Source Interlink Reports Revenue Spike

Source Interlink—the magazine distributor owned by supermarket billionaire Ron Burkle's Yucaipa Cos. which bought Primedia's enthusiast magazine group for $1.2 billion last year—reported its fourth quarter and full-year fiscal 2008 results this week.

For its full-year reporting period (ending January 31, 2008), the company's revenue grew to $2.3 billion, a 23 percent jump from the previous fiscal year.

During a conference call with investors, Source Interlink chairman Mike Duckworth praised the company's ability to diversify—adding print and digital content ownership to its distribution and fulfillment operation, giving the company control of both magazines and how they're distributed.

In the fourth quarter, which was the first to include financials from the Primedia acquisition, Duckworth described a robust digital division but struggling print side. "Our digital platform posted a 63 percent increase in advertising. This growth was offset by a challenging advertising environment in print leading to a revenue decline of two percent from the comparable period last year. EBITDA decreased $700,000, or three percent, from the same quarter last year due to both top-line impact and increased cost for paper, ink and delivery-factors impacting the entire publishing industry."

Duckworth added that due to continued investment in digital (for fiscal 2009, the company expects to spend $14 million of its $39 million capital expeditures on digital) unique visitors increased 17 percent and full-year revenues grew 25 percent.

Of the company's four divisions, magazine fulfillment saw the highest year-to-date growth at 17.4 percent to $950 million.

Source to Increase Newsstand Cover Prices

Meanwhile, Source continues to manage costs through a combination of price increases and consolidating distribution services. Through consolidating distribution alone, the company expects a three-year cost savings of $18 million. The company has been integrating its two distribution systems, starting with the consolidation of its Minnesota and Chicago facilities into one facility outside Chicago. "This will allow us to service our specialty and mass-market accounts with one inventory pool across the same logistics network without any compromise in quality," said Duckworth.

On the newsstand, Source is increasing cover prices to offset higher manufacturing and delivery costs. The company is also testing higher subscription prices to "improve overall circulation economics."

Other cost reduction initiatives included a 12 percent slice in headcount and cost reductions initiatives in consumer marketing and general overhead. In fiscal 2008 Source reduced draw by 10.8 million copies and plans to a further 7.4 million copy reduction in fiscal 2009.

The company reported total debt of $1.4 billion, half of which is currently at a fixed interest rate.