Digest Cuts Staff, Will Test New Pubs

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The Reader's Digest Association Inc. is relying heavily on its Reiman Publications division as it struggles to dig out of a fiscal funk brought on by slow international sales.


Reiman will test two new magazines next year, and another two will be tested using the Reiman style in England and Brazil, Reader's Digest said last week as it released earnings for the fourth quarter and year. Also, the company said it will cut staff 12 percent by the end of the year.


One new bimonthly, Backyard Living, will complement Reiman's Birds & Blooms publication, which has more than 2 million subscribers. The other, Our Canada, will take the Reiman formula north as the company also looks to boost the Canadian circulation of its Reiman titles Taste of Home and Country Woman.


The Pleasantville, NY, company will spend $3 million in an effort to drive more than 400,000 new subscribers to Reiman's publications, Eric W. Schrier, president of RD North America and global editor in chief, said during a conference call. Reader's Digest acquired Reiman last year for $760 million.


Schrier said the company also will test two new print products: RD Extra will be a quarterly personal finance magazine, and RD Classic will be an annual compilation of Reader's Digest humor and dramas. Also, the rate base for Reader's Digest magazine is being lowered to 10 million in January - as announced earlier this year, he said.


"Contributing profit in circulation for Reader's Digest magazine has dropped every year since 1994 as a direct result of reduced investment in subscription acquisition efforts during the early and mid-1990s and from declining sweepstakes response rates," he said. "Frankly, advertising performance has been lackluster as well, and our costs remained too high for too long given the declining revenues."


According to Schrier, the North American business will deliver double-digit profit margins in two to three years.


"We expect the four North American divisions that I am now responsible for - U.S. Magazines, U.S. Books and Home Entertainment, Canada and Reiman - to collectively grow earnings in the mid-teens and at something north of that in fiscal 2005," he said.


The company said it lost $13.1 million for its 2003 fourth quarter and had a net income of $61.3 million for the year, down from $91.2 million for its 2002 fiscal year. The quarterly loss, which rose from $3 million a year earlier, is the fourth in the past five quarters. Revenue rose 3 percent to $564 million from $545 million in the prior-year quarter.


Though international business was down for most of the year, the North American-based businesses were up 16 percent in revenue and more than double in operating profit for the year, said spokesman William Adler. The company sells products in more than 60 countries outside of the United States and Canada. It recently restructured itself into RD North America, Consumer Business Service and International Businesses.


To reduce costs in its international business, Reader's Digest said it will eliminate 580 positions by Dec. 31, mostly in that sector. Most of the cuts have been communicated to staff, and costs related to these actions were included in third- and fourth-quarter restructuring charges. In April, the company said it would cut 4 percent of its staff as part of a two-year plan to trim costs.


"While we do not want to claim victory yet - not for a moment - it does appear that the international business has begun to stabilize," Reader's Digest CEO Thomas O. Ryder said in the conference call. "We are meeting or exceeding many of our mailing forecasts, on reduced expectations. ... However, some of our larger overseas markets, like Germany and Brazil, remain volatile." n


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