Thomas O. Ryder, chairman of Reader's Digest, said he was "very unhappy" with the company's performance in the second half of fiscal 2001 and promised to sharpen cost control initiatives to get the results he wants. Ryder made his comments in a conference call with analysts who discussed RD's third-quarter results for the period ended March 31, 2001, which showed a 2% decline in sales to $607.7 million and flat operating earnings at $40 million.
Ryder said the difficult operating conditions, which he identified as a soft economy and changes made in its sweepstakes promotions under a settlement reached with 32 attorneys general (News, Mar. 19), would continue into the fourth quarter, and as a result RD has lowered its earnings forecast for the current period. For fiscal 2002, RD is now projecting earnings growth of between 10% and 20%.
The company's Global Books and Home Entertainment group had a particularly tough quarter with operating earnings down 14.7%, to $39.8 million, and revenues off 8.5%, to $367.2 million. A poor performance by the group's U.S. operation offset gains in most international markets, RD said. Sales in the general books category dropped by $8 million in the U.S. in the third quarter, and operating profit was down $5 million. General book revenues also declined in the U.K., Brazil and Benelux. "This [general books] has not been a great business this year," Ryder said. On the positive side, Ryder said RD's Books Are Fun division had a strong quarter, with profits doubling, and he predicted more good news ahead for BAF, which the company has rolled out in Mexico and is testing in France. BHE 's Young Families division is "doing nicely," Ryder added.
Among the cost control programs being prepared by RD is a reengineering project designed to save $100 million by changing the way the publisher buys goods and services. The consolidation of some business units outside of the U.S. is also in the works.
For the nine-month period, sales in the BHE group were down 1.3%, to $1.19 billion, and operating earnings were off 0.7%, to $172.6 million.