Reader's Digest Association Inc. will restructure its U.S. books and home entertainment division amid warnings it issued yesterday that fourth-quarter 2001 and first-quarter 2002 earnings would be much lower than expected.
The company said it expects fiscal fourth-quarter earnings to be 5 cents per share, down from its previous estimate of 18 cents to 21 cents per share. Earnings will be announced Aug. 14.
Reader's Digest, Pleasantville, NY, said most of its core businesses in the United States had been hurt in its fiscal second half, especially the BHE division. The company will revamp the division, creating six business units built around entertainment, health, home, reading, trade publishing and young families.
It attributed the earnings decline to the soft economy, weakness in the direct mail industry, lower responses to certain products, and a settlement in March with 32 states and the District of Columbia involving sweepstakes marketing. As part of the settlement, Reader's Digest agreed to pay $8 million and revamp its direct mail sweepstakes disclosures.
Reader's Digest announced several other moves last week to improve profitability, including speeding efforts to remove $150 million from its global cost base, widespread cutbacks in its annual compensation programs and the closure of Walking Magazine.
“The most significant of these moves, in the long term, is the transformation of our U.S. BHE business,” said Thomas O. Ryder, chairman/CEO of Reader's Digest. “Its new organization is designed to reduce risk, to respond more quickly to opportunities and to operate more profitably.”
In addition to the restructuring, the company announced a one-time fourth-quarter charge of $60 million, which includes costs related to its global cost-cutting efforts and restructuring of the BHE division.