Shares in McGraw Hill plunged more than 12% on Wednesday, despite the educational publishing giant reporting quarterly results that surpassed Wall Street forecasts. The stock closed at $89.20, down 12.4% on the day, wiping out roughly $1.2bn in market value.
The company posted adjusted earnings per share of $1.42, beating the consensus estimate of $1.28, while revenue came in at $1.02bn against expectations of $995m. However, investors focused on softer-than-expected forward revenue guidance and a shift in sales mix towards lower-margin digital products.
Analysts at Goldman Sachs noted that while the headline numbers were strong, the underlying quality of earnings raised concerns. "The beat was driven largely by one-off cost controls rather than organic revenue acceleration," they wrote in a note. "The market is pricing in a slower growth trajectory for the core higher education segment."
For UK investors, the sell-off serves as a reminder that even strong quarterly results can trigger sharp declines if forward guidance disappoints. Many British pension funds and unit trusts hold McGraw Hill through US equity index trackers and global growth funds. A sustained drop could weigh on portfolio returns for those with significant US exposure.
The wider education publishing sector has faced headwinds from the shift to digital learning and declining textbook sales. McGraw Hill's digital transition, while necessary, is compressing margins in the near term. The company reiterated its full-year outlook, but stopped short of raising guidance, which disappointed the market.
Source: Reuters, McGraw Hill investor relations