After two quarters of huge earnings gains that even executives at parent company News Corp said came in ahead of expectations, HarperCollins had to settle for a 2% increase in profits for the quarter ended March 31, 2024, over the comparable period a year ago. EBITDA (earnings before interest, taxes, depreciation and amortization) was $62 million in the most recent quarter, compared to $61 million a year ago. Sales fell 2%, to $506 million.
News Corp blamed the sales decline on lower gross sales of print books, which were somewhat offset by lower returns and higher digital sales. HC’s Christian publishing group had another strong quarter, but that was not enough to offset declines in sales of romance books or in the general books and children’s groups, CFO Susan Panuccio told analysts in a conference call. Trade sales in general were hurt by softer than expected March sales at such mass merchandisers as Walmart and Costco, Panuccio added. Bestselling titles in the quarter included Blood Money by Peter Schweizer, Mostly What God Does by Savannah Guthrie, and Fangirl Down by Tessa Bailey. Backlist sales represented approximately 63% of consumer revenues in the quarter, compared to 60% in the prior year.
Digital sales at HC increased 5% compared to the prior year, driven by a 14% increase in downloadable audiobook sales, which benefited from Spotify’s October entrance into the audiobook market. Overall digital sales represented 25% of HC consumer revenues for the quarter, compared to 23% in the prior year, with downloadable audiobooks accounting for approximately half of digital revenues. In remarks to analysts, News Corp CEO Robert Thomson said that, with the addition of Spotify to the audiobooks market, there is “little doubt” that audiobook sales will continue to increase at a steady pace.
In addition to lower sales, News Corp attributed the small earnings gain to higher employee costs—despite HC’s recent downsizing efforts. On the positive side, the company reported that manufacturing, freight, and distribution costs were down, driven by a change in product mix—specifically, an increase in digital sales—and the absence of the supply chain challenges of the year prior, ad well as a cooling of inventory and inflationary pressures.
For the first nine months of the fiscal year that ends June 30, 2024, earnings were still up 40% at the publisher, to $212 million, and sales rose 3%, to $1.58 billion. Coming off a weak fourth quarter in fiscal 2023, both Thomson and Panuccio expect HC to a have strong fourth quarter this year, with Thomson noting that April sales were up over April 2023.
If the fourth quarter comes in as expected, HC should easily meet News Corp executives’ expectations for the publisher’s operating margin, at 13.4%.
