'98 Earnings Drop 7 Percent at Reader's Digest

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Reader's Digest's stock dipped near its 52-week low last week the day after it reported its fiscal 1998 revenue at $2.63 billion, down 7 percent from 1997. Earnings per share were down 56 percent, to 64 cents. On Aug. 19, the company's stock closed at 21 7/8 points, down 1 9/16. Its 52-week low was 20 7/8 points.


"These are unacceptable results and they do not reflect the company's fundamental strengths which will drive future growth," chairman/CEO Thomas O. Ryder said in a prepared statement.


The company pointed to the recent strength of the dollar, lower mail quantities and lower response to promotional mailings as reasons for the decline. Citing Reader's Digest's global brand, its product development and marketing capabilities as core strengths, Ryder repeated what he said after announcing a reorganization last month: The company plans to focus on broadening its customer base to include more younger customers and more products for older customers. It also wants to overhaul its work processes and cost structure and free dollars from underperforming assets to invest in growth opportunities.


"Better, faster, cheaper" has become the mantra at Pleasantville, NY-based Reader's Digest, said company spokeswoman Janice Conklin.


"[Ryder] is very, very serious, and I think that's been demonstrated in the steps he's already taken," Conklin said. "The numbers are unacceptable because they don't reflect how well our strengths should have us doing."


The company announced plans to restructure operations as part of a three-stage plan to put the 76-year-old direct marketer back on track after having seen response to its promotions and, consequently, its sales and earnings wane. Reader's Digest said it will announce in September how it will restructure costs and raise capital. In December or January, it will present how it plans to build its business.


Conklin wouldn't comment on whether layoffs are in store. Several months ago, Ryder told employees in a town-hall meeting that "layoffs in the absence of a good business strategy make no sense."


According to one source who declined to speak on the record, the company's marketing strategy will focus more on alternative media like direct response television and the Internet and less on direct mail.


Reader's Digest said its fiscal 1998 results, which included a net income drop of 56 percent to $69.7 million, were in line with expectations. Ryder said he expects the company to show a "modest" improvement in fiscal 1999 and more significant improvements in the next two years.
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