Education Divisions Boost McGraw-Hill and Pearson Earnings

Two of the biggest players in education publishing had good news to report in their most recent earnings filings, even though McGraw-Hill (MHP) supplied more tangible information than its U.K.-based competitor, Pearson (PSO).

McGraw-Hill Sees Strong Gains in Education Division

For its third quarter, McGraw-Hill's profit rose to $380 million, or $1.23 a share, from $336 million, or $1.07 a share in the year-earlier period -- a 15% increase from the same time last year and way above analysts' expectations of $1.10 EPS. Total revenue grew by 5.5% to $1.98 billion, also beating analysts' projections for the company.

On the education side, revenue jumped 5.5% to $1.1 billion while operating profit grew 19.9% to $357.5 million. That took into account a $3.8 million pre-tax gain on the divestiture of a secondary school business in Australia, while foreign exchange had negligible impact this quarter, a far cry from previous earnings periods.

Looking at specific education segments, revenue for the School Education Group increased by 6.7% to $534.7 million compared to the same time last year, while the higher education side went up 4.3% to $520.0 million. The School Education Group is now on track to capture 30% of the estimated $825 million to $875 million state new adoption market in 2010, owing in large part to substantial orders from the adoption states with the biggest student enrollments, such as Texas, California, and Florida.

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Good news also came from the Standard & Poor's side, as that division's revenue increased 9.5% to $697.4 million compared to 12 months ago. The biggest reason? High-yield debt issuance.

As for information and media, Q3 revenue declined by 4.7% to $227.8 million compared to the same period last year, but it would have increased 5.1% if not for lingering residue from the sale of BusinessWeek to Bloomberg. Operating profit for this division also increased by 55.1% to $45.8 million in the third quarter.

In a statement, Chairman, CEO and President Harold McGraw III attributed the earnings jump to a slew of factors, including "surging global high-yield issuance in the bond market, a solid gain at S&P Indices, increases in U.S. elementary-high school and higher education in the seasonally most important quarter of the year, double-digit increases in the sales of digital products and services in higher education and professional markets, and global growth in energy information products."

Looking ahead, the company is bumping up its guidance, now anticipating earnings per share somewhere between $2.60 and $2.65, even with a one-time gain of 2 cents EPS from recent acquisitions.

Pearson Finds Success in Move to Global Learning Technology

As for Pearson, its nine-month trading report was thin on numbers and long on percentage-driven positive news. Overall, the company increased sales by 7% and adjusted operating profit 15% in the first nine months of 2010. Its trade book publishing arm, Penguin, saw revenue grow 5% compared to last year, and the education side increased 7% from 12 months ago. That piece of news caused Pearson to remark that it continues "to accelerate our transformation from book publisher to the leading global learning technology and services company through organic investment and bolt-on acquisitions."

An 11% jump in revenue for the Financial Times came about because of "strong demand for its print and digital content," increased M&A activity and sustained advertising growth. For Penguin, Pearson noted that "physical retail markets are tough," but they were offset "by strong publishing and rapid growth in eBook sales" for 16,500 titles currently available. Industry newsletter Publishers Lunchran the numbers, and for e-books that means "if Penguin ebooks went from 8.5% of U.S. sales after two quarters to 10% of U.S. sales in the third quarter, that would comprise revenue of approximately $4 million."

In other words, as is the case for almost all big publishers right now, e-books are growing, but the story is still small potatoes compared to larger sectors like education -- and print publishing as a whole.

This post has been edited to correct various figures. The original numbers cited for Standard & Poor's revenue referred to the Credit Market Services Division, while the overall operating profit grew 19.9%, not 9.9% as originally cited.