Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

The New York Times Company (NYSE:NYT)

Q3 2008 Earnings Call

October 23, 2008 11:00 am ET

Executives

Catherine J. Mathis - Senior Vice President, Corporate Communications

Janet L. Robinson - President, Chief Executive Officer, Director

James M. Follo - Senior Vice President and Chief Financial Officer

Scott Heekin-Canedy - President and General Manager of The New York Times

Martin A. Nisenholtz - Senior Vice President - Digital Operations

Analysts

David Clark - Deutsche Bank Securities

Edward Atorino - The Benchmark Company

Peter Appert - Goldman Sachs

Alexia Quadrani - J.P. Morgan

Katrina Fallon - Citigroup

John Janedis - Wachovia Securities

Craig Huber - Barclays Capital

Scott Davis - J.P. Morgan

Operator

Welcome to The New York Times third quarter 2008 earnings conference call. Today’s call is being recorded. A question and answer session will follow today’s presentation. (Operator Instructions) For opening remarks and introductions, I’d like to turn the call over to Ms. Catherine Mathis.

Catherine J. Mathis

Welcome everyone to our third quarter earnings conference call. We have several members of our senior management team here today to discuss our results with you. They include Janet Robinson, our President and CEO, Jim Follo, our Senior Vice President and Chief Financial Officer, Scott Heekin-Canedy, President and General Manager of The New York Times, and Martin A. Nisenholtz, Senior Vice President - Digital Operations.

All comparisons on this conference call will be for the third quarter of 2008 to the third quarter of 2007 unless otherwise noted. Our discussion will include forward-looking statements and our actual results may differ from those predicted. Some of the factors that may cause them to differ are included in our 2007 10K.

Our presentation will also include non-GAAP financial measures and we have provided reconciliations to the most comparable GAAP measures in our earnings press release which is available on our corporate website www.nytco.com.

An archive of this call will be available on our website as will a transcript and a version that’s downloadable to an MP3 player.

With that let me turn the call over to Janet Robinson.

Janet L. Robinson

This morning we reported a preliminary third quarter loss per share from continuing operations of $0.01 including $0.07 per share expense for severance costs compared with $0.10 earnings per share in the third quarter last year which included $0.02 per share for severance costs.

Our preliminary results reported today do not include an anticipated non-cash charge for impairment of goodwill and long-lived assets. Due to the continuing softness of business conditions driven by the secular forces affecting the newspaper industry, we are testing the assets of our New England Media Group for impairment in the 2008 third quarter.

While the results have not yet been finalized, we currently estimate a non-cash impairment charge of $100 million to $150 million. We will record the charge in our financial statements when we file our Form 10Q with the SEC. The charge will affect EPS for the third quarter but will not affect the company’s operating cash flow.

In the midst of the softening economy, advertising has certainly weakened. We saw this across all of our properties this quarter but it is important to highlight several items in the quarter that speak to how we are positioned differently than many of our competitors.

First, the United States presidential election and the turmoil in the world financial markets have again demonstrated the need for the high quality journalism we provide in print and online. The continued strength of our brands is evident in our ability to raise home delivery and newsstand prices which in turn is reflected in the growth of our circulation revenues. It is also reflected in the strong growth and traffic to our websites which we monetize through advertising.

Second, as we continue our transformation to a company focused increasingly on digital, our online advertising revenues grew 10.2% in part because of new advertising formats.

Last, we have been and will continue to be very disciplined in reducing costs.

This quarter our operating costs excluding depreciation, amortization and severance costs decreased 6.6% despite a 22.1% increase in newsprint prices. Jim will discuss in greater detail the many steps we are taking to continue to drive down costs without detracting from the quality of our journalism or our ability to achieve our strategic objectives.

Turning now to revenues, total revenues for the company declined 8.9% with ad revenues down 14.4%, circulation revenues up 1% and other revenues down 4.2%. Ad revenues at the News Media Group decreased 15.9% with national advertising down 11.4%, retail down 11% and classified down 29.3%. Half of the decline in ad revenues at the News Media Group was attributable to classified. At the Times Media Group ad revenues decreased 13.7% in the quarter.

National print categories that performed well included financial services where mutual funds, banks and insurance companies ran ads reassuring their customers amidst the crisis in the financial markets; healthcare which benefited from increased advertising from pharmaceutical companies and hospitals; and corporate advertising which saw significant gains from energy-related companies.

In total luxury advertising which made up about 13% of the Times Media Group advertising revenues in the quarter increased in the low single digits in part due to the performance of our key branded Sunday supplemental magazine.

The national print categories where we saw the largest decline were entertainment where the films released this quarter did not match the strong performance of those in the very strong third quarter of last year; hotels which weakened as two advertisers did not repeat major campaigns this year; and technology as advertisers held back budgets in a time of economic uncertainty and the migration of technology advertising from print to online continued.

Classified advertising decreased in all three major categories: Recruitment, real estate and automotive. Retail advertising revenues were down due to decreased advertising from department stores, direct response and mass market stores.

At the New England Media Group advertising revenues declined 19.4%. National ad revenues decreased in the third quarter with the largest declines in travel, entertainment and national automotive categories. Retail advertising revenues declined due to weakness in department store, home improvement and home furnishing advertising. Live entertainment and telecommunications advertising increased in the quarter. Overall, classified advertising at the New England Media Group was soft in all three major areas: Recruitment, real estate and automotive.

At the Regional Media Group advertising revenues decreased 19.2%. About 2/3 of the decline was due to less classified advertising. The declines this quarter were again concentrated at our newspapers in Florida and California which have been deeply affected by the troubles in the housing market.

Total circulation revenues were up 1% in the quarter mainly because of higher home delivery and newsstand prices for The Times.

At our digital operations revenues grew at much higher rates in August and September after rising slightly in July. For the quarter our Internet revenues increased 6.7% to $85.1 million. Internet advertising revenues grew 10.2% to $74.4 million. In total Internet businesses accounted for 12.4% of the company’s revenues in the third quarter versus 10.6% in the 2007 third quarter.

The About group had another strong quarter. Total revenues grew 16.1% to $28.7 million because of increased cost per click and display advertising. Operating profit before depreciation and amortization increased 31% mainly due to higher revenues.

The ongoing development of content verticals across all of our sites has helped the Times Company become the 11th most visited parent company on the web in the United States with 50.8 million unique visitors in September, up 15% from September of 2007. Our reach represents 31% of the online audience in the United States. According to Nielson Online, in September the number of unique visitors in the United States to www.nytimes.com totaled 20.1 million, up 37% from September a year ago. Its audience is more than 30% larger than the next newspaper website and is the fifth largest current events and global news site.

In September we began a significant expansion of our online business coverage with a redesigned technology section and the introduction of an economy section. In the coming months www.nytimes.com will expand its small business, personal technology and your money sections, introduce more journalists, deepen coverage in its deal book franchise, and continue to add new tools and multimedia features.

In September page views in our business section were up 66% year-over-year. By itself the newly-launched economy section had nearly 4 million page views in September. With the extraordinary events of the financial markets www.nytimes.com had three of its Top 10 days of all time during the week of October 5 and we had three consecutive record-breaking weeks in terms of page views.

In the quarter display advertising at www.nytimes.com was strong given our robust traffic growth, our investments in our verticals and our success in selling innovative new ad formats. As we move into the fourth quarter, our visibility on advertising revenue is limited. To date in October, print advertising revenue declines are similar to those in September but we are seeing slowing in digital advertising revenues mainly because of less display advertising.

These are difficult times in the economy and in the media industry. We believe however that we have many strengths that are helping us successfully weather this period. We have strong and trusted brands that we are leveraging into new products, in print and online. Our digital businesses continue to grow and we are increasing the share of our revenues and profits that come from our online businesses. We have a proven track record on expense reduction and we are executing well on our expansive program to lower our cash cost space. We continue to seek opportunities to rebalance our portfolio of products.

Let me turn the call over to Jim who will tell you more about our cost reduction initiatives and other financial matters.

James M. Follo

We continued to tightly manage our expenses in the third quarter. Operating costs excluding depreciation and amortization and severance costs decreased 6.6% mainly as a result of lower compensation costs and benefit expense.

As Janet mentioned, severance costs were $0.07 per share in the quarter or $18.1 million. About half of this was for the shutdown of City & Suburban, the company’s retail and newsstand distribution subsidiary, which operates in the New York metropolitan area. The closure of C&S is expected to be completed in January 2009 and additional severance costs may be recorded before it is closed. In the third quarter of last year the company had $0.02 per share or $4.9 million in severance costs. Year-to-date severance costs have totaled $56.9 million.

Depreciation and amortization decreased 34.6% to $33.9 million from $51.8 million last year when accelerated depreciation totaled $11.7 million or $0.05 per share for assets at the Edison, New Jersey printing plant which the company closed earlier this year. There was no accelerated depreciation in the third quarter of 2008.

Newsprint expense rose 2.1% stemming from a 22.1% increase in prices offset in part by a 20% decrease in consumption. The newsprint price increase added $11.3 million to costs in the third quarter and the decrease in consumption lowered costs by $10.2 million. The Times reduced the width of its pages last August and The Globe did so in the fourth quarter of 2007. In May we reduced the widths of our Florence, Alabama paper to 44” web width and we are planning to move seven other regional newspapers to that size before the end of this year.

As you can tell, we are executing well on our program to reduce our cash cost base. We have previously stated that we expected to reduce our 2007 cash cost base by more than $230 million by 2009 excluding the effects of inflation, severance and one-time costs. Of this amount we expected to achieve more than $130 million in savings this year. As a result of our continuous cost reduction efforts, we now expect to exceed these targets by even larger amounts.

As we get further away from the $230 million target, it becomes increasingly difficult to continually update this number as many factors contribute to our cost levels. For example, some initiatives could result in lower revenues while others could result in higher revenues and expense. We continue to explore a wide range of additional cost reduction initiatives and as they develop we’ll provide the details on them.

The progress we have made on our cost reduction measures has occurred across the company. Earlier this year we completed the consolidation of our two New York area printing plants which we estimate will save $30 million in annual operating costs. In September we announced the consolidation of The Globe’s printing facilities which we expect to be completed in mid-to-late 2009. At our Regional Media Group we have consolidated or outsourced telemarketing and some finance and advertising functions. We have also consolidated mail rooms at our Gainesville and Ocala, Florida papers.

Furthermore, our general and administrative costs continue to be reduced to offshoring, centralizing and other means.

The company’s income tax expense of $12.8 million was larger than our pre-tax income of $10.8 million in the third quarter. Income taxes were unfavorably affected by nondeductible losses on investments in corporate-owned life insurance policies and a change in Massachusetts’ state tax law. The size of these items relative to taxable income in the quarter distorted the effective tax rate in the quarter.

In this difficult environment, we are reviewing our uses of cash. This quarter our capital expenditures were $27 million and year-to-date they totaled $96 million. We have revised downward our cap ex guidance for the year from $250 million to $265 million to $140 million to $145 million. Next year we expect our capital expenditures will decrease from the 2008 levels to be approximately $80 million.

In addition, our Board of Directors plan to review the dividend policy before the end of this year to determine what is most prudent in light of the overall market conditions. As part of this process, we are evaluating future financing arrangements which will depend upon our funding requirements and market conditions.

We have $49.5 million in medium-term notes maturing at the beginning of December which we plan to repay using an existing revolving credit facility. In May 2009 one of our two revolving credit agreements will expire and late next year approximately $100 million in medium-term notes are due. Based upon conversations we have had with lenders, we expect that we’ll be able to manage our debt and credit obligations as they mature. Going forward we plan to explore opportunities to reduce our debt levels.

With that we’d be happy to open up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from David Clark - Deutsche Bank Securities.

David Clark - Deutsche Bank Securities

What sort of impact on circulation volume have you seen from your home delivery and single copy price increases at The Times over the summer? Second, what is the current guide count at www.about.com and is the plan still to scale up to 900 guides by next year or has that been scaled back in light of the economic environment?

Janet L. Robinson

I’ll have Scott give you the information on circulation and Martin will give you the overview in regard to the guide network.

Scott Heekin-Canedy

As with our price increases in recent years, we’ve seen better-than-expected volume drops as a result of the price increase. So we’re trending better than expected in circulation levels. The yield is significant and we expect to annually generate $16 million to $18 million of revenue from these increases.

Martin A. Nisenholtz

The current guide number is 770 and we are trending toward the 900 that you referenced for next year.

Operator

Our next question comes from Edward Atorino - The Benchmark Company.

Edward Atorino - The Benchmark Company

SG&A was down it looks like about $30 million from last year. Would that be a run rate going forward in terms of the year-to-year decline given the cost reduction actions?

James M. Follo

We continue to execute well as I said on the $230 million target and we have been really building the cost savings as we go, and the third quarter number was a number which far surpassed any other number. Specifically on the G&A line, I can’t give specific guidance on that but we certainly expect that the cash cost savings numbers will continue to show the sort of results that we saw in the third quarter. Specifically on that line, we certainly expect that line to come down in meaningful numbers going forward. I can’t give that precise number however.

Edward Atorino - The Benchmark Company

Joint venture income looked pretty good and with the newsprint environment, would the fourth quarter joint venture income be significantly above year ago? Well, last year was a loss. Would it be in the vicinity of the second and third quarter levels?

James M. Follo

We gave the full year guidance in the press release. The joint venture line has a seasonal aspect to it particularly as it relates to -

Edward Atorino - The Benchmark Company

Oh right.

Operator

Our next question comes from Peter Appert - Goldman Sachs.

Peter Appert - Goldman Sachs

On the cash flow front Jim, I’m wondering if the $80 million capital spending plan for ’09, should we think about that as the sustainable number going forward? Related to the cash flow also for Janet, I’m wondering how seriously you’ll consider asset sales as you review the efforts to cut debt? And one other unrelated item, on the newsprint front there’s some talk in the market that maybe the pricing pressure’s easing a little bit during the fourth quarter. What are you guys seeing?

James M. Follo

Let me deal with the cap ex number first. The $80 million number actually includes two items which we view as somewhat non-recurring and both of them are meaningful parts of that $80 million. We still have as we mentioned a plant consolidation in Boston. That will contribute meaningfully to that number. We are still in the final stages of our SAP implementation which will be complete in mid-2009. Ex those two numbers, I think that number actually comes down somewhere in the $20 million to $30 million range now. I wouldn’t call a $50 million number a sustainable long-term number but we don’t see the $80 million as something as you look out next year as a good target.

On the newsprint side there’s clearly a potential leveling out. As we go into the fourth quarter there are several factors that are helping to mitigate some what we hope further increases. We do see the price increases that were announced as largely sticking. That has been a $20 per month increase due at the year. That being said, I think we do view the prices [inaudible (2) 06:20.2] to 2009 as flattish [inaudible] we look at the Canadian dollar and some of the raw material and energy prices both favorably impacting of course the consumption across the board also and compacting it. But we do think longer time really 2009 is more of a flattish type of environment.

Janet L. Robinson

On the sale of assets, divestitures, as you know we don’t comment on that but we have said often that we constantly review our portfolio and will continue to going forward.

I think the focus right now is making sure that these properties are running as efficiently as possible. We’re making sure that the cost base of all of them are being brought down quite dramatically as evidenced by what we’ve done at The Times in the case of the C&S distribution arm closing, the consolidation at Edison, and certainly the closing of [Bell Ricker] in Boston. We’re going to continue to do those things to make sure that all of these properties are run as efficiently as they possibly can be.

Peter Appert - Goldman Sachs

Is there a specific debt level or leverage ratio that you folks might like to be at by the end of ’09 let’s say?

James M. Follo

We don’t have a specific target other than we are certainly mindful of providing some balance sheet flexibility through lower debt levels but I don’t have a specific target. It’s really just a function of the environment and our view of the business on operations.

Operator

Our next question comes from Alexia Quadrani - J.P. Morgan.

Alexia Quadrani - J.P. Morgan

Janet, when you mentioned the constant reviewing of your portfolio, do you think there actually are buyers of newspaper assets right now currently in the market place? My second question is, on the Internet side of the business where you talk about the weakness in display advertising going forward, is it on any specific one property or is it across the board there?

Janet L. Robinson

I’ll have Martin answer the Internet advertising.

In regard to the outlook I guess in regard to potential buyers for newspaper properties, I think this is a difficult time for our industry. It’s clear that we are facing secular and cyclical headwinds. But I think from a standpoint of the brands that are represented by newspapers nationally, it’s clear that these are still very strong brands in their communities and beyond.

In light of that many newspapers of course are not just positioning themselves as newspaper companies; they are positioning themselves as news media sources that are extending their content over a variety of platforms. I think from a standpoint of timing right now, it is a very difficult time for asset sales but I think that companies overall are doing exactly what they should; focusing on the productivity of those assets, expanding the base across platforms to make them very profitable business that contribute to the bottom line.

Martin A. Nisenholtz

Regarding the Internet revenue streams, it really isn’t equal across the properties. The CPC and lead gen businesses which are really more in the About area remain quite robust; very strong. Display at the lower end of the business is weaker. At the higher end it’s holding fairly firm. Of course classifieds which have been weak all year in help wanted continue to be weak. As we look out we don’t see a change in that. So it isn’t really a uniform story at all across the four segments.

Operator

Our next question comes from Katrina Fallon - Citigroup.

Katrina Fallon - Citigroup

In terms of the dividend discussion with the Board, what is the main focus there? Is that maybe reducing the dividend yield, working on cash flow or is there something else that’s driving that? Secondly, on the digital aspect can you give some detail on CPM for the higher end ads or the front page of the www.nyt.com and maybe some other color on a range of CPM?

James M. Follo

On the dividend front it’s a fairly dynamic discussion. This is a discussion that takes place at every board meeting and it’s just a function of how we want to allocate capital, what we see in the future as far as investment opportunities, and making sure that we have sufficient balance sheet capacity and flexibility in order to be able to invest and grow the business. That’s the way that we think about it.

Martin A. Nisenholtz

On the CPMs front, CPMs at www.nytimes.com have been up in the mid-single digits year-to-date. That doesn’t include ad network CPMs which have also been up. I don’t have a specific number on that but they have climbed year-to-date as well.

Operator

Our next question comes from John Janedis - Wachovia Securities.

John Janedis - Wachovia Securities

Janet, you talked about visibility being limited on the advertising side, but can you talk about maybe the buying patterns within some categories? How much closer to run date are you seeing commitments come in from department stores or other categories compared to a quarter or two ago?

Janet L. Robinson

I think that there is more of a trending towards just-in-time placement across all of our properties; I think retail most of all primarily because of the nature of their business. That said though, there is quite a bit of business that is already on contract not only at The Times but at The Globe for example as well and that’s in a number of categories. I think from a standpoint of the economic situation that exists right now you’re seeing more just-in-time placement as opposed to longer flights and flights that are predetermined months in advance.

John Janedis - Wachovia Securities

On the contract side, given the economy, are you seeing instances where clients are trying to pull back on the contract or pull back on the commitment?

Janet L. Robinson

I think it’s really too early to tell. I think that certainly there will always be discussions about contractual obligations but the way contracts are put together, really they are incentivized to run a certain amount of advertising during the course of the year. So from a standpoint of their cost base, I think there are distinct advantages to sticking to the contractual agreements that they have agreed to, and I think in most cases people are going to be focusing on those advantages going forward.

John Janedis - Wachovia Securities

If I could just ask Martin a question, on your comment about the high end versus the lower end, can you give us an idea of maybe how much of the inventory is what you classify as higher end?

Martin A. Nisenholtz

My reference was really to higher end being at The Times’ website. In general that inventory is viewed as premium inventory as opposed for example to the About inventory. The question was, are all of the properties behaving the same and they’re not.

But with respect to your question about kind of parsing that a little bit, I would say that all of the inventory at www.nytimes.com is viewed because of the brand as higher end inventory or as premium inventory. We hold rates so we won’t sell inventory just to discount it but there’s no question, and we’ve said this over the past several years, that vertically oriented or more contextually oriented inventory is worth a lot more than general news inventory.

So in some ways you can cut the word premium by, is it premium as a result of its brand affiliation or is it premium as a result of its contextual affiliation. Those are sort of elastic. Those are two different dimensions to the question. The inventory that will tend to go more toward the remnant side at www.nytimes.com is the general news inventory.

John Janedis - Wachovia Securities

So a category like luxury and financials, you would say they’re hanging in there or does that mean they’re even -

Martin A. Nisenholtz

Very much so. In fact as I said, on the CPM side we’ve seen mid-single-digit increases this year and absolutely hanging in there for sure. Not just those two categories but certainly any categories that attract a commercial intent on the part of the consumer or that target a particular type of demographic. We’ve talked about executive decision makers in the past and that’s a particularly important and sizable segment for us.

John Janedis - Wachovia Securities

Jim, on the model, are the 3Q numbers for both corporate and D&A for About good run rates for the fourth quarter?

James M. Follo

I think that those should be good run rates.

Operator

Our next question comes from Edward Atorino - The Benchmark Company.

Edward Atorino - The Benchmark Company

Regarding the advertising outlook that you talk about October, do you think given sort of the credit crisis and the credit crunch and people watching their cash; you mentioned just-in-time advertising which has been my personal belief anyway; advertisers might have been unduly cautious and if the credit markets loosen up and they believe the money’s in the bank, they might put some money back into the ad budgets or is that wishful thinking?

Scott Heekin-Canedy

Advertisers are definitely taking a day-by-day wait-and-see approach to see where the markets are going, how the economy is going to respond, and they’re trying to spend their ad dollars very judiciously. You’ve seen some nice increases particularly from financial services in the past month as institutions have tried to take advantage of this market place as well as reinforce their reputations.

Janet L. Robinson

We saw a strong climb in financial advertising both at The Times and at The Globe in regard to the advertising that addressed the crisis certainly with banks and financial institutions. So it’s clear when there is a deliberate reason for them to get their message out, they use these vehicles to do so; the immediacy of the message and the full explanation of the message in those kinds of ads that are appearing in those papers.

Edward Atorino - The Benchmark Company

You don’t think there’s been sort of a pressure on budgets because of cash that sort of exaggerated the weakness?

Janet L. Robinson

I think they are being extremely cautious in regard to how they’re spending their money. I don’t think the dollars are totally gone but I think that they’re just being very judicious in regard to how they’re spending. I also think in regard to the retail sector it will be a wait-and-see in regard to how the November and December timeframe performs for them because in many cases when things get more difficult for retailers, they do advertise more rather than less.

Scott Heekin-Canedy

In a similar vein, advertisers are telling us that they’re trying to wait as late in the year as possible at their ad budgets for 2009 to wait and see where the economy’s going to be going and how consumers are going to behave.

Edward Atorino - The Benchmark Company

Have you thought about an ad rate structure for ’09?

Janet L. Robinson

We haven’t decided specifically in regard to those structures as of yet. I think that there will be further evaluation. I think we will be very conservative in regard to any rate increases that we’re looking at for 2009 particularly because of the economic situation.

Operator

Our next question comes from Craig Huber - Barclays Capital.

Craig Huber - Barclays Capital

About the pension, just looking at your 10K I think it was underfunded last year by $275 million and I think you have about $1.5 billion of assets. Just given here the S&P 500 is down 35% to 40% this year; I guess most bond funds are down 5% to 10%, it’s probably not unreasonable for your pension assets to probably be down a good 20%. That would probably put your underfunded status up or down $600 million give or take. I’m not a pension expert by any stretch, but if you have roughly seven years you have to get that back to break even, does that mean investors should expect a large outflow of cash going into your pension plan of $80 million give or take?

James M. Follo

I think the number you are referring to regarding the funded status was all both funded and unfunded plans. The qualified plan which is the ERISA plan was fully funded as of the last balance sheet date. It’s also true however with the credit markets and the equity markets being what they are, we’ve obviously had some asset losses through the first nine months of the year. We don’t think that’s a big material number. It’s hard to quantify. It’s a fairly dynamic number and really hard to predict now.

Craig Huber - Barclays Capital

Do you have any idea how much potentially cash you’ll have to put into your pension plan?

James M. Follo

In 2009 we think it will have no impact as you have to think of much further out. A lot can happen between now and then before you have to commit, but we don’t think this thing is a $100 million number. It certainly puts more pressure but again in 2090 it will result in no additional contributions to the qualified plans.

Craig Huber - Barclays Capital

Back on the dividend discussion, are you guys contemplating at all taking the dividend to zero or potentially just cutting it in half like McClatchy did here recently?

James M. Follo

That’s something that we’ll have full deliberations as we always do with the Board. That’s not something we can comment on.

Craig Huber - Barclays Capital

On your comments in the digital “slowing,” could you just quantify a little bit better what you’re seeing at www.about.com so far this month? Is the growth rate slowing there or what?

Martin A. Nisenholtz

The growth rate on revenue has slowed at About this month. As I said before it’s a result of the display side of the business, the non-premium display side of the business. We are continuing to see very robust growth in CPC and lead generation but the non-premium display inventory is under pressure.

Operator

Our next question comes from Scott Davis - J.P. Morgan.

Scott Davis - J.P. Morgan

I’m looking at About and I was curious about the other side of the equation which is the cost side. I was wondering if Martin could give maybe a minute of color on what you’re doing there because costs for my numbers excluding D&A grew 5% or 65 which is vastly better than the 30% to 40% to 50% growth that you had had. Are we just anniversarying the sales growth that you put in place or is something else happening?

Martin A. Nisenholtz

Yes. In part that is what we’re doing. As I think you know if you’ve followed this story to date, we’ve invested a significant amount of money in the sales force rebuild and we’re committed to that. We think it’s an important part of the business and we think that we need to have at About a highly competent and sizable sales force given the size of the business. That was the principal investment that we made.

James M. Follo

It’ll also be anniversaried against the consumer search acquisition. That acquisition was done I believe in May 2007. So this is the first quarter in which we anniversaried against a full quarter’s worth of expense.

Scott Davis - J.P. Morgan

So the cost growth that we saw this quarter you think is representative going forward?

James M. Follo

I think in general terms that’s right.

Scott Davis - J.P. Morgan

It seems like a small issue but sadly About’s profitability is becoming a fairly big piece of the company so it feels like it’s an important one.

James M. Follo

I would add just one other thing. It doesn’t totally go to the growth but embedded in there as we continue to invest small but meaningful amounts in About China as well. That we see continuing for the foreseeable future.

Operator

There are no further questions at this time. I would like to turn the conference back over to Ms. Catherine Mathis.

Catherine J. Mathis

Thank you all for joining us today and if you have any additional questions, please give us a call. Thanks so much.

Operator

That does conclude today’s conference and we appreciate your participation. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: The New York Times Company Q3 2008 Earnings Call Transcript
This Transcript
All Transcripts