School Specialty looks forward



School Specialty has always been an interesting company to follow. Perched at a high point over what is a wide-reaching but disjointed education industry, it has clocked up as many as 50 acquisitions in its history.


But the last fiscal year has perhaps been more eventful than most. It acquired Delta Education for $272 million last autumn, one of its most striking education buys to date; mutually terminated its merger agreement with LBW Holdings in December after LBW’s banks pulled out; and posted some weaker-than-expected results in the recent quarters.


Then this week School Specialty posted a wider Q4 net loss of $32.6 million, or $1.42 per share, from $8.4 million, or $0.37 per share, a year ago. Revenue rose 3 percent to $180.9 million from $175.2 million last year. For the full year, the company reported net income of $61,000 down from $43 million in fiscal 2005.


The company admitted it was disappointed with its results, with CFO Mary Kabacinski describing internal growth performance as "just off flat", but added that the worst was over and that the company felt very good going into fiscal 2007.


The "worst" for the quarter came in the form of a goodwill impairment charge of $25.6 million, which represented partial impairment associated with the company’s visual media business unit. Excluding one-time charges, the company earned $1.36 on a per share basis.


According to GAAP regulations, companies must assess goodwill valued on cash flow on all acquisitions at least once a year over a period of 40 years. And according to new conditions, a company is now able to take a charge in one go if the business is impaired. The charge was related to School Specialty’s acquisitions in its media visual segment – of Global Video in 1999, Sunburst in 2003 and Guidance Channel in 2005. The division makes up 3 percent of the company’s revenues.


"The results do not point to a degradation in business performance but to a specific event," Kabacinski told OPI+. "These acquisitions are now properly stated for goodwill. Our core video business is now very solid."


Moving into fiscal 2007, Kabacinski admits she is satisfied with the company’s order levels and optimistic about the future. "Since the beginning of the [calendar] year, orders have been up 3 percent," she said, "which may not sound like a lot but this is good for the education industry."


Kabacinski believes the education industry in the US is in a good stage right now, although she admits it’s often difficult to tell because there are not many public companies in the sector. "The industry is getting funding right now from state budgets, the improving economy is funding that money and most US companies in this industry are showing a flat to modest growth in earnings. Our orders increase is nothing extraordinary, but it is increasing consistently."


She added that School Specialty is very pleased with its Delta Education acquisition. "We are very satisfied with the business integration into the School Specialty model, which has been complete since mid-February as well as the savings and bookings level of Delta."


And there will be more acquisitions on the cards, she revealed to OPI+. "This is an extremely fragmented business so we will look at very specific acquisitions for our customers. There are big opportunities for us and acquisitions are likely to remain part of our business model for some time. We feel very good about our position in the education marketplace."


The company has given a revenue guidance of $1.06 billion to $1.1 billion in growth of just under 4 percent. It has forecasted earnings per share of $2-$2.20.