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School Specialty Inc. Reports Operating Results (10-Q)

November 30, 2009 | About:
10qk

10qk

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School Specialty Inc. (SCHS) filed Quarterly Report for the period ended 2009-10-24.

School Specialty, Inc. is one of the largest marketers of non- textbook educational supplies and furniture to schools for pre-kindergarten through twelfth grade. The company offers items through an innovative two-pronged marketing approach that targets both school administrators and individual teachers. The company's broad product range enables it to provide our customers with one source for virtually all of their non-textbook school supplies and furniture needs. School Specialty Inc. has a market cap of $424 million; its shares were traded at around $22.51 with a P/E ratio of 15.74 and P/S ratio of 0.4. School Specialty Inc. had an annual average earning growth of 6.5% over the past 10 years.

Highlight of Business Operations:

Publishing segment revenues decreased by 14.1% from $124.1 million for the three months ended October 25, 2008 (which includes $0.2 million of intersegment revenues) to $106.6 million for the three months ended October 24, 2009 (which includes $0.5 million of intersegment revenues). Approximately $10 million of the decline in Publishing segment revenue was due to the decrease in state adoption revenue of the Companys curriculum-based products, primarily in the state of California, which the Company had anticipated would occur. The remaining $7.0 million decrease was attributable to the continued impact that the downturn in the general economic conditions has had on school districts spending decisions, as school districts are deferring their decisions on replacing or purchasing new curriculum-based materials. Partially offsetting this decrease is an incremental $1.3 million in revenue related to the Companys acquisition of AutoSkill International, Inc.

As a percent of revenue, SG&A decreased from 25.6% for the three months ended October 25, 2008 to 25.0% for the three months ended October 24, 2009. SG&A decreased $13.6 million from $100.1 million in the second quarter of fiscal 2009 to $86.4 million in the second quarter of fiscal 2010. SG&A attributable to the Educational Resources and Publishing decreased a combined $11.4 million and Corporate SG&A decreased $2.2 million in the second quarter as compared to last years second quarter. The decrease in Corporate SG&A was related primarily to $1.7 million of facility shutdown costs for the Lyons, New York distribution center included in last years second quarter. The remaining Corporate SG&A decrease was related primarily to the lower compensation and benefits costs, including headcount reductions, associated with the Companys cost reduction efforts.

Educational Resources segment SG&A decreased as a percent of revenues from 21.5% for the three months ended October 25, 2008 to 20.9% for the three months ended October 24, 2009. Educational Resources segment SG&A decreased $7.2 million, or 12.5%, from $57.2 million for the three months ended October 25, 2008 to $50.0 million for the three months ended October 24, 2009. The segment experienced a decrease of approximately $4 million in its variable costs such as transportation, warehousing, and selling expenses associated with decreased revenues. Improvements in order fulfillment, along with decreased fuel costs, during the quarter resulted in approximately $3 million of decreased warehouse and transportation costs. Incremental costs of $1.2 million for additional marketing initiatives were offset by compensation savings resulting from the headcount reductions associated with operational consolidations and restructuring, and other cost control initiatives.

As a percent of revenue, SG&A decreased from 26.1% for the six months ended October 25, 2008 to 25.8% for the six months ended October 24, 2009. SG&A decreased $26.4 million from $201.1 million in the first six months of fiscal 2009 to $174.7 million in the first six months of fiscal 2010. SG&A attributable to the Educational Resources and Publishing segments decreased a combined $22.7 million and Corporate SG&A decreased $3.7 million in the first six months of fiscal 2010 as compared to last years first six months. Approximately $1.7 million of the decrease in Corporate SG&A was related to the prior year charge for the closing of the Lyons, New York distribution center. The remaining decrease was related to the lower compensation and benefit costs, including headcount reductions, associated with the Companys cost reduction efforts

Educational Resources segment SG&A decreased as a percent of revenues from 22.4% for the six months ended October 25, 2008 to 21.8% for the six months ended October 24, 2009. Educational Resources segment SG&A decreased $14.9 million, or 12.9%, from $116.1 million for the six months ended October 25, 2008 to $101.2 million for the six months ended October 24, 2009. The segment experienced a decrease of approximately $7 million in its variable SG&A costs such as transportation, warehousing, and selling expenses associated with decreased revenues. Improvements in order fulfillment, along with decreased fuel costs, during the six months ended October 24, 2009 resulted in approximately $5 million of decreased warehouse and transportation costs. The remaining decline was related primarily to the compensation savings associated with the headcount reductions associated with operational consolidations and restructuring, partially offset by severance and approximately $2 million of incremental spend on marketing initiatives.

Net cash used in investing activities increased $13.1 million to $19.9 million in the first six months of fiscal 2010 as compared to $6.8 million for the first six months of fiscal 2009. The increase in cash used in investing activities was primarily attributable to the AutoSkill acquisition purchase price of $11.7 million. In the first six months of fiscal 2009, the Company received $2.2 million attributable to the notes received as part of the School Specialty Media sale, as compared to $0.5 million in the first six months of fiscal 2010. Additions to property, plant and equipment increased $1.2 million from the first six months of fiscal 2009 to $6.4 million in the first six months of fiscal 2010 as a result of spending related to the implementation of the Companys ERP system. Product development spending increased $0.4 million in the first six months of fiscal 2010 as compared to the first six months of fiscal 2009. This increase is attributable to the Companys ongoing investment in the development of curriculum-based products. The Company received $2.0 million during the first six months of fiscal 2010 attributable to the sale of the Lyons facility.

Read the The complete ReportSCHS is in the portfolios of Chris Davis of Davis Selected Advisers.

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