Marginal Profit Improvement in '05

With sales gains hard to come by in publishing, particularly on the trade side, companies have focused on squeezing costs out of their operations to boost profitability. A review of the most recently available operating data for 18 companies found mixed results in achieving that goal, with margins improving at 10 companies and declining at eight.

Despite a sales decline at HarperCollins and only small revenue gains at Random House and Penguin, all three of the country's largest trade houses managed to increase their operating margins last year. Random had the biggest improvement—its margin moved up from 7.9% to 9.1% (Random's margin is based on earnings before interest and taxes and is slightly different from operating income). Harlequin managed a tiny improvement in its margin last year as earnings fell at a slower pace than the drop in sales.

Notwithstanding the improvement in margins at the trade houses, educational publishing continues to be much more profitable than trade. Despite a disappointing 2005, in which its operating margin fell, Harcourt's 17.9% margin still led the educational sector. Pearson Education, McGraw-Hill Education and Thomson Learning all had margin gains in the year and their margins are all well above 10%. And despite a boost in profitability, Houghton Mifflin's operating margin of 4.6% was well below those of its competitors in educational publishing.

John Wiley, which has a significant presence in both trade and education, had a small margin improvement in the year, while Scholastic's margins declined. Margin improvement is the top priority at Scholastic in fiscal 2007.

At the big three bookstores, only Books-A-Million was able to boost its margin last year; at 4.6%, its margin topped Borders, whose margin fell by more than a full percentage point as earnings declined. Barnes & Noble's margin declined slightly for the second consecutive year, but its 4.9% mark still led the sector.