January 25, 2022

Media Decoder Blog: Martha Stewart Living Omnimedia to Lay Off Staff and Reduce Magazines

Martha StewartFernando Leon/Getty Images Martha Stewart

Like many New York companies, Martha Stewart Living Omnimedia had a difficult week. The basement of the company’s offices in west Chelsea were flooded by Hurricane Sandy, sending staff members home for the week and forcing the company to twice reschedule its quarterly earnings report, now set for Friday.

On Thursday, there was more bad news when the company announced it was scaling back two of its four magazines and laying off about 70 employees, or 12 percent of the nearly 600-person company.

Everyday Food, the company’s middle-market cooking digest, will be cut from 10 issues a year to five and will no longer be sold as a stand-alone publication. Instead, it will be delivered as a supplement to subscribers of Martha Stewart Living.

Whole Living Magazine, which the company purchased in 2004, is on the market. The magazine, with a circulation of 760,606, has suffered a 24 percent decline in advertising pages in the last year. While company executives say they are already in discussions to sell the magazine, they plan to stop printing it by year-end and fold its content into Martha Stewart Living if a sale is not concluded.

“It’s a significant event in the history of the company,” said David Bank, an analyst with RBC Capital Markets, about the publishing cuts. Unlike bigger publishing companies with dozens of magazines, Martha Stewart is now heavily dependent on only two titles, Martha Stewart Living and Martha Stewart Weddings.

“There’s really one flagship title carrying the operations. The magazine industry no doubt is headed for structural transformation,” Mr. Bank said. “But the bigger you are, the longer you can put it off for. These guys, they’re just subscale.”

The announcement follows a steady stream of bad news from the company, including declining income in all three of its divisions: publishing, merchandising and broadcasting. Last year, the company hired Blackstone Advisory Partners to explore what was considered a sale of the company and ultimately formed a merchandising deal with J. C. Penney. Earlier this year, the company cut $12.5 million in broadcasting costs by not renewing its daily programming deal with the Hallmark Channel, breaking its lease on its television production studio and ending its live audience for “The Martha Stewart Show.” In April, it was announced that a new weekly show, “Martha Stewart’s Cooking School,” would be distributed on public television.

The cuts announced Thursday go to the heart of Martha Stewart’s publishing business, the foundation of her company, which still provides 64 percent of total revenue, according to the latest public filings.

Lisa Gersh, the company’s president and chief executive, said, “We’re taking it really from four separate magazines down to two.” She added that the decision was driven by declines in magazine advertising and newsstand sales and the potential for greater profits in video. The company’s magazine titles have also attracted more digital subscribers than their competitors.

“In light of the clear trends we are seeing across the media industry, and following a careful evaluation of our own publishing segment, we are taking decisive action to drive the company’s return to sustainable profitability,” Ms. Gersh said.

The announcement will not change the relationship of Ms. Stewart herself with the company that bears her name. Last year, Ms. Stewart, who was convicted in 2004 and sent to prison for lying to federal investigators about a stock sale, was allowed to resume an official role in the company. In July, the company agreed to extend her current contract to June 2017.

The company’s publishing fortunes now rest heavily on magazines with very mixed results. Martha Stewart Living’s advertising pages declined by 30 percent in the first half of the year, according to data tracked by the Publishers Information Bureau. While its overall circulation has grown slightly, its newsstand sales dropped in the last year to 163,571 copies in June from 198,700 copies the same time the year before, according to the Audit Bureau of Circulations.

Martha Stewart Weddings has had more success with its advertising pages, which in the last year grew by 49 percent. Ms. Gersh said the magazine’s December issue was expected to be the biggest issue in terms of advertising revenue. But even brides have been buying fewer copies of Martha Stewart Weddings. Its newsstand sales declined to 155,406 copies in the first half of the year from 200,159 copies the same time the year before.

Even with these problems, analysts seemed pleased that Martha Stewart’s executives had finally made a move to cut its publishing costs. Michael Kupinski, director of research for Noble Financial Capital Markets, noted that so far this year the company’s publishing division generated a $12 million loss, while its merchandising division brought in $38 million in net income for the company. Last year, merchandising generated $30 million in net income, while publishing generated a loss of $6.5 million.

“All of the cash flow at the company is driven by merchandising,” Mr. Kupinski said. “It’s been a really tough environment for magazines.”

In a statement, company executives estimated that the latest publishing cuts would save $33 million to $35 million a year on staff, circulation and distribution.

These recent cuts may also put Martha Stewart in better shape for a sale. Mr. Kupinski noted that last year the company hired Ms. Gersh, who was involved in founding and making Oxygen Media profitable and then selling it to NBC Universal. It also brought on Kenneth West, former chief financial officer of Marvel Entertainment, who was involved with selling that company.

“There was a point it was for sale. But Martha wasn’t getting the price that she wanted,” Mr. Kupinski said. “If this management team comes in and at breakneck speed, they’re cleaning up this business, I wouldn’t be surprised at one point that it’s on the block.”

A version of this article appeared in print on 11/02/2012, on page B1 of the NewYork edition with the headline: Martha Stewart Living Will Scale Back Magazines and Reduce Its Staff.

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Stock Markets Recover Some Losses

Stock markets were modestly higher Thursday, just about recovering Wednesday’s losses, although many traders were still shying away from riskier assets at year-end.

In Italy, the government successfully tapped bond investors for more cash for the second day running.

But in a sign that nerves remained high, the euro was near a one-year low against the dollar and sank to a decade-low against the Japanese yen. In relatively thin trading, which often accentuates movements, the euro fell to $1.2883, its lowest level since Jan. 10 and not far from its 2011 low of $1.2860. Against the yen, it fell to 100.33 yen, a 10-year low.

In New York, the Standard Poor’s 500-stock index and the Dow Jones industrial average both closed up 1.1 percent. The Nasdaq composite index was 0.9 percent higher.

On Wednesday, the S.P. 500 fell 1.3 percent, while the Dow lost 1.1 percent.

Another bond auction from Italy’s monetary authorities did little to shore up stocks or the euro, even though borrowing rates fell for the second consecutive day. In total, Italy raised around 7 billion euros ($9.2 billion) in the four auctions.

In the most awaited auction, the Bank of Italy reported that Italy raised 2.5 billion euros ($3.3 billion) of 10-year bonds at an average yield of 6.98 percent. That is lower than the 7.56 percent it had to pay at an equivalent auction last month, when investor concerns over the ability of the country to service its huge debts became particularly acute and effectively prompted a change in government.

However, the country’s borrowing rate on the critical 10-year bond remained uncomfortably close to the 7 percent level widely considered to be unsustainable in the long run. Greece, Ireland and Portugal all had to request financial bailouts after their 10-year bond yields pushed above 7 percent.

In another sign of unease, banks continued to park large amounts of money overnight at the European Central Bank, reflecting strains in the interbank lending market and the central bank’s big 489 billion euro infusion of cheap, long-term credit into the banking system last week. The amount deposited overnight Wednesday was an elevated 436.58 billion euros, down from a record 452.03 billion euros from Tuesday.

The large deposits suggest banks are temporarily holding some of their borrowings from last week there. It also suggests that banks are afraid to lend to each other on the interbank market, preferring to hold cash risk-free at the central bank even at low interest rates.

In Europe, the FTSE 100 index of leading British shares closed up 1.1 percent, while the CAC 40 in France rose 1.8 percent. Germany’s DAX was 1.3 percent higher, though it had borne the brunt of the selling in the previous session.

Earlier in Asia, investors booked losses amid light trading. Japan’s Nikkei 225 index fell 0.3 percent to close at 8,398.89. Hong Kong’s Hang Seng Index closed 0.7 percent lower at 18,397.92.

Oil markets were subdued with the benchmark New York rate up 27 cents at $99.63 a barrel.

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Boeing Posts Strong Profit but Cuts Delivery Forecast

Analysts have been concerned about how long it would take for Boeing to recover its huge investment in the more fuel-efficient passenger plane, which went through several years of production delays and cost increases before the first jet was delivered last month.

Boeing’s chief financial officer, James A. Bell, said Wednesday that individual plane sales would not become profitable until 2015, but that under accounting rules, the Chicago-based company would be able to average the low, single-digit profit over all of the first 1,100 planes sold, which is expected to take about a decade.

That profit level could increase if production costs decline, he added. The company expects to sell 5,000 of the planes over the next two decades.

The 787 is the first commercial airliner made substantially with lightweight carbon composites, which promise to cut fuel costs for airlines.

All Nippon Airways, the first 787 customer, inaugurated service with the plane on Wednesday, taking 240 people from Tokyo to Hong Kong on a four hour 10 minute flight. The Japanese airline expects to take delivery of several more 787s by year-end.

Because of the production problems, Boeing is having to redo a significant amount of production work on the first 40 to 45 planes. But it also has orders for 821 planes, the most ever for a new commercial jet.

Boeing earned $1.46 a share in the third quarter, up from $1.12 a share a year earlier and well above the average of $1.10 a share that analysts had expected. Boeing’s net income rose 31 percent to $1.1 billion for the quarter, from $837 million a year ago. Sales rose 4.5 percent to $17.7 billion from $17 billion.

The company also raised its full-year earnings guidance to a range of $4.30 to $4.40 a share from the previous estimates of $3.90 to $4.10.

But it said that given the rework issues and other problems, it would deliver only 15 to 20 of its 787s and new 747-8 freighters this year, down from a previous estimate of 25 to 30 in combined sales. It also cut its estimates of total plane deliveries for 2011 to 480 from between 485 and 495.

Boeing said revenues for its commercial airplane division rose to $9.5 billion in the third quarter, from $8.7 billion a year earlier. Revenues for its military business were flat at $8.2 billion, though cost-cutting helped the company boost its profit in that area.

Three other large military contractors — Lockheed Martin, Northrop Grumman and General Dynamics — also reported Wednesday that they had topped quarterly earnings forecasts.

But with the Pentagon facing serious budget cuts, sales were lower than analysts expected at Northrop and General Dynamics. And Lockheed cautioned that full-year sales could be flat in 2012.

Robert J. Stevens, Lockheed’s chief executive, also said that the Pentagon was holding up some payments on the F-35 Joint Strike Fighter, while insisting that the company share the cost of fixing any equipment problems that show up in flight tests.

Mr. Stevens said the government had traditionally covered such costs, but that Lockheed was willing to handle some of them as long there were limits on its exposure.

Pentagon officials have said they will not finish negotiating a contract for the next batch of fighters, or pay Lockheed for parts it has already bought, unless the company agrees to share any retrofit costs, Mr. Stevens said. He said the company and its suppliers were already owed $750 million for advance work, and that figure would rise to $1.2 billion by year end.

The F-35 is the Pentagon’s largest weapons program, and the military has come under increasing pressure to reduce the costs. Government auditors have said the program could cost $382 billion if the military were to stick with plans to buy 2,440 planes.

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