The weak dollar and lower sales in the company's U.S. school publishing group combined to drop book publishing sales 6%, to £1.21 billion ($2.21 billion), at Pearson for the six-month period ended June 30. Operating loss increased to £16 million from £5 million in the first half of 2003. Despite the declines, Pearson executives said they were satisfied with the first-half performance and were expecting a stronger second half.
At Penguin Group, total revenue fell 7%, to £341 million ($620 million), and operating profit dropped 52%, to £10 million. Excluding currency fluctuations, sales were flat and profits were down 15%. Executives said £7 million of the decline in profits was due to currency changes, while problems with a new U.K. warehouse, investments in marketing initiatives and the bankruptcy of a U.K. wholesaler accounted for the remaining £4 million shortfall. Penguin chairman John Makinson said he expects the publisher to do better in the second half of the year as exchange-rate discrepancies narrow and the problems of the U.K. warehouse are put behind it. The question for Penguin U.K., Makinson said, is whether the warehouse disruptions means "sales were deferred rather than lost."
Penguin USA had no warehouse problems, and sales and earnings both showed solid gains, Makinson said. Makinson told PW he was particularly pleased by the progress Penguin USA made in strengthening its nonfiction performance, with new books from its new imprints Penguin Press, Portfolio and Gotham Books. Penguin USA CEO David Shanks also cited the improvement in nonfiction as the major achievement of the first six months. "It feels good when a strategy you developed works out," Shanks said, noting that the success of Penguin's new imprint strategy "bodes well for the future."
Penguin had 75 bestsellers in the first half of the year, and backlist sales, boosted by Oprah's selection of Anna Karenina, were up. Even excluding Karenina, which has 960,000 copies in print, backlist sales rose, Shanks said.
The Penguin Young Readers group also had a strong start to the year, said Shanks, citing in particular the success of Shadowmancer. Sales gains in the Young Readers group, which traditionally are better in the second half of the year, resulted in "a healthy bottom line for the first time in a long time" in the January-through-June period, Shanks said.
Both Makinson and Shanks were optimistic that Penguin USA will have a strong second half, despite a number of challenges, including a softening of backlist sales in July and distractions caused by the Olympics and elections. New releases by a number of brand authors—among them Sue Grafton, Patricia Cornwell, Nora Roberts, Jan Karon and Cornel West— will drive the gains, Shanks said. He expects Penguin's new party plan unit to contribute only a few million dollars this year, with the program making much more of an impact in 2005. The company's Sentinel imprint will release its first titles this week, while the Hudson Street imprint will launch in 2005. Shanks said Penguin has "just finished our three-year plan. We have a few surprises we'll announce at the appropriate time."
Education Mixed
Total sales in the Pearson Education Group fell 6% in the first six months, to £873 million ($1.59 billion), with most of the decline attributed to the weaker dollar. Excluding currency changes, revenue was flat. The group's operating loss held even at £26 million.
As expected, sales in Pearson's school publishing group fell in the year, dropping 4% to £466 million. Fewer adoption opportunities led to lower sales in the U.S. offsetting gains "around the world," said Pearson chief financial officer Rona Fairchild. She said that sales of U.S. basal textbooks are "on track" to decline by "mid-single digits." The division's digital learning and supplementary units had a good first-half performance and are expected to do better in the final six months of the year, as the health of state budgets begins to improve, Fairchild said. Strength in the supplementary as well as testing markets is expected to counter a decline in basal sales, resulting in "broadly level" revenue (excluding currency changes) in the school division in 2004, compared to 2003, the company said.
Revenue in the higher education division fell 5%, to £187 million. Sales in the U.S. were up 4%, led by new programs in health, languages, and basic English and math. Sales in Pearson's custom publishing business increased by more than 20%, Fairchild said, and the company's expanding online services now have about 1.5 million paying users. Excluding the impact of currency fluctuations, Pearson expects revenues in the higher education group to increase in the 4%—6% range for full year.
In the professional segment, sales fell 10%, to £220 million. Sales of technology books were down again in the period, although Fairchild said "the rate of decline slowed." She added that she was optimistic the segment may show some improvement in the second half of the year due to the release of new software and games.
