Financial results released by three major trade publishers within the last 10 days reflect the challenges publishers are facing in a market that is seeing little, if any, top-line growth. The most recent results from the Association of American Publishers StatShot program (see p. 5) showed that through April, combined sales of the adult and children’s/young adult segments were down 1.4% compared to the first four months of 2014. The lack of industry growth has made it more important for publishers to continually find big hits or else risk a sales decline. The inability to match major bestsellers released in the fist half of 2014 in this year’s fist six months was cited as a key factor in the drops in revenue at Hachette Book Group and Simon & Schuster.

According to parent company Lagardere, revenue at HBG fell 7.8% in the first six months of 2015 compared to the same period in 2014, and profits fell as well. In a statement, HBG CEO Michael Pietsch attributed the decline in part to “tough comparisons to a strong 2014 first half, when The Goldfinch, Grain Brain, and I Am Malala were steady bestsellers.” With those three bestsellers, as well as about 1,000 Hyperion titles acquired from Disney in 2013, first-half sales in 2014 were up 5% over the first six months of 2013.

HBG and Lagardere cited a decline in e-book sales as another reason for the drop in total HBG revenue. E-book sales represented 24% of trade sales at HBG in the first half of 2015, down from 29% in the same period in 2014. In the first half of 2013, e-book sales represented 34% of HBG trade sales. Fewer movie tie-ins and the implementation of the agreement with Amazon were given as reasons for the drop in e-book sales in the first half of 2015. (In 2014, Lagardere attributed the decline in e-book sales in the first half of 2014 to fewer movie tie-ins and the punitive actions of Amazon as the dispute over sales terms began to heat up).

The 7.1% increase in sales for all of Lagardere’s publishing operations in the first half of 2015 was due in part to favorable currency fluctuations, primarily with the U.S. dollar. Sales in France were up 3%, but were down 3.5% in the U.K. and 3.8% in Spain/Latin America. E-books accounted for 10.7% of Lagardere Publishing revenue in the first half of 2015, down from 11.3% at the midpoint of 2014. Overall earnings fell 28% in the first part of 2015, shrinking the group’s operating margin to 3.7%.

The 5.6% drop in sales at Simon & Schuster in the first half of 2015 was due in part to strong sales last year of the Duck Dynasty books in the first quarter, as well as large shipments in last year’s second quarter of Hard Choices. S&S, however, managed to increase its profits in the fist half of 2015 thanks to lower production and distribution costs. Though e-book sales were down slightly, CEO Carolyn Reidy noted that sales of digital audio were extremely strong, up about 40% in the first half of the year. She blamed the soft e-book market mostly on a stabilization of the market following the explosive growth in the first few years of the digital era, when readers were buying lots of backlist titles to put on their new devices.

While S&S has managed to increase its profits in the first half of 2015 despite declining sales, Reidy said she is hopeful that the company will finish 2015 with a modest sales increase.

Sales at Houghton Mifflin Harcourt’s trade group rose 2.7% in the first half of 2015, to $71.2 million, but the company posted a loss of adjusted EBITDA of $728,000 compared to EBITDA of $622,000 in last year’s first six months. HMH blamed higher promotional costs and salary expenses for the drop in earnings. The increase in sales was attributed to higher sales of cookbooks and strong sales of Kwame Alexander’s children’s book The Crossover, which offset the prior year’s strong titles such as Lois Lowry’s The Giver.

Operating Performance January-June, 2014 v. 2015

($ in millions)

2014 2015 Change
Lagardere Publishing
Total sales $903.0 $968.0 7.1%%
Recurring EBIT 50.0 36.0 -28.0%
Margin 5.5% 3.7%
Simon & Schuster
Total sales $364.0 $344.0 -5.6%
Operating income 34.0 37.0 8.6%
Margin 9.3% 10.7%
Houghton Mifflin Harcourt Trade
Total sales $69.3 $71.2 2.7%
Adjusted EBITDA 0.6 (0.7)
Margin 14.3%