Graham Holdings (NYSE: GHC) is best known for its Kaplan educational segment, but that doesn't mean that Kaplan is necessarily the best-performing part of Graham's business. Lately, education has been under siege, and Graham has had to use other business exposure to stay strong.
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Coming into Friday's fourth-quarter financial report, Graham Holdings investors were curious to see if the company could overcome educational headwinds to produce growth. The mini-conglomerate did exactly that on the strength of businesses in other areas ranging from television broadcasting to manufacturing, healthcare, and social-media solutions.
Let's look more closely at Graham Holdings to see how it did, and what's ahead for the company.
Image source: Kaplan.
Graham Holdings goes beyond Kaplan
Overall, Graham's fourth-quarter numbers were mixed. Revenue was up 2%, to $629.6 million, rebounding slightly from the downward pressure that the company has seen in past quarters. GAAP net income of $36.9 million was down 28% from year-ago levels, but after making allowances for extraordinary items, adjusted earnings of $9.68 per share was up by more than $1 per share from the fourth quarter of 2015.
Looking more closely at the numbers, Graham continued to see a variety of different factors pushing its finances in different directions. On the plus side, a bulk lump-sum pension offering boosted profits, and asset sales also helped the quarter's bottom line. Yet educational restructuring charges and foreign currency losses weighed on the company's earnings.
Graham's Kaplan segment showed widely disparate results. On one hand, revenue from the unit was down by 7%, with sharp declines in the higher-education and test-preparation segments overshadowing flat performance from the international business. However, operating income for the division was up 14% from year-ago figures, and the international educational business showed the biggest gains, helping to offset big drops in operating income from higher education, and an operating loss in the test-preparation category.
But Graham's television broadcasting unit was where the real strength was. Revenue there jumped 14% for the quarter, and operating income climbed 27% from year-ago levels. The 2016 presidential election campaign had a clear supporting role in those numbers, as political advertising rose sharply. In addition, retransmission revenues rose slightly, contributing to better overall results.
Graham's catch-all other businesses category contributed the most to revenue, posting a 30% jump. High operating expenses led to an operating loss for the unit, but the size of that loss was substantially smaller than it was in the fourth quarter of 2015. Most of the gains in the unit came from Graham's manufacturing businesses, although the SocialCode business also contributed sales and operating income gains.
Can Graham Holdings keep picking up speed?
Kaplan will continue to get most of the attention at Graham Holdings, so it's appropriate to see how the unit is changing. At the higher-education level, student enrollments have continued to skew toward bachelor's degrees, away from less advanced courses of study, like associate degrees. Yet enrollment continues to drop, with total students down 19%, to just under 32,200, and new enrollments down 22% at Kaplan University.
Other areas of the education unit are also seeing pressure. Full-year 2016 results for the test-preparation business included a 3% drop in enrollments, excluding the new skills-training offerings, and investment in new programs has held back operating performance. Meanwhile, Kaplan International has seen enrollment declines in English-language learning programs.
Graham Holdings investors seemed content with the report, and the stock climbed 1% in the day's regular trading session following the Friday morning announcement. In the long run, though, Graham needs not only to see its non-educational businesses keep producing good growth, but also figure out how to get Kaplan back on top. Otherwise, Graham won't be able to reach its full potential going forward.
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