Another poor quarterly performance by its international division has prompted Reader's Digest to restructure its overseas operations, a decision that will result in the elimination of about 200 jobs. The positions to be cut are in RD's European and Asia Pacific/Latin American businesses as well as some support functions in the U.S. RD expects the overhaul to save $70 million in costs annually.
Sales in RD's international segment, which is responsible for the company's foreign book and magazine businesses, fell 5%, to $236 million, in the third quarter ended March 31, but operating income plunged 98% to just above breakeven for the period. RD chairman Tom Ryder said problems with the international unit's core business were exacerbated by "further economic weakness in most parts of the world." Problems highlighted by RD included lower response rates, soft advertising and lower than expected payment performance in some larger markets, notably Germany and France.
Results were much better in RD's North American Books and Home Entertainment segment, where operating income increased 46%, to $7.9 million, despite a 21% decline in revenue, to $127 million. The decline in sales was expected as the company closed unprofitable programs in its U.S. BHE unit, which drove sales down by 38%, but which also resulted in an operating profit of $1 million in the division, compared to a loss of $7 million in the third quarter in fiscal 2002. Profits improved significantly in the U.S. division's Select Editions and Home and Hearth groups, offsetting a $3 million decline in profits from Books Are Fun. RD attributed the drop in earnings at BAF, which has been one of its strongest performers, to a 7% fall in sales due to severe winter weather that caused some events to be canceled or shortened.
