E/G Write Off Drags Down Viad's Quarterly Results

Companies report that operating environment remains a challenge

By Margo McCall -- Tradeshow Week, 11/8/2004

Viad, parent of Exhibitgroup/Giltspur and GES Exposition Services, reported a $68.3-million third-quarter loss after writing off $80.4 million due to the continuing poor outlook for E/G's new-exhibit construction business.

The loss, a contrast to the year-ago quarter's $1.9-million profit, prompted shares of Viad to plummet by $1.27, or nearly 6 percent, the day of its earnings report.

For nearly two years now, E/G has been waiting for companies to start spending again on new high-margin tradeshow exhibits. Quarter after quarter, E/G President Kim Fracalossi has expressed hope that the dam of pent-up demand will burst, unleashing a new wave of exhibitor spending. Although Tradeshow Week research indicates that square footage and the number of exhibitors and attendees are all on the rise, companies are apparently still holding off on new exhibits.

"We're not seeing the rebound in spending for 2005 that we previously anticipated," Fracalossi told analysts during Viad's conference call. "We think it will rebound. We just don't know when that will happen."

Viad CEO Robert Bohannon said the writedown was taken after the Chicago-based E/G's value was recalculated based on its lower revenue outlook.

At the Las Vegas-based GES, Viad's general services contractor subsidiary, the quarter was busy, marked by a number of gigantic shows, including the Intl. Bakery Industry Exposition, Intl. Manufacturing Technology Show and MINExpo Intl. Revenue was up by $44.4 million, or 46 percent, from the $96.3 million recorded in the third quarter of 2003.

Although operating margins of 8.6 percent were up from the year-ago quarter, GES President Paul Dykstra said they were under pressure due to higher fuel prices, hurricanes in the Southeast and the Teamsters strike in Las Vegas, which Dykstra said cost the company $1.3 million.

Although Dykstra expects square footage to continue to increase moderately industrywide, he said his company's operating results will decline in the fourth quarter because customers are using lighter-weight exhibits, reducing materials handling sales. Dykstra added that all the factors together are increasing pressure for price increases.

Indeed, Bohannon acknowledged that prices probably would be raised to combat the challenging operating environment. "It's a tough world out there, and the leadership teams are going to have to step in and do a little more on the cost side. The cost of doing business is increasing," Bohannon said. "I expect they'll do a better job at obtaining price increases."

Meanwhile, revenue within Gartner's events business is on the rise. The Stamford, Conn.-based company reported $19 million in third-quarter events revenue, up 17 percent from the year-ago quarter. So far this year, events revenue of $74 million is up 17 percent year over year, even though three fewer events have been held.

"Our events business continues to deliver solid results," CFO Christopher Lafond said during the company's conference call. "Without a doubt, Gartner is the preeminent brand in the information technology industry."

According to Lafond, the company's fall ITxpo shows are on track to draw 10 percent more attendees than last year. All told, its events attract only about 17,000 attendees per year.

Ziff Davis, meanwhile, is just getting back into the events business. The company reported revenue of $45.2 million, up slightly from the third quarter of 2003. But its $6.5 million in operating cash flow was down slightly from the year-ago quarter due to several new initiatives, including the launch of last month's DigitalLife at New York's Jacob K. Javits Convention Center. DigitalLife, a technology show for consumers, met expectations with 110 exhibitors and 25,000 attendees, Ziff Davis Vice President James Hasl said.