Who Says Publishing Is Dead?

A poll conducted by the Associated Press last August revealed that one in four Americans didn't read a book in 2007. That can't be good news for publishers, can it?

It turns out that the people who didn't read a single, solitary book were mostly older, under-educated people, living in rural parts of the country, with lower incomes. Publishers can breathe a collective sigh of relief because those people are probably not their key demographic. Still, shouldn't less paperbacks for American readers equate to less greenbacks for publishers?

200 Years And Counting
One particular company comes to mind that's done well the last couple of (hundred) years despite the advent of the internet is John Wiley & Sons (NYSE:JW.A). The Hoboken-based publisher focuses on mostly serious fare like scientific and medical journals, textbooks and other intellectual reading materials. The company has been in business since 1807, and 2007 was its 200th year. Charles Wiley founded the company in Manhattan and operated it for 19 years until his death in 1826. Son John took over at that time and ran the company for another 65 years until his death in 1891. A member of the Wiley clan or a close relative would head the company for 171 years until Andrew H. Neilly Jr. took over in 1979. No matter, the E.P. Hamilton (CEO from 1941-1956 and a Wiley cousin) Trust holds 82% of the Class B shares giving it 55% total voting power and effective control. On top of this, Deborah Wiley works at the company in a senior capacity and two other family members sit on the board including Peter Booth Wiley, as Chairman. It's a family affair.

Acquisitions Lead the Way
In recent years, CEO William J. Pesce has taken the company boldly into its third century of operations making several key acquisitions to strengthen its three core businesses. The second most important acquisition was in 2001, purchasing Hungry Minds Inc. for $185 million and with it the Frommer's travel guides, CliffsNotes study guides and the "For Dummies" brand of educational books. The most vital acquisition of Pesce's career came in February 2007 when John Wiley & Sons acquired U.K.-based Blackwell Publishing for £572 million ($1.1 billion). This was the largest acquisition in company history, and now the combined entity publishes 1,250 scholarly journals, doubling revenue for its Scientific, Technical, Medical and Scholarly division. For those unfamiliar with Blackwell, it was the original publisher of J.R.R. Tolkien, creator of "The Lord of the Rings" books. (For more on the effects of sector wide consolidation on stock prices, check out The Wacky World of M&As.)

Earnings Roundup
In its year-end press release for fiscal 2008 earnings, Pesce mentioned that Blackwell's performance exceeded expectations and that it was much more accretive to earnings than anticipated. Total revenue in 2008 was $1.7 billion, up 5% (2% due to foreign exchange) without Blackwell and 36% with it. Blackwell contributed $485 million in revenue and 29 cents in earnings per share (EPS). EPS for the entire company was $2.49 which, excluding tax benefits, increased 47 cents or 27.5%. That sounds good to me. Without Blackwell, EPS went up 15% year-over-year; still good by any measure. John Wiley & Sons is projecting mid-single digit revenue growth along with EPS of around $2.60 for fiscal 2009. (Discover how to interpret earnings reports in Advanced Financial Statement Analysis.)

Stock Talk
The stock price's compound annual growth rate since 1997 is 17%. In this same period, revenue was up 11% annually, EPS up 19%, and operating income up 16%. Add to this 15 consecutive years increasing the dividend, and there's little mystery why its stock is trading near the 52-week high. Bruce Sherman of Private Capital Management (one of my favorite investors), while taking profits of late, still owns 5.55 million shares or 11.4% of the company. Obviously, he thinks it still has some room to run. I agree 100%.

Bottom Line
The publisher of Herman Melville, Edgar Allan Poe and other great writers from the past isn't resting on its laurels. Management won't let it. Able competitors Pearson PLC (NYSE:PSO), McGraw-Hill (NYSE:MHP) and Scholastic (Nasdaq:SCHL) are trading at EV/EBITDA multiples of 8.6, 8.2 and 4.8 respectively, all less than the 11.4 of John Wiley & Sons.

In order for the company and its stock to keep out in front of the pack, it's making transformational acquisitions such as the two described above. With 42% of its business generated outside the U.S., it's becoming more of a global player every day. In my book, that spells opportunity.

For related reading, see The Advantages Of Investing In Aggressive Companies.