Publishers' Profits Had Solid Gains in 1999
Jim Milliot -- 9/4/00

Operating margins at 11 of the 16 publishing companies tracked by PW rose in their most recent fiscal years, while margins at five companies fell. In 1998, margins were up at nine companies and down at seven. As another encouraging sign of publishers' profitability, 11 companies had double-digit margins last year compared to nine in 1998.

The benefits of economies of scale became more evident in 1999 as several publishers that have been in acquisition mode posted solid gains in their operating margins. HarperCollins's operating margin of 8.6% for the fiscal year ended June 30, 2000, marked the fourth year in a row margins improved at the company and reflect the successful integration of the Morrow/Avon purchase as well as internal growth. The completion of the integration of Putnam Berkley into the Penguin Group as well as major strides in merging the Simon & Schuster educational, business and professional publishing group into Pearson pushed operating margins in Pearson's book publishing operations to 13.9% in 1999 from 12.0%. Margins at Pearson Education were 14.9% in 1999, while Penguin had a 11.5% margin.

While the acquisitions were not quite as large at John Wiley & Sons, they nevertheless helped to increase operating margins at the company to 15.0% as operating earnings increased 40% to $89 million on a 17% gain in sales. Wiley's 15% margin was the second highest among the 16 companies followed by PW and marks a dramatic improvement from the years (not that long ago) when Wiley's margins were among the lowest in the industry.

The healthy state of education funding helped boost operating margins at the McGraw-Hill Cos.' educational and professional publishing group to 15.7% in 1999 from 12.5% in the previous year. Other major educational publishers also benefited from higher spending on education as the operating margin at Harcourt increased to 13.0% from 11.5% in 1998, while margins at Houghton Mifflin improved to 12.2% from 11.8%.

In addition to acquisitions, restructuring helped to improve margins at three companies. While margins inched ahead to only 7.9% from 7.8% at Thomas Nelson as the company overhauled its gift division, restructuring yielded impressive gains at Reader's Digest, where margins rose to 13.4% from 5.5% in the company's book and home entertainment group, the strongest gain among PW's 16 publishers. And while it has yet to break into the black, the reorganization efforts at Golden Books resulted in the company's smallest operating loss in five years, and the operating margin loss was cut to 10.5% from 66.6%.

The loss of scale hurt margins at Simon & Schuster, where margins fell to 8.9% in 1999 from 9.4% in 1998. During 1999, S&S was in the process of building an infrastructure to replace the one it lost with the sale of the educational and professional units in late 1998. Other companies where margins fell included Torstar, where profits dropped at Harlequin for the first time in seven years and earnings at Torstar's supplementary education unit were flat. The decline in margins at Tribune Education was due to declining sales in the group's retail market as well as higher costs associated with new products for the 2000 school sales season.