Why Shares of Houghton Mifflin Harcourt Co. Plunged Today
Image source: Houghton Mifflin Harcourt.
What happened
Shares of educational content and services company Houghton Mifflin Harcourt (NASDAQ: HMHC) tumbled on Thursday following a disappointing third-quarter report. HMH missed analyst estimates for revenue and earnings by a wide margin, sending the stock down 22% by 11 a.m. EDT.
So what
HMH reported third-quarter revenue of $533 million, down 7.4% year over year and about $50 million below the average analyst estimate. Billings decreased 9% year over year to $620 million, with the company pointing to a smaller new adoption market, lower market share, and lower delivered professional services revenue as the main drivers of the decline.
Earnings per share came in at $0.73, down from $0.94 in the prior-year period and $0.15 short of analyst expectations. Lower revenue was the main reason for the earnings decline, but a lower income tax benefit compared to the same period last year also contributed.
HMH Interim CEO Gordon Crovitz discussed how the company plans to return to growth:
Now what
Due to HMH's poor third-quarter performance, the company lowered its outlook for 2016. It now expects to produce revenue between $1.32 billion and $1.38 billion, down from a previous range of $1.485 billion to $1.555 billion. Billings are now expected to come in between $1.37 billion and $1.43 billion, down from a previous range of $1.525 billion to $1.595 billion.
It was a rough quarter for HMH, and its guidance doesn't suggest that things will get better anytime soon. Investors are right to be concerned following a big miss and slashed guidance, and the steep drop in the stock price on Thursday may be just the beginning if the company can't turn things around.
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