Reader's Digest Falls Short Of Profit Goals, Will Trim Work Force

PLEASANTVILLE, N.Y. -- Reader's Digest Association Inc. warned that earnings for its fiscal fourth-quarter and the first quarter of fiscal 2002 will come in well below its previous estimates, and outlined a number of cost-cutting measures, including a reduction in its work force. The publisher and direct marketer Wednesday blamed the expected shortfall to weakness in the direct-mail industry, the publishing industry's advertising slump and changes in promotions related to its multistate agreement on sweepstakes marketing earlier this year. Reader's Digest plans to record a fourth-quarter charge of $60 million, or 27 cents a share, for cost-cutting moves that include headcount reductions as well as the restructuring of the books and home entertainment, or BHE unit, the company's largest division. In midday trading on the New York Stock Exchange, shares of Reader's Digest Association were down $2.56, or 11%, at $21.20. Spokesman William Adler said the company hasn't disclosed how many people will be affected by the work-force reduction, or even whether it will be done through layoffs or voluntary separations. Reader's Digest currently employs about 5,000 people worldwide, with about 2,000 of those in the U.S. The company also will fold Walking magazine, effective with the September/October issue. The magazine was unprofitable, and didn't have adequate sources of new subscribers, the company said. Reader's Digest now expects to report earnings for its fourth quarter ended in June of about five cents a share, down from its previous estimate of 18 cents to 21 cents a share. Analysts had been expecting earnings of 19 cents a share for the period, according to Thomson Financial/First Call. Before the company warned in March that the sweepstake settlement could have a modest impact on results for the remainder of fiscal 2001 and 2002, Wall Street was anticipating earnings of 28 cents a share. Analysts again trimmed estimates, from 24 cents a share, in May, after yet another earnings warning. Reader's Digest now expects revenue and operating profit to be flat for the year, and anticipates fiscal 2002 first-quarter earnings will be "significantly" below the 28 cents a share earned for the same period a year earlier. Analysts have been expecting earnings of $1.66 a share for the year and 26 cents a share for the first quarter. The company declined to forecast results beyond that. "Although we are confident in our strategy for the long-term growth of our business, at this point we do not have enough information about the new year to feel comfortable giving further guidance," Chief Executive Thomas O. Ryder said in a prepared statement. RDA plans to release full results for the fiscal fourth quarter and full year on Aug. 14, and Mr. Adler said it will have more details on the work-force reduction then. After a strong first half, Reader's Digest's core U.S. businesses underwent sharp reversals in the second half. The books and home entertainment, or BHE, unit was affected the most, and resulted in the move to restructure. BHE is the company's largest division, and includes the flagship Reader's Digest magazine. The industrywide advertising slump affected all of the company's magazines, including the Reader's Digest monthly, but the smaller special interest publications were hit hardest. Since the sweepstakes settlement earlier this year, RDA has been moving away from sweepstakes and testing new promotions, Mr. Adler said.The settlement had to do with allegations that RDA's promotions misled customers. The company entered an agreement with attorneys general for 32 states and the District of Columbia over the standards for such promotions and agreed to pay about $6 million to customers plus $2 million in attorneys' fees and investigation costs. Copyright (c) 2001 Dow Jones & Company, Inc.

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Reader's Digest Falls Short Of Profit Goals, Will Trim Work Force

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