Total profits at the country's three largest trade house rose a total of 30% in the first half of 2005, despite flat sales. The profit gains were driven by Random House, which had a 55% increase in worldwide profits, despite a 2% decline in sales, and Penguin Group, where total profits rose 44% on a 3% sales increase. Operating income at HarperCollins rose 2% in the first half of calendar 2005, while sales fell by $2 million. Figures for all three companies include sales and earnings from their U.S. and international operations.

In releasing its results last week, Bertelsmann said the 2% decline in sales at Random House, to 799 million euros, was due entirely to currency fluctuations. In his letter to employees, Random House chairman Peter Olson said that all of the publisher's companies had a good first half of the year, "even as they cope with a tough marketplace in their respective territories." The strongest performer in the period, Olson said, was Random U.K.

In North America, Random's earnings benefited from a significant reduction in returns, something Olson is hoping can be sustained for the remainder of the year. Random spokesperson Stuart Applebaum said the lower returns were the result of the company's investment in operating systems combined with collaborative efforts with its accounts that have allowed the publisher "to fix the right number" for printings.

In his six-month review earlier this year, Penguin Group USA president David Shanks also noted that returns were down. AAP's monthly sales estimates shows that for the first seven months of 2005, returns were down in the trade paperback and mass market segments, as well as in the children's segments, while up only 1.4% in the hardcover segment.

Notwithstanding the good start to the year, Olson said that if Random is to meet its "ambitious" full-year targets, the company will need "a solid sell-through from our fall frontlists." While Random has a list full of salable books, Olson said, the North American market has a number of uncertainties, topped by the impact of higher gas and heating bills on consumer spending on books. Questions also remain about the ongoing effect of Hurricane Katrina on the Southern book market in particular and the national book market in general.

Six-Month Results at Big Three
($ in millions)

2004 2005 % CHANGE
Random House¹
Sales $1,022 $999 -2.0%
Operating EBIT 39 60 55
Penguin Group²
Sales $610 $632 3.0%
Operating Income 16 23 44
Sales $588 $586 -0.3%
Operating Income 41 42 2
Sales $2,220 $2,217 -0.1%
Profits 96 125 30
1. Converted from euros. 2. Converted from pounds.