Blaming the Hurricane

ProQuest Company (NYSE: PQE), a leading publisher of information and education solutions, today released a preliminary financial outlook for its third quarter of 2005. This outlook includes the business impact of Hurricanes Katrina and Rita, and the resulting impact of delays in reading and math intervention funding in Texas. The company expects third quarter revenue of $158 to $160 million and earnings of $0.58 to $0.60 per share. For the third quarter, approximately $4.0 million of revenue was lost because of damage to Voyager customer schools in Louisiana, Mississippi and Texas, some of which are closed indefinitely. In addition, reading and math intervention funding of more than $100 million was approved by the Texas state government, but disbursement of these approved funds has been delayed. The delay is a result of the State of Texas having to evaluate its schools’ needs after the damage of Hurricane Rita, and at the same time enrolling many new students that have relocated to Texas. The earnings impact of the shortfall in revenue of Voyager products is approximately $0.20 per share for the third quarter. “The hurricanes had two unforeseen impacts on our Voyager business,” said Alan Aldworth, chairman and CEO of ProQuest Company. “Limited sales to customers in hurricane-ravaged areas of Louisiana and Texas reduced Voyager’s third quarter sales by approximately $4.0 million which we do not believe will be made up in 2005. Additionally, Texas funding delays had an adverse impact on Voyager’s revenue of approximately $10 million. Since the reading intervention funds have already been approved by Texas legislators, we expect that the funds — while currently delayed — will be disbursed for the current 2005-2006 academic year. I believe that the majority of this revenue will be recovered in early 2006, with a small amount realized in 2005,” said Aldworth. Talk about blaming the hurricanes!

Reporting season is in full swing, and aside from the direct impact on many chemical and oil-related companies, the impact of the two hurricanes has been fairly muted—the effect being most fully felt in the rising cost of goods as opposed to any large-scale reduction in end demand.

But ProQuest—these are the guys who transformed a dying microfiche business into a nicely profitable online document service (when you search the archives of the New York Times, for example, you are searching ProQuest’s own files)—has been hit in the head by a two-by-four.

The impact, as the press release explains, is on their Voyager Expanded Learning education business, which ProQuest bought early this year as a way to exploit greater Federal spending on K-12 learning.

Voyager is a reading program using internet-based teacher training and online feedback to raise student reading levels, and ProQuest’s stock got quite a boost from the deal.

When I looked at the company, however, I was not able to find educators highly familiar with the product—and there are many competing offerings.

What I am looking for is feedback here regarding Voyager itself:

1. Is it widely used? 2. Is it effective? 3. Are the problems in Texas strictly due to budget pressures caused by the hurricanes…or is something else going on there?

Informed opinion is, as always, welcome.

Jeff Matthews I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.