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Reader's Digest Association Hits Brakes, Again

Poor results lead to more layoffs, international scale-back
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More cost-saving moves are afoot at Reader’s Digest Association after what CEO Robert Guth called “disappointing” results in the second quarter of 2012.

The global publisher and direct marketer has been trying to turn itself around, but revenue tumbled 22.5 percent to $291 million in the quarter versus the year-ago period. Factors included the sale of Every Day With Rachael Ray, declining magazine circulation, a soft food advertising market and badly performing books and home entertainment businesses.

Guth, a tech and telecom exec who was installed as CEO a year ago, said RDA was taking the “distressing step” of lowering RDA’s earnings guidance for the year, to a range of $85 million to $100 million in consolidated EBITDA. Because of that shortfall, he said the company anticipated missing terms of its $50 million bank loan—a condition that could lead to more asset sales in order to repay the loan.

Last week, one of the highest-ranking executives, Dan Lagani, left the company as North American president, and several other employees in North America were laid off. Guth said Lagani's departure didn't reflect a change in strategy to make RDA more stable and profitable, but Lagani had ambitious brand-building plans for RDA's remaining titles like Taste of Home and The Family Handyman, which may not have fit with Guth's aggressive cost-cutting.

RDA is also scaling back its international division—long a source of branding pride, with 45 Reader's Digest editions overseas historically making up half the company's revenue. But the company said that with weakness in the European economy, it was forced to discontinue direct marketing and magazine operations in several markets. RDA said it was selling its Spain, Portugal, Mexico and Argentina businesses, having already closed those in China, Ukraine and Kazakhstan. Going forward, the company can be expected to license other overseas operations, which traditionally means keeping less of the revenue but shouldering less of the overhead costs.

Once the publisher of the best-selling consumer magazine in the U.S., RDA was brimming with optimism after private equity firm Ripplewood Holdings took it private in 2007 with seasoned publishing exec Mary Berner at the helm. New publications were launched, the flagship collected the prestigious National Magazine Award for general excellence and Rachael Ray was one of the hottest things going.

Then the recession hit, sending RDA into bankruptcy protection in 2009. Since it emerged under new owners, RDA has been paring its assets, most notably selling Rachael Ray and Allrecipes.com to Meredith Corp. It also closed Fresh Home, a perky DIY shelter title it introduced in 2009.