Scholastic Q2 profit misses Street, shares down

* Q2 adj EPS $1.72 vs est $2.12

* Q2 rev $661.6 mln vs $687.6 mln yr ago

* Sees FY 09 adj EPS $1.20-$1.50 vs est $1.72

(Recasts; adds details from conference call, share movement)

By Shrutika Verma

BANGALORE (Reuters) - Scholastic Corp (SCHL.O) posted lower-than-expected quarterly earnings as revenue in its children's and educational publishing segments fell and cut its fiscal 2009 earnings outlook, citing the current market environment.

Its shares fell as much as 21 percent after the results. The company's stock has lost more than half its value in the last 52 weeks.

The children's book publisher is going through a strategic planning process and looking at all of its businesses in light of the current environment, Chief Financial Officer Maureen O'Connell said in a conference call.

"Cost reductions have also been a top focus this year as we adapt to the economic environment and continue to target long-term margin improvement," O'Connell said.

It has reduced its spending plan for the second half of fiscal 2009 by a further $20 million by eliminating management bonuses and reducing all categories of discretionary spending.

Scholastic continues to see a further reduction in staffing and exit unprofitable markets.

The company slashed its 2009 earnings forecast to $1.20 to $1.50 a share from the $1.75 to $2.10 a share it forecast earlier. It forecast free cash flow of $55 million to $80 million.

"In line to our current performance we are looking for a slight increase to flat revenues in the second half of the year, excluding Harry Potter," O'Connell said.

Its operating income declined by about $30 million due to a $11 million severance charge and one-time expenses associated with cost reduction actions, as well as a negative foreign exchange impact of $7 million.

TRAILING THE STREET

The company earned $43.1 million, or $1.15 a share, for the second quarter ended Nov. 30, compared with the net income of $75.6 million, or $1.93 a share, in the year-ago period.

Excluding severance and one-time expenses associated with its cost reduction plans, it earned $1.72 a share, compared with analyst expectations of $2.12 a share, according to Reuters Estimates.

Revenue from continuing operations fell 4 percent to $661.6 million. Excluding the impact of foreign exchange, revenue from continuing operations declined 1 percent.

The U.S. publisher of Harry Potter novels said revenue declined in trade publishing, reflecting lower shipments of Harry Potter.

Competitors of Scholastic, which on Wednesday announced a quarterly cash dividend of 7.5 cents a share, include CBS Corp's (CBS.N) publishing unit, Simon & Schuster, and Bloomsbury Publishing Plc (BLPU.L).

Shares of the Broadway, New York-based company were trading down $2.13 at $14.40 on Nasdaq.

(Editing by Jarshad Kakkrakandy)