PW: Publishers' Margins Continue to Improve in '97

For the third consecutive year, the number of publicly traded book publishers that were able to improve their profit margins increased in their most recent fiscal years. Of the 17 companies tracked by PW, 11 posted improved margins, while only six saw their margins decline. Last year, nine companies posted profit improvement, while in 1995 only five companies reported gains in their operating margins.

Ironically, it was Times Mirror, which is abandoning the book market, that showed the biggest profit improvement, with the operating margin in its professional information group rising from 5.7% to 16.8%. TM attributed the gain largely to improvements made in its Mosby-Year Book medical division, which is to be sold to Harcourt General. Reed Elsevier's purchase of Matthew Bender, the other book component of TM's professional group, was completed July 31.

Costs related to the acquisition of National Education Corp., as well as $58 million in restructuring charges in its existing publishing operations, resulted in Harcourt Brace posting an operating loss of $139 million in the fiscal year ended last October. Excluding NEC, Harcourt Brace would have had operating income of $223 million. Restructuring charges also resulted in losses at Dove (now NewStar Media) and at Golden Books.

Although Scholastic showed a modest operating margin of 4.5% in fiscal 1998, it marked a significant turnaround from the 1.8% margin posted in fiscal 1997. HarperCollins's operating margin for the year ended June 30, 1997, was 1.6%, a mark that reflected difficult times in both the U.S. and overseas. Results for the year ended June 30, 1998, due out later this month, are expected to show a much-improved performance. The same cannot be said for Reader's Digest, which had a dramatic drop in its operating margin in fiscal 1997; little improvement is expected in its books and home-entertainment segment when figures are released in several weeks for fiscal 1998.

Despite a 12.6% increase in operating income, Waverly was able to push its operating margin only slightly above 4% in 1997. Waverly's new parent company, Wolters Kluwer, had a 21.4% operating margin last year, clearly showing the benefits of economies of scale in the professional publishing industry.