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Homes, Gardens And A Tidy Turnaround


The Corporation

HOMES, GARDENS--AND A TIDY TURNAROUND

For a publishing company that makes a living dispensing advice on home and hearth through such perennials as Better Homes & Gardens and Ladies' Home Journal, it was ironic that Meredith Corp.'s own house was such a mess a few years ago. Its magazines' ad pages withered in the advertising downturn. Ill-timed expansions into real estate brokerage and cable television led to wide swings in earnings. And its homegrown managers just could not pull the Des Moines publisher out of its morass.

Meredith remains the leading U.S. "home and family" media company--but few in the publishing world dismiss it as a heartland has-been nowadays. Meredith Chief Executive Jack D. Rehm, 61, is in the midst of a fresh expansion, with plans to launch an armada of new subscription magazines--as many as four a year--to bolster Meredith's existing fleet of 24 titles. And management ranks at the once insular company, which is 63% controlled by the Meredith family, have been infused with new blood. Among the most notable hires: William T. Kerr Jr., former head of New York Times Co.'s magazine group, hired three years ago, became president and heir apparent to Rehm on July 1. "We want to be respected by the competition," says Rehm, a 32-year veteran at Meredith, "and we feel very optimistic about the next few years."

Meredith still has a lot to prove. At 7.3%, the operating margins at its publishing business are fairly thin. About 10% is considered respectable in the industry. But there are signs of improvement: While Meredith's profits for the year ended June 30 were a slim $22.9 million on revenues of $799 million, that still represented a 23% jump (chart). Even better for the Meredith family and other shareholders, the stock has risen 15% since the start of the year to 46. "We're going back to what we were: a successful magazine and broadcasting company," says E.T. Meredith III, a member of the board and grandson of founder Edwin T. Meredith.

Turning to outsiders has certainly helped get Meredith back on track. In addition to Kerr, Rehm in 1992 hired Christopher M. Little, who formerly served as president of both Newsweek and Cowles Magazines Inc. He now heads Meredith's magazine group. In 1991, Rehm recruited Joseph J. Ward, the former publisher of Time-Life Books, to head the book division. The new managers are changing Meredith's paternalistic culture: They have helped cut the payroll by 7% since 1992, to 2,000.

With costs more manageable, Rehm and his new team are trying to rejuvenate Meredith's magazine empire. Dishing out recipes and gardening tips may not sound particularly enticing in the fast-paced media world of the 1990s. But they're a big hit with Meredith's 20 million subscribers--mostly women. More significant, analysts believe Meredith's franchise is emerging as one of the most profitable sectors in publishing, as baby boomers grow older and their tastes turn more conservative. "Their thrust of family and home is the hot thing for the '90s," says Shari Wall, senior vice-president at J. Walter Thompson in Chicago, which represents big Meredith advertisers Kraft General Foods Inc. and Quaker Oats Co.

To exploit those changing demographics, Meredith's editors are working on a new generation of gardening, food, and craft magazines. It's tricky. By using its 63-million-name database of current and former subscribers and customers, Meredith hopes to capture readership for its new magazines without spending heavily on promotion. But it has to guard against cannibalizing readers from existing publications.

Meredith came up with the idea for a new magazine, tentatively titled HomeGarden, and then sampled its database to see if it would sell. It then tapped its subscription lists, including Better Homes', to come up with 400,000 potential readers to start with. Meredith insists that, in editorial content, HomeGarden, to be launched in January, is so different from Better Homes that subscribers will continue to get both. Meanwhile, Meredith is giving a face-lift to Better Homes. The flagship publication now has puzzles and games for parents and their children. Advertisers are welcoming the changes. Better Homes had 14.6% of all ad pages in women's service magazines in the first half of 1994, up from 13.9% in 1993.

Still, mindful that the ad market may never again be as lucrative as it was in the 1980s, Rehm is also rushing to build his other media businesses. The company is willing to spend $400 million for TV and magazine acquisitions. It's shopping around for two TV stations to bring its holdings up to seven. Meanwhile, at Meredith's ailing book unit, whose top seller is the plaid-jacketed Better Homes & Gardens New Cook Book, Ward hopes to publish a slew of new books on everything from food to woodworking.

NIGHTLIFE? Meredith is also trying to cash in on the marquee value of its brand names. A Better Homes real estate franchise operation hasn't grown in years. But Rehm isn't giving up. This year, Meredith allowed Wal-Mart Stores Inc. to set up Better Homes & Gardens Centers in 2,000 outlets to sell garden tools and supplies. Analysts reckon Meredith has so far received as much as $4 million in licensing and revenue-sharing fees from Wal-Mart. Other possibilities Meredith is considering: a line of Western clothing and even nightclubs, tied to Meredith's Country America magazine.

Despite his recent success, Rehm's work is far from done. He has set an ambitious target of a 15% return on equity by 1997--a big stretch from the 8.9% in 1994. And other publishers see opportunity in the same markets Meredith is aiming for. Hearst Magazines, home to Redbook and Good Housekeeping, is planning new family publications. In July, Germany's Gruner & Jahr USA Publishing spent $275 million to buy Meredith rivals McCall's, Family Circle, and American HomeStyle from New York Times. Says Gruner USA CEO John Heins: "We think we can make this market even more competitive," he boasts.

What's more, Meredith has been slow to explore the potential of multimedia. Rehm refuses to spend heavily to gain access to the Information Highway. "We don't know enough about consumer behavior to warrant it," he says. That approach is conservative--not hidebound, argues Rehm. A subtle distinction, perhaps, but one that has made all the difference at Meredith.

MEREDITH BETS ON EXPANSION

MAGAZINES

Plans to launch three to four new magazines a year. First major entry, tentatively titled HomeGarden, is to be introduced in 1995.

BROADCASTING

Searching the top 40 markets for two TV stations to bring holdings up to seven. Plans to sell off small cable venture.

BOOKS

Speeding up and expanding new book launches. In partnership with multimedia company, Multicomm, wants to introduce CD-ROM versions of several books.

LICENSING

Aims to parlay the franchise value of its big-name magazines into additional revenue. Opened Better Homes & Gardens shops in 2,000 Wal-Mart Stores earlier this year to sell garden supplies.

DATA: BUSINESS WEEKRichard A. Melcher in Des Moines


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