Hot Off the Presses

Shares of Petersen Cos. on Thursday rose nearly 16% in their first day of trading on expectations that revenue will rise at the Los Angeles-based publisher of Guns & Ammo, Hot Rod, Teen and other magazines.

Petersen shares rose $2.75 to close at $20.25 in New York Stock Exchange trading of 4.4 million shares after a $122.5-million initial public offering. Earlier, shares touched $20.63.

Petersen, founded in 1948, publishes 78 special-interest magazines. Since a group of investors bought the company from founder Robert Petersen in September 1996, the company has reduced costs and is working to boost circulation and ad revenue, analysts said.

“They have installed a lot of confidence in people that they’ll be able to pull costs out and add revenue in to a company that has been underselling and under-earning its potential,” said Lanny Baker, an analyst at Salomon Bros.

The company had been expected to sell 6.25 million Class A shares in the range of $15 to $17 each. It actually sold 7 million shares at $17.50 each, signaling strong demand.

For the six months ended June 30, Petersen’s production, selling and other direct costs were $82.4 million, down from about $92 million in the same period of 1996. General and administrative expenses were $8.96 million, down from $12.9 million. Revenue rose to $120.1 million from $115 million.

Expectations that the company can keep up that performance, analysts said, are what made Petersen’s IPO popular, even though the price was relatively expensive. Baker said Petersen is trading at almost 12 times projected 1998 earnings, compared with a multiple of nine to 10 times for media company Meredith Corp. and one of about 11 times for publisher K-III Communications Corp.

The company said it will increase cross-selling of advertising space among similar titles, raise direct-subscription sales, develop more titles and work on other projects designed to increase revenue.

The IPO represents about a 21% stake in the company.

Still, there are concerns about Petersen’s future. The company projects a revenue growth rate that exceeds projections for the entire magazine industry, analysts said, and it’s unclear whether the publisher can keep cutting costs significantly.

Petersen said it will use the IPO proceeds to repay debt. Before the IPO, its long-term debt-to-capitalization ratio was 64%.