Publishers Cope With Soft Market

Executives from both Penguin Group and Simon & Schuster said they were satisfied with their sales performances in the first half of 2006, given the generally soft marketplace, particularly in the second quarter. The third major trade house to report results last week, Harlequin, had a significant decline in both sales and earnings in the period. While parent company Torstar said that, excluding currency fluctuations, sales were up slightly in the period, the strong Canadian dollar was only part of the reason for the decline in earnings. Higher production and distribution costs ate into earnings in Harlequin's North America retail operations, while its direct-to-consumer profits were hurt by the bankruptcy of its mailing house.

Penguin's results include sales from all operations, plus £6 million from the Brady Games imprint, which was added to the company from Pearson's professional division, as well as revenue from Index, acquired by Penguin UK. Without Brady and Index, sales were up 2%. Penguin chairman John Makinson said he was most satisfied with the "consistency of performance" of all the Penguin divisions. He attributed the profit gains to "lots of activity improving the supply chain over the last 12 months."

S&S's bottom line was boosted by higher distribution fees, and CEO Jack Romanos said the company will continue to expand its distribution business. For the first half of the year, sales in the adult segment rose 5.6%; children's sales increased 7.6%; and sales in the audio group rose 5%.

Makinson and Romanos were cautious about prospects for the remainder of the year. Makinson said Penguin still expects full-year sales to increase around 2%, with profits increasing at a faster pace. Romanos is confident S&S will beat 2005's financial performance, but he wouldn't commit to predicting that the 7% increase posted for the first six months will hold up for the full year. Torstar said it had no reason to expect that trends at Harlequin in the first six months would change over the second half of 2006.

Six-Month Results
($ in millions)