News

Reader's Digest Has Mixed Performance
Jim Milliot -- 2/5/01

Unfavorable exchange rates, bad weather and an extremely strong second quarter in the last fiscal year made for difficult comparisons in Reader's Digest's Global Books and Home Entertainment segment in the second quarter ended December 31, 2000. Revenues fell 4% to $460.7 million and operating profit was down 9% to $78.7 million. RD chairman Tom Ryder said that the BHE group was the "hardest hit" by the strong dollar and noted that $8 million in lost operating income was due to exchange rate fluctuations, while another $3 million was spent on developing new marketing channels.

With the exception of France and Germany, most overseas units had improved results in the quarter led by gains in the Select Editions, Young Families and video product lines. Profit was down in the U.S., however, due to a "major turkey" in the illustrated book series as well as weaker sales in the video unit, Ryder said. In addition, RD's Books Are Fun subsidiary had its first down quarter since being acquired by the company, but Ryder was confident the operation will be a major moneymaker, describing the profit decline as a "blip." Bad weather in the Midwest and the late arrival of scooters were the major factors in the disappointing performance at Books Are Fun. Ryder said Books Are Fun successfully launched art fairs and jewelry fairs in the U.S., and the company is prepared to roll out the concept in Mexico following a very encouraging test.

Ryder said the most disturbing aspect of the quarter was the poor performance of a few products. "We shouldn't have big misses. I thought we had worked through that," Ryder said. He told analysts that RD "expects a strong second half, roughly in line with the range of analyst estimates." Longer term, Ryder said the company will fall short of its goal of having $5 billion in revenue by fiscal 2004 without an acquisition, although he expects RD will exceed the $500-million profit target.

For the first six months of the year, the BHE group reported a 4% increase in operating profit to $132.8 million on a 2% increase in sales to $819 million.

Ryder also used the conference call to announce some personnel changes. John Bohane has been put in charge of all international business and he will continue to oversee global publishing. Tom Gardner, who had headed RD's new business development efforts, has been given day-to-day responsibilities for the BHE's North American group.