The McGraw-Hill Education group had a mixed year in 2003, Terry McGraw, chairman of parent company McGraw-Hill Companies told analysts in a conference call discussing year-end results. Total sales, excluding revenue from the divested children's retail group, increased 0.5%, to $2.3 billion, while operating profit declined 3.4%, to $321.8 million. Sales in the school group dipped 0.4%, to $1.2 billion, offsetting a 1.5% sales increase, to $1.1 million in the higher education, professional and international group.

A disappointing performance in the Texas elementary social studies adoption as well as fewer adoption opportunities in secondary schools were cited as the reasons for the sales decline in the school group.

A reduction in college course enrollment and a low point in the revision cycle for business and economic texts checked growth in the higher education segment. Increased sales of business and economic titles abroad helped lift international revenue in all overseas markets except Latin America. Sales in the professional publishing market were hurt by the year-long slump in sales of computer and technology books.

McGraw had a guarded outlook for prospects for MHE in 2004. While there are signs of improvement in state funding, and federal funds continue to be allocated under the No Child Left Behind Act, a significant decline in adoption opportunities in the year will result in a 5% drop in the overall school market, McGraw said. Bright spots include testing and custom publishing as teachers look for materials that will help them comply with the new testing requirements. The professional, higher educational and international group should gain from an upswing in business and economic text revisions, McGraw said, projecting that higher education sales for the entire market could increase by 2% to 3%.

With the expectation of a soft school market, McGraw said margins in the MHE group will come under pressure in 2004 (operating margin was 14.1% in 2003), but that the near-term goal is to get margins in the group to 16% with the long term goal a 20% margin.