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Standard & Poor's Cuts Scholastic's Rating

The Associated Press

NEW YORK (AP) — Standard & Poor's Ratings Services cut its rating of Scholastic Corp. on Friday citing concerns about the company's declining performance. It is the second rating downgrade this week for the children's book publisher.

S&P lowered its corporate credit and senior unsecured issue-level ratings on Scholastic to "BB-" from "BB" on concerns about the company's operating performance. The rating outlook is stable.

S&P credit analyst Tulip Lim said the downgrade reflects the company's steadily declining margins, increased debt and reduced cash flow.

The company has seen its earnings decline sharply in recent quarters because of comparison to prior years when it had the publication of the final Harry Potter book reflected in its results, as well as the benefit of a strong U.S. dollar. Excluding the impact of those factors, S&P estimates Scholastic's revenues are flat and earnings have dropped.

On Thursday, Moody's Investors Service downgraded Scholastic's corporate family rating and probability of default rating, saying it expects the book publisher will have a hard time significantly improving its operating margin in the next year to 18 months.

Moody's also said it anticipates some sales pressure stemming from weaker consumer spending will make it more difficult for Scholastic to raise its operating margin over the period, even though the company is working to lower its high fixed cost structure and weed out underperforming parts of the business.