McGraw Hill says textbook sales hit by US state cuts

NEW YORK, July 23 Fri Jul 23, 2010 1:47pm EDT

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NEW YORK, July 23 (Reuters) - McGraw-Hill Cos MHP.N said on Friday that school textbook sales had declined in the second quarter because of spending cuts by state governments, including California and Illinois, illustrating the strain on U.S. state finances,

The textbook business accounted for 38 percent of the company's second-quarter revenue of $1.5 billion. But the school education group's revenue fell by 4 percent.

"State budget pressures continue to be a factor in this year's elementary and high school market, as we had expected," Chief Executive Harold McGraw told analysts on a conference call.

"Only the state new adoption market will show solid growth this year, but here, too, funding concerns are driving reduced purchasing levels," McGraw said.

For fiscal 2011 and 2012, states will likely have budget gaps totaling $260 billion, according to the Center on Budget and Policy Priorities in Washington, D.C.

All states except Vermont are mandated by their state constitutions to balance their budgets, and so they have cut spending in many areas including education. California school districts, for example, have reduced their purchases of reading, literature and math.

South Carolina canceled math book purchases, Indiana postponed purchases for the year and Illinois suspended a textbook loan program that had funded many orders in 2009, McGraw said. School districts in Georgia and Oklahoma have also scaled back textbook purchases.

McGraw Hill is expecting the market for university and college textbooks to grow 5 percent to 7 percent in 2010. The company reported double-digit growth in the second quarter for some subject areas, including science, engineering and math, business and economics.

The elementary textbook market is expected to grow 4 percent to 6 percent in 2010, down from a previous forecast of 6 percent to 7 percent.

McGraw said major opportunities existed in Texas, Florida and California, despite cutbacks, said McGraw.

McGraw Hill, which also owns credit rating agency Standard & Poor's, is closely monitoring the federal government's plans for education spending, including stimulus programs such as the $4 billion Race to the Top grants, $350 million of common core assessment grants and $650 million of investing for innovation grants.

"For the McGraw-Hill school education group, these grant programs offer potential for both assessment and instructional materials," said McGraw.

The $862 billion economic stimulus plan the U.S. government passed last year sent nearly $40 billion to states for school funding, but that money expires at the end of this year and school districts are considering massive spending cuts.

Congress is considering providing them with an additional $10 billion, which is intended for education jobs. (Reporting by Ciara Linnane; )

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