GES, E/G Are Off to Good Starts in '06

Exhibitors may be spending on tradeshows again, but the penny-pinching habits they picked up during the downturn have apparently stuck.

GES Exposition Services and Exhibitgroup/Giltspur both saw year-over-year increases in revenue and operating income in 2005. But in order to keep financial results on track in the current environment, the Viad subsidiaries have had to adapt.

GES has been emphasizing its products and services, and focusing on operating efficiencies to make up for the decline in material handling revenue resulting from exhibitors' move to lightweight booths and fewer products on the showfloor. And E/G has had to rely on cost-cutting to make up for the unpredictability of new booth orders.

GES has also had to deal with higher fuel prices, which add substantially to the cost of transportation, carpet and plastic. A petroleum surcharge introduced last fall is intended to make up for at least some of those cost increases.

"The customers are certainly understanding that the cost of petroleum is something of major impact," GES President and CEO Kevin Rabbitt told analysts during Viad's recent earnings call. "They see it every day in their home heating bills and filling their gas tanks up at the pump."

GES' sales of discretionary services last year outpaced revenue from higher-margin material handling services, and Rabbitt doesn't expect that to change. "There is a more positive outlook from exhibitors, but the use of lighter-weight components is a trend I don't think is going away," he said.

At E/G, President and CEO Kim Fracalossi reported that higher-margin new-construction orders comprised 30 percent of the company's business in the fourth quarter, up from the 23 percent expected. Still, the proportion of new orders remained far below their pre-downturn level of 40 percent to 45 percent.

"We think this is a very positive sign of the health of the event and exhibition industry," said Fracalossi, in regard to the new-construction orders. But, she added, "we still don't have great visibility over construction revenue. Most companies don't build a new exhibit every year."

Rabbitt said the strong performance of Intl. CES bodes well for the rest of the year. The Jan. 5–8 show at the Las Vegas Convention Center was up from 2004, drawing 150,000 attendees and featuring a 1.7 million net square foot showfloor with more than 2,500 exhibitors.

"We're certainly not expecting growth of this magnitude from all our shows," Rabbitt said. "Nonetheless, the growth in this show is a positive early indicator for the industry as we begin the new year."

GES, like many tradeshow industry companies, has also felt the effect of Hurricane Katrina. Several employees have remained in New Orleans to handle cleanup of the company's facility there. GES' first big New Orleans convention will be the meeting of the American Library Assn. in June.

Meanwhile, Viad Chairman Robert Bohannon said the company remains on the lookout for acquisitions.

"We're not interested in anything right now on the E/G side. We still want that industry to settle down a bit. But we've been very active on the GES side of the house in looking," Bohannon said, noting that two recent deals almost came to fruition. "If we'd been able to get them at the right price, our shareholders would have been very pleased."

Overall, Viad officials expect continued improvement in 2006. "We've had some years where we faced terrific headwinds, particularly in the convention and event industry. But we now believe we have a little wind at our backs," Bohannon said.