McGraw-Hill eyes growth after cuts

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After weathering one of the worst ad markets in memory last year, Business Week Publisher William Kupper has a cool sales forecast for this year.

"It’s not going to be a great year. It’ll be OK," Kupper said. "Things will gradually start to pick up after April."

Heading into the new year, Business Week had sold 15 multi-platform ad packages, which include print, broadcast, conference and online components, to several of its top advertisers. Kupper hopes to boost such sales in 2002. "It’s a second-half game, and to our benefit there will be less competition for us than we had last year," he said.

Kupper was referring to the bevy of business titles that didn’t survive the great ad meltdown of 2001. Business Week’s pages were down 37% year-to-date in 2001 compared with the same period in 2000, according to the Publishers Information Bureau, while ad revenue dropped 31% during that period. Circulation stands at 975,000.

While an entrenched brand such as Business Week isn’t going anywhere, the publication has taken some painful steps to respond to the economic downturn and what remains an anemic ad market. Those moves include reducing the frequency of its e-business supplement to 10 times a year from 12, starting this year, and three separate rounds of job cuts in 2001.

The latest staff cut, in which 39 people were let go, was part of a larger restructuring plan announced in December by corporate parent McGraw-Hill Cos. A total of 975 employees, or 5% of thecompany’s work force, were laid off in the restructuring, with the cuts coming from both editorial and sales and marketing, said Steve Weiss, a McGraw-Hill spokesman. No more layoffs are planned, for now.

Cultivating the core

Many of the cuts came from consolidating several of the company’s education markets throughout Europe, Latin America and Asia. Publishing operations in Portugal and Columbia were closed altogether. Other cuts came from exiting the business training courseware market. "It’s just not a robust market for us anymore," Weiss said.

The company is betting on education markets in the U.S., where long-term trends should play into the publisher’s core strengths.

For example, McGraw-Hill is one of the leading providers of math and English assessment testing for grades 3 through 8, which is at the center of an education bill that was signed this month by President Bush.

"The education market is a very attractive opportunity for a lot of publishers," said Roger Krakoff, managing director-media investment bank Jordan Edmiston Group Inc.

"You have a lot of investment both from the government and the public, so publishers can have a big impact on the way education is delivered from grades K through 12, as well as markets in higher education. The education market allows the publisher to extend."

Despite backing away from the estimate just a couple of months ago, McGraw-Hill is now anticipating double-digit earnings growth in 2002. The company expects to report revenue growth of 6% to 8% for 2001.

Bullish growth prospects

Roland DeSilva, managing partner at media investment bank DeSilva & Phillips, predicted that other media companies that also made deep job cuts in 2001 could achieve double-digit earnings growth this year.

Having a diverse portfolio helps. While third-quarter sales at McGraw-Hill’s ad-dependent information and media services division fell 75% to $8.3 million, from $32.7 million in 2000, revenue for the education division rose to $998.8 million, from $847.7 million in 2000. Revenue for the company’s financial services unit, which includes the Standard & Poor’s ratings service, was $350 million, compared with $21 million in 2000.

McGraw-Hill’s stock is trading around $60, off a 52-week high of $70.87.

Weiss said part of the restructuring involves converting many of the company’s products to electronic delivery, starting with some of its construction and finance-related products. "More and more of our customers are asking for information electronically," he said. "It gives us greater reach, higher margins and more top-line opportunities, while adding to the bottom line."

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