Revenue slipped 0.3%, to $995.7 million, and operating profit dipped 0.4%, to $303.9 million, at McGraw-Hill Education for the third quarter ended September 30. The slight decline was due to a 5.9% drop in sales, to $407.3 million, in M-HE's school education group, which offset a 9.1% revenue increase, to $588.4 million, in M-HE's higher education, professional and international group.
Terry McGraw, chairman of the M-HE parent company, the McGraw-Hill Cos., said the elhi market has been softer than originally forecast, but that the company believes it has increased its market share in the year, especially in the science and social studies categories. He noted that M-HE's elhi sales were down 4.6% for the first nine months of the year compared to an industry decline of about 10%. McGraw said he expects the company's elhi revenue to resume growing again in 2003. Although some state budgets are under pressure, McGraw said funding should benefit in 2003 from money released under the federal Reading First initiatives that he said will amount to $900 million.
In higher education, McGraw said all major lines had an increase in sales in the third quarter and that the segment is on track to deliver double-digit growth for the year. Higher sales of medical textbooks and Spanish-language reading programs contributed to an increase in international revenue, but continued softness in computer book sales slowed growth in the professional segment.
The lower than expected elhi revenue will drop M-HE's 2002 operating margin below 15%, but the company expects margins to be back above 15% in 2003. A contributing factor to margin gains next year will be the company's back office reengineering project, which was launched in Canada this summer and which will be implemented in the U.S. next year. Savings from improved efficiencies should kick in by the end of 2003.
Asked if the company was considering acquisitions beyond its core areas, McGraw said the company will continue to focus on "tuck-in acquisitions" that add size and scale to its existing operations.
For the nine-month period, M-HE operating profit was down 6.1%, to $296.1 million on a 1% decline in revenue to $1.85 billion.