Home » Black Swans » Scholastic Huge Guidance Increase. But Wait is it a Media Company or an Educational Company? $SCHL #hungergames

Scholastic Huge Guidance Increase. But Wait is it a Media Company or an Educational Company? $SCHL #hungergames

Cover of "The Hunger Games"

Cover of The Hunger Games

Scholastic Corporation  (Nasdaq:SCHL) increased guidance to north of $3.40 per share from the previous range of $2.60 to $2.90. that s for the whole year folks. The enormous successful of the hunger games is driving the update. While investors normally would appreciate making more money you now have to start asking why are investors going to buy and hold the stock. In the press release the corporate communications mavens billed themselves as ” the global children’s publishing, education and media company” Blockbuster books such as “Hunger Games” are not guaranteed repeatable successes. Educational books and materials do have a steady cash flow as teachers and thoughtful parents buy learning materials which gives their students/children a leg up.

The stock price spiked just over two dollars on the announcement and then dropped off to below its trading range of the past few days. This means a lot of stupid money jumped in and got slaughtered within minutes. The market was not efficient shall we say. The long and short of it is it will be very difficult to produce comparable if not improving y/o/y results. So is the company worth any more or less now?

Take a quick look at the last sentence before the boilerplate was thrown in. and I quote “The Company’s prior guidance for revenue and free cash flow remains unchanged.” Ok so you got a block buster that will be increasing earnings per share but management says revenue and free cash flow will remain unchanged. Hmm. How is that possible on this scale? No additional cash flow for the biggest block buster since Harry Potter. The dots do not connect. At least not in a straight line.

The press release did go on to say ” This updated earnings guidance excludes the impact of one-time items associated with cost reduction programs and non-cash, non-operating items”. Hey management you got to have some more explaining here. Investors do not find this straight forward. How do you have non cash cost reduction, wildly increasing earnings but the all important cash flow does not change?

George Gutowski writes from a caveat emptor perspective.