Analysis of Publicly-Held Magazine Publishing Companies

By Suhler, John S.; Hunnewell, Walter, Jr. | Folio: the Magazine for Magazine Management, March 1987 | Go to article overview

Analysis of Publicly-Held Magazine Publishing Companies


Suhler, John S., Hunnewell, Walter, Jr., Folio: the Magazine for Magazine Management


Analysis of publicly-held magazine publishing companies

Magazine publishers, while not matching the financial growth rates from operations posted annually by the entire communications industry, have been delivering a standout performance on the test that, from an investment perspective, matters the most: return on assets.

This key measure focuses on how much every dollar invested in a company has grown. Taking into account the value of plant, inventory, receivables, cash and other holdings, return on assets is a comparison of the operating bottom line--income and cashflow --with the amount of investment needed to produce it.

Our assessment of magazine publishers, compared with the entire communications industry, is based on a review of their operating results for the five-year period from 1981 through 1985. During this period, the publishers showed themselves to be much more efficient asset utilizers than did the overall industry--and this was true not only in terms of returns on assets, but also in terms of their asset turnover rate.

These conclusions are drawn from the data presented in the fourth annual edition of Communications Industry Report. The report carries data for 355 business lines of 279 companies operating in the communications industry in the United States and Canada. It groups the data into 10 segments (and there is also a miscellaneous grouping for cases where less than 60 percent of the revenue in a business line comes from a communications activity that can be categorized).

The data show that the assets of the industry's magazine publishing sector--the combined results for business and magazine publishers--grew at essentially the same compound annual rate as did assets for the entire industry over the five years through 1985 (19.8 percent for magazines; 19.9 percent for the industry). But the magazine publishing sector's return on assets (ROA) has consistently bettered the industry's return each year--and by substantial amounts. The sector's operating income ROA, for example, averaged 29.8 percent compared with 16.1 percent for the industry. Generally, the sector's operating income ROA performed twice as well as the industry each year except in 1985, when it did half again as well.

The 10 industry segments, besides the two magazine publishing groupings, include newspaper publishing, broadcasting, cable and pay television, and business information services. Also included are book publishing, entertainment programming distribution, recorded music, and advertising.

In the magazine sector, data have been compiled for 15 business and 17 consumer magazine publishers. No publisher in one segment appears in the other, suggesting that the business operations of business and consumer magazine publishers are distinctly different.

Five-year sector results

For the five years ending with 1985, the operations of 29 of these 32 magazine publishers--all but two of them publicly held--grew more slowly than the industry as a whole. The publishers managed a 7.9 percent compound annual growth in revenue, for example, compared with 13.7 percent for the industry. Their pretax operating income for the period grew 8.7 percent annually, only half the industry's 16.7 percent rate. Their profit margin in 1985 improved only 0.3 percentage points from its 1981 level, compared with a 1.5 percentage point improvement for the industry.

Nor did the magazine sector grow as rapidly as the overall industry in terms of cashflow. The publishers' five-year compound annual growth of pro forma cashflow was 11.6 percent versus 18.7 percent for the industry. Their cashflow margin in 1985 improved only 1.6 percentage points over its 1981 level, compared with a 3.0 percentage-point gain for the industry. (Cashflow is "pro forma' because it is obtained by adding depreciation and amortization to pretax operating income as a means to approximate actual cashflow. …

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