
