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Meredith Corporation (NYSE:MDP)

F2Q13 (Qtr End 12/31/2012) Earnings Call

January 24, 2013 11:00 AM ET

Executives

Mike Lovell - Director, Investor Relation

Stephen Lacy - Chairman, President and Chief Executive Officer

Joseph Ceryanec - Vice President and Chief Financial Officer

Paul Karpowicz - President, Local Media Group

Tom Harty - President, Nation Media Group

Analysts

William Bird - Lazard

John Crowther - Piper Jaffray

Craig Huber - Huber Research Partners

Jason Bazinet - Citi

Rich Ingrassia - Roth Capital

Matt Chesler - Deutsche Bank

Edward Atorino - Benchmark

Barry Lucas - Gabelli & Company, Inc.

Michael Schechter - Mentor

Operator

Welcome to the Meredith Corporation's fiscal 2013 second quarter earnings call. (Operator Instructions) I'd now like to turn the conference over to your host Mr. Mike Lovell.

Mike Lovell

Good morning and thanks everyone for joining us. We'll start the call this morning with comments from Chairman and Chief Executive Officer, Steve Lacy; and Chief Financial Officer, Joe Ceryanec. And then, we'll turn the call over to questions.

We've also got on the line this morning, Paul Karpowicz, who is President of our Local Media Group; and Tom Harty, President of our Nation Media Group. An archive of today's discussion will be available later this afternoon on our Investor website and the transcript will follow that.

Our remarks today will include forward-looking statements and actual results may differ from forecasts. Some of the reasons why are described at the end of our news release issued earlier today and in some of our SEC filings. And with that, Steve will begin.

Stephen Lacy

Good morning, everyone. I hope you've had a chance to see our news release issued earlier today, detailing our results. I am pleased to report a strong second quarter and first half of our fiscal 2013.

We increased earnings per share by 22% in the first half of fiscal 2013 compared to the prior-year period, excluding a previously announced special charge of $0.10 per share. Total company revenues grew by 9% and total advertising revenues were up a strong 15%.

Our Local Media Group delivered record revenue, operating profit and margin performance. We also generated a record $38 million in political advertising revenue in our first half. National Media Group revenues increased 3%, including 9% growth in advertising revenue and 9% growth in circulation revenue in the first half.

We continue to successfully integrate Allrecipes.com, EveryDay with Rachael Ray and FamilyFun into our brand portfolio. We also faced some challenges including comparable magazine advertising and performance at Meredith's Xcelerated Marketing. I'll cover those in more detail during the operating group discussion.

I'm pleased to report that digital advertising revenues across the company nearly doubled also reaching a record high. Total company digital advertising revenues accounted for about 11% of our total advertising revenue during the first half, almost double, where they were two years ago.

Stepping back now for a moment to look at the current media and marketing environment. We see several encouraging trends. First of all, we anticipated a strong television political advertising season and it certainly exceeded our initial expectations. In addition to heavy Presidential Election spending in the battleground state of Nevada, we also benefited from hotly contested statewide races in Connecticut, Arizona and Nevada as well as record spending from special interest groups.

Second, non-political advertising revenue at our stations remains strong and was approximately flat for the first six months of fiscal 2013, despite record demand for political advertising. Interestingly enough for the period following the election, non-political advertising revenues were up 3% compared to the prior-year period. Local television continues to prove its unique ability to build brands and drive the consumer into retail establishments.

Third, our National Media Group continues to take market share from its magazine competitors. So far in fiscal 2013, we increased overall share of magazine advertising to 11% from 10.3% according to the most recent data available from Publishers Information Bureau. Within our 30 magazine competitive steps, we now capture 38% of the ad dollars and that's up from about 34% in the prior-year period.

Fourth, our recent acquisitions are performing ahead of our original financial expectations. We're very focused on maximizing the value of these businesses, particularly Allrecipes.com. And finally, our diverse multi-platform business model continues to generate strong and sustainable cash flow. We generated $80 million of operating cash flow during the first half of fiscal 2013, a strong increase over the prior-year amount.

We remain committed to our total shareholder return financial strategy. Key elements of which include a current annual dividend of $1.53 per share, a $100 million share repurchase program and ongoing strategic investments to scale the business and increase shareholder value over time, through multi-platform, consumer and marketing client engagement strategies, through initiatives that possess significant digital components and through activities that capitalize on our broad content creation and marketing capabilities.

So now let's review our progress in more detail, starting with our Local Media Group. As I mentioned a few moments ago, our Local Media Group reported record results for the second quarter and the first half of fiscal 2013. While all of our markets delivered revenue growth, performance was strongest at our stations in Las Vegas, Portland and Hartford.

And as I mentioned, political advertising was a record $38 million, exceeding our initial expectations. In addition to several hotly contested races, we benefited from our initiatives to educate media buyers and campaigned about our powerful local news presence. Automotive, our largest broadcast advertising category grew 10% and it has now increased in 11 of the last 12 quarters.

Broadcast digital advertising grew 15%. We continue to focus on driving traffic by enhancing our station sites and rolling out popular mobile apps. Importantly, we're monetizing this growth by creating new advertising packages across both desktop and the mobile platforms.

Other revenues increased due primarily to growth in retransmission revenues from cable and satellite television operators, while operating expenses were up due primarily to higher programming fees paid to affiliated networks. We also successfully renewed long-term affiliation agreements for FOX and CBS stations.

Part of the success we're enjoying is based on our very strong connection with the individual consumer combined with our ability to aggressively monetize that audience. For example, during the important November ratings period, our stations in Hartford, Portland, Las Vegas and Saginaw continued their leadership position for news viewership.

Finally, the Better Show, our daily syndicated women's lifestyle program, last month aired its 1200 show and added the Detroit market, expanding its reach to more than 160 markets across the country. Additionally, the Better Show is teaming with the National Media Groups' Meredith 360 sales unit on integrated multi-platform program for clients such as Kraft and Mohawk Carpet. Once again, we're pleased with our Local Media Group's continued excellent performance and we're looking forward to continued growth into the future.

Now let's turn to our National Media Group performance for the second quarter and the first half of fiscal 2013. First half total advertising revenues grew 9% compared to the year ago period, driven by the recent acquisitions of Allrecipes.com, EveryDay with Rachael Ray and FamilyFun brands. We saw strong gains from the food and beverage, retail and media, and entertainment categories. The home and direct response categories were weaker. Our average net revenue per magazine page increased approximately 2%.

Digital advertising revenues grew more than 110% led by the addition of Allrecipes.com. Excluding recent acquisitions, we grew almost 15%. The National Media Group continues to operate in a difficult overall advertising marketplace and first half advertising revenues declined 9% excluding recent acquisitions. Addressing our core magazine advertising business remains our top corporate priority and we're pursuing the following strategies.

First, we've added scale via acquisition and operational excellence. We offer advertising and marketing clients' access to 100 million unduplicated American women, a reach that is unmatched in our industry. We've more than doubled our market share over the past decade, and today, we are the number one digital and print advertising company in the food category and also the leader in the parenthood, the home and the Hispanic categories.

Second, we're also expanding other advertising categories that had been outperforming the industry taken as a whole. These include beauty and retail, which are now our number two and our number four categories respectively. Together, these categories posted 10% growth in our first half of fiscal 2013.

Third, we're working aggressively to prove the effectiveness of print advertising through innovative new measurement tools. We completed the first year of our Meredith sales guarantee, which guarantees marketers a strong return on their investment by proving that advertising in Meredith titled does in fact increase sales at retail. We've had 13 brands participate in year one and we expect to have the results from the first year of the Meredith's sales guarantee very soon, and anticipate a larger program as we move into calendar 2013.

Fourth, we're continuing to enhance the creative side of our business. This of course strengthens our consumer connection and helped advanced our advertising category diversification strategy. In the first half of fiscal 2013, we launched fresh new designs for Fitness and FamilyFun and a new look for Parents.com. These come on the heels of recent upgrades at Parents, Ladies' Home Journal, Traditional Home, Midwest Living brands.

We're very proud of the strength of our brands and they continue to resonate well with consumer and advertisers alike. As an example, Better Homes and Gardens, our flagship title, continues to cement its position as the most sought-after magazine-based brand in the industry.

Better Homes and Gardens finished number one in advertising revenue market share in the women's service category in calendar 2013 according to recent PRB data. Adweek recently named BH&G is hottest women's magazine for 2013, and men inducted Better Homes and Gardens creative leader, Gayle Butler, into its Hall of Fame.

Looking into calendar 2013, Better Homes and Gardens has already secured advertising packages with several new clients, including Apple and Microsoft. Speaking of Microsoft, our corporate sales unit recently won a major piece of business around the launch of its Windows 8 phone. The multi-platform program includes ads, across six Meredith magazines and five of our digital properties.

We also teamed with Microsoft to develop and launch Windows 8 apps for the Parents and Allrecipes.com brand. You may have seen Carolina Panthers quarterback, Cam Newton, using our recipe from Allrecipes.com in a recent TV commercial for Windows 8.

Additionally, Allrecipes.com teamed with Better Homes and Gardens to create a Pinterest sweepstakes for Campbell's that drove 2.5 million referrals back to the site. On the international front, Allrecipes.com reached the number one position for food sites in Australia for the first time ever and just recently expanded its reach into Italy.

Finally, we continue to expand our industry-leading reach with Hispanic women, creating more opportunities for our clients to reach this increasingly important demographic. In calendar 2013, we raised the rate basis of Ser Padres to 850,000 and Siempre Mujer to 550,000. And most recently we developed a Spanish language custom product for S.C. Johnson that is bound into the February issue of Siempre Mujer.

Looking more closely at the digital side of our business, overall traffic to our digital properties more than doubled, led by our food and Parenthood sites. In addition, we now have approximately 500,000 consumers engaging with our national brands on the tablet platform. More than 20 of our brands are now available across the six major digital newsstands, including Next Issue Media, which launched its innovative digital newsstand for the iPad earlier in our fiscal 2013.

Allrecipes.com had an outstanding holiday season, reaffirming its clear leadership position as the number one global food site. Allrecipes served 30 million unique visitors during the month of November and traffic doubled from mobile devices to the site for the week leading up to the Thanksgiving holiday.

Our growing digital audience and capabilities are producing e-commerce opportunities as well. Most notably of course, were using our digital channels to generate subscription orders to our magazines. We generated more than 2 million online orders during the first half of fiscal 2013, up 60% from the year-ago period.

This of course lowers our subscription acquisition cost, increases opportunities to upsell and cross sell other properties at digital check out. And taking together these factors help us realize an incremental $5 in operating profit for digital order over the average life of a subscription.

The strength of our consumer connection can also be seen at retail through our growing licensing program of Better Homes and Gardens brand at home and garden products at Wal-Mart stores across the country. Currently, there are more than 3,000 SKUs available in every Wal-Mart store.

This fall we launch an exciting new program with Wal-Mart that further expands the scope of Better Homes and Gardens in Wal-Mart stores. This led to a meaningful lift in sales during the important holiday shopping season, particularly in gift items, including clothes, blankets and home fragrances, all of which carry subscription offers for our Nation Media brands.

I'll close the National Media Group discussion with an update on Meredith Xcelerated Marketing. As I am sure you recall, we first experienced weakness at MXM in early calendar 2012, as certain clients grew more cautious in spending and reduced the scale of some of their programs.

The good news is that we have renewed all of our major clients for calendar 2013 and our new business pipeline has picked up significantly. We've landed some great new clients so far this fiscal year, including United Healthcare, Bank of America, Hallmark and the Health Alliance.

We also expanded existing program with Chrysler, Kraft and The National Education Association. We expect our existing clients along with these new program will help translate into growth for MXM in calendar 2013 compared to the prior year.

So now, I'll turn the discussion over to Chief Financial Officer, Joe Ceryanec, for some additional financial information and our outlook.

Joseph Ceryanec

Thanks, Steve, and good morning, everybody. As Steve mentioned, we feel very good about the quarter and the first half of our fiscal year. Our Local Media Group is performing at record level and while advertising and the National Media Group continues to be challenging, the execution by our team remains very strong.

The integration of our acquisitions continues to meet or exceed our expectations, and as I'll highlight in a minute, we are starting to see better advertising trends in the magazine business. We remain focused on executing our total shareholder return strategy.

Our dividend is currently yielding over 4.5% and as we've historically done, we will review the payout ratio at our upcoming board meeting at the end of next week. Year-to-date we've repurchased 750,000 shares or more than 1.5% of our outstanding shares. And as of December 31, we still had 62 million remaining under our current repurchase authorization.

And finally, we continue to complete ongoing strategic investments to scale our business and increase our shareholder value over time. We've completed five investments and acquisitions over last 18 months, deploying approximately $250 million of capital. At December 31, our debt to EBITDA ratio stood at a very conservative 1.5x to 1. So we have plenty of capacity for future acquisitions, which we will continue to pursue on a very strategic basis.

We continue to have a strong commitment to our shareholders, a history of prudent capital management and a long track record of returning a meaningful portion of our free cash flow to investors in the form of dividends and share repurchases.

Now I'll provide a look at the second half of our fiscal '13 and third quarter as well as our full year outlook. We expect fiscal 2013 third quarter earnings per share to range from $0.65 to $0.70. And if we look more closely at the third quarter of fiscal '13 as compared to the prior year, we expect that Local Media Group revenues will increase in the high-single digits, while non-political ad revenues are expected to be flat-to-up slightly.

National Media Group advertising revenues are expected to be up in the mid-single digits, including the recent acquisitions and down in the low-single digits on a comparable basis. We are also reconfirming our original full fiscal year 2013 earnings per share expectation of $2.60 to $2.95, excluding the special charge we announced last week.

So with that, we'd now be happy to open the line up for any questions you have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of William Bird of Lazard.

William Bird - Lazard

Steve, I was wondering if you could talk a little bit about guidance, the range is really wide, it implies a really big range for the June quarter. Where do you see as some of the key swing factors in the June quarter as you think about the guidance range?

Stephen Lacy

Well, Bill, you can imagine we had a lot of conversations about this and tried to come forward with the best help we can to all of you, who do your earnings models and your estimates. And I would say the biggest factors at play here are, in all sincerity, the factors that are always in play, when you're in the early part of January.

We've closed two issues of the magazines for our third quarter and we're making obviously an educated guess at the remaining four and the balance of the year. And we've got very, very early pacings on the broadcast side, but just a very, very long way to go.

In addition to that we have a much bigger part of our business, which is now digital and it behaves a lot more like broadcast, and the commitments comes later, the cancellations can happen closer to actually running the program. So on the cost side, we obviously we have our arms very carefully around that and we know exactly what we're doing.

And we don't feel anything that's in the marketplace that I would say is terribly concerning right now. But we feel that leaving the original guidance where it is, is the best thing that we can do at this point in time.

William Bird - Lazard

And Steve, for NMG, it looks like your guiding to core ad revenues down low-single digits, first half was down nine. Just wanted to get a sense of what you're currently seeing in the market, does that business appear to be bouncing back?

Stephen Lacy

Tom, why don't you talk a little bit about the very, very early goings in '13, and I guess how that is a bit different than what we experienced in the first two quarters of the year.

Tom Harty

We're guardedly optimistic that things are improving, but again it's month-to-month. I don't think we're at the point to declare that we know exactly what's going to happen going into the balance of the calendar year and even into our fiscal fourth quarter. But we are seen some improvement in certain categories, food is improving, beauty is improving, and we're going to start to come up against better comps related to and the declines that we saw last year in the pharmaceutical area.

Stephen Lacy

Tom, you might also, while you've got the floor, talk a bit about where we are and the results on the Meredith's sales guarantee, because I think the best, it's going to probably be so compelling in the marketplace that it will be something else that will help us in calendar '13 as we go forward.

Tom Harty

You remember we launched that in calendar '12 and we had 13 brands participating. We're coming to the end of the measurement period, where they ran advertising with us for the full calendar year and now we can measure actual results. And we have some early reads, which were very, very optimistic about, that we'll be taking out to those brands to participate in the show, the results that we actually drove incremental sales and incremental ROI to them and you're going to see a lot more with us talking about this whole program moving forward, both in the trade press and with clients.

William Bird - Lazard

And when you look at the trend in the market and you look at where you set guidance is what you saw in February and March kind of consistent with the core ad revenues down low-single digits or are you banking on like a bounce back in April?

Stephen Lacy

We want to talk a bit about how the months have faced, I don't have it fingertips.

Tom Harty

The core excluding acquisitions in the February issues were down just a little over 9% and the March issues were down 4%, obviously March being a bigger month from an advertising overall. And we're looking for the trending right now, again not closed, April looks better than March.

Stephen Lacy

But it's not like a huge hockey stick, but interestingly enough, I now have the data in front of me, Bill. March was better than February and we believe that April will be better than March, but of course April isn't done yet. So that's a part why we have a bit of a range.

Joseph Ceryanec

I'll just pile on your first question is, you might imagine as we are wrapping up the quarter, we were looking into our third quarter and rest of the year, we looked a lot at where we thought results were going to be in our original guidance. And to the point Steve and Tom both made, we felt like just leaving the original guidance we gave in July was appropriate. Arguably when you look at our first two quarters and the guidance we've given for the third quarter, you could say we've derisk somewhat the second half of the year, but still feel the range we originally gave was appropriate.

William Bird - Lazard

And by the way, a final question. What tax rate should we use for the back half?

Joseph Ceryanec

You know, Bill, 38%, 39% is kind of our standard rate. I will tell you what happened this quarter is just with the passage of time as well as some favorable outcomes. We've had discussions with some of the taxing authorities. We were able to eliminate some of the risk with some of the state and local positions we've taken.

I think as you followed us, we always take a very conservative approach to the taxes. So typically when we do resolve some outstanding issues, we see a favorable impact, there was no one particular thing. It was really some statutes running out as well as some favorable discussion. But our expectations are for the third quarter and the rest of the year we'll be back to kind of our standard high 30%.

Operator

The next question is from the line of Mark Zgutowicz of Piper Jaffray.

John Crowther - Piper Jaffray

Yes, you've got John Crowther on here for Mark. Great detail on the organic advertising side of things. Just wondering, if we move down to the circulation line on an organic basis that showed a little bit of decline in Q2, after having bounce back in fiscal '12 and being relatively flat in September. I was wondering, if you could break down sort of the performance by subscriptions versus newsstand? And this level of decline, you haven't seen in a while, I'm just wondering what may have been the drive behind that?

Stephen Lacy

It was the subscription piece of it, John. It was basically flat organic with the prior year and what bounced a little bit was the newsstand side. And I think, you try to remember that, we have a very significant what we call Special Interest Media business, where at different times we can have a different number of issues available in the marketplace, and that's primarily what we were up against.

We had fewer numbers of titles in the SIM business, actually six fewer that happened to be placed at this time and also just the way the timing fell, there was one fewer issue of Family Circle out on the newsstand. But the really great news is that from a subscription component part, we held our own really well there.

John Crowther - Piper Jaffray

And then, this is actually going back sort of the advertising. But it sounded like one of the areas you had called out that maybe wasn't quite as strong in this last quarter, it was the home sector for advertising. I'm just wondering, we're hearing more and more chatter about a potential housing recovery or sort of bottoming there, and just wondering if you feel like that's maybe something that is a tailwind that could potentially help you over the next couple quarters or if it really is you're not baking in any sort of impact from that trend?

Stephen Lacy

Tom, I have the category step, you have it in front of you or you want me to answer.

Tom Harty

I mean, I think the home category is where right you're saying. We're optimistic that we're going to see a rebound from our advertisers. When we look out forecasting for the full calendar year '13, what we believe that we're going to be up slightly in the home category. We're just not seeing it equate right now in the early going. But we are optimistic that the housing recovery will equate to more dollars to our home advertisers in the near future.

Stephen Lacy

And just to put a little more granularity around that, years and years ago that was the number one category for Meredith. So obviously we have lots of reasons to be hopeful, but it is pacing up pretty strong in Q3 right now, although as I said we have only got the February and March issue. So it looks like it's going to be quite strong in Q3, depending on how April comes together.

John Crowther - Piper Jaffray

And then just one last question on the television side, you gave obviously guidance towards sort of flat-to-slightly up on the non-political side. Auto has had a pretty strong rebound, it's been a strong driver of growth here, and not that we're seeing any potential drop-off in auto advertising. But is this a factor sort of running up into tougher comps with that auto sector and just not being as much a rebounding off the small base?

Stephen Lacy

I'll ask Paul just to talk about the overall market, but being a little bit more granular. And of course, these are pacing as of last Friday, so they certainly not will be on March 31. But auto is our number one category and it's pacing up right now in just sort of the 10% range for Q3. But probably more important than that Paul, you might just talk about the discussions you have with the individual markets and how you're feeling about that as we go into a new calendar year post-political.

Paul Karpowicz

I think the answer is really in two parts. One is, certainly automotive will continue to and at least it appears to continue to pace ahead nicely. I think for Meredith the other part is that we've seen some really nice recoveries in a couple of our markets, specifically Las Vegas and Phoenix that had been particularly affected during the recession.

And as we have seen those markets bounce back to kind of a normalcy. I think that's why you're seeing this level off a little bit. So it's a combination of continuing to see our major category, particularly automotive and layout some of the other categories, stay strong, and now it's kind of leveling off of the rollercoaster effect that we saw in Las Vegas, where it was way up than it went way down, and now it's back up again. So I think that's starting to level off and I think the same thing is true in Phoenix.

Operator

Next question is from the line of Craig Huber of Huber Research Partners.

Craig Huber - Huber Research Partners

I have a few questions, but wanted to start by asking about this $0.10 special charge. Is that all related to your acquisition, trying to clean up costs there or and/or, is there something else that maybe you are seeing on the macro environment or something else in your business that's making you want to clean up some costs here??

Stephen Lacy

Let me start and then Tom you can certainly add to it, if you want to. So we brought, and my numbers might be a little off, but over the last 12 months about 300 new employees into the organization, Craig, as part of these acquisitions. And so we have been overtime about integrating a lot of activities.

In the earlier goings, we go about the ones that don't face the individual consumer customer or the advertising customer and do some of those pretty quickly. And now after the holiday season, we're making sure that we've got the right advertising spacing activities, and that we're doing it in the most efficient fashion.

And so it's part of the ongoing activity, and looking at everything we do in an environment that hasn't been robust from a revenue perspective. And really doing that, Craig, in all sincerity across the entire organization, about a third of the positions that we announced last week were actually in Paul's business in broadcast.

Once again just looking at the organization taken as a whole and making sure that we've got the right deployment of human capital against the opportunity. So part of it was certainly tied to the acquisitions and part of it was to just continuing to look and see where we can tighten up. And Tom, if you or Paul would want to add anything to that, you're certainly welcome.

Tom Harty

Yes. I think part of it was to Steve's point on Allrecipes, when we acquired them they had a separate sales force and with the beginning of calendar 2013 we're actually going out with one unified digital sales force. So part of the action was combining those two groups together. To Steve's point, we're always looking at how we best go-to-market and we thought it was the right time to do that.

Paul Karpowicz

I'd say for my end, we're making great investments in the development of our digital business, not only at a corporate level but at the stations. And as a result, in my case, it's just a realignment of some of the resources to focus on the continued growth of our digital business.

Stephen Lacy

And the other thing, Craig, that I didn't mentioned is and you know a lot about us for a lot of years, on the MXM side we made a series of five or six acquisitions overtime. They played out under our earnout activities and we are now in a position to really go-to-market in calendar '13 under one unified brand.

And all of those individual names that came from those acquisitions are actually gone from the marketplace. So now it's been another opportunity to look and see where we had some redundancy in some different activities and then again to have one go-to-market sales force. So I didn't mention that before, a part of that activity is in MXM as well.

Craig Huber - Huber Research Partners

What is, if I could ask, the annualized cost savings for each of the two divisions for what you are doing here?

Joseph Ceryanec

Craig, it's above $20 million on an annualized basis.

Craig Huber - Huber Research Partners

How does that breakdown between the divisions, roughly?

Joseph Ceryanec

It's going to be mostly within the National Media Group of which the MXM portion would be in that. On the broadcast group, it's going to be a smaller piece of the run rate.

Craig Huber - Huber Research Partners

Then in the quarter you guys just finished in your National Media, what was the percent change in your expenses adjusting for the one-time item and excluding the acquisitions? What was the underlying cost of percent change year-over-year, please?

Stephen Lacy

We'll have to look, Craig, and see if we have it. If not, we can certainly get back to you.

Joseph Ceryanec

I think if we exclude the charge and the acquisitions, the number was down about 2%.

Craig Huber - Huber Research Partners

A couple of more to little housekeeping questions, if I could. Within your other revenue line, within National Media, what was the year-over-year percent change of your brand licensing business and then also the MXM, the Xcelerated Marketing?

Stephen Lacy

Are you talking about the quarter or the six months, Craig?

Craig Huber - Huber Research Partners

The quarter, please?

Stephen Lacy

The quarter, I think that line was down about $11 million. The three components of that are MXM, which was about 80% of that. We have licensing, which was relatively flat, and then we have a lot of other smaller businesses that actually were down, call it the other 20% of that $11 million.

Craig Huber - Huber Research Partners

And then also, I believe, your retransmission revenues in the September quarter, roughly $9 million, was it roughly the same December or did it step up a little bit?

Joseph Ceryanec

So the December quarter, as I look year-over-year, I think other revenues in the broadcast group were up about $6 million, which is exclusively or entirely the retrans revenues.

There were cost offsets as we've talked about, as we are now paying CBS and FOX that expense amount actually exceeded the revenue amount by about $1.5 million. So if we look at Q2 this fiscal versus last fiscal at the operating profit, we're probably down about $1.5 million. As we move into the back half of the fiscal though, as we are renegotiating those MSO contracts, we expect that third quarter operative profit will actually be up and that we will be flat to actually up, slightly for the full year,

Craig Huber - Huber Research Partners

Then lastly, if I could, maybe I'd miss this. What was the percent change in the auto TV category in the quarter year-over-year, please?

Stephen Lacy

For the second quarter?

Craig Huber - Huber Research Partners

Yes.

Stephen Lacy

For the second quarter, I've got plus nine for auto.

Operator

And the next question from the line of Jason Bazinet of Citi.

Jason Bazinet - Citi

I just had a slightly longer-term question regarding your rate base. As core advertising revenues fall, but you offset that with acquiring customers at a lower rate as you pursuit your online strategy to acquire customers. What do you think the likely trajectory will be of your rate base? Do you think it shrinks over the next few years, stays flat, goes up? And depending on the answer, does that have potential implications in terms of your operating income on the National side? Do you think you're losing money on some of the rate base today?

Stephen Lacy

So let me start and them I'm going to ask Tom to add to that. We are in a very aggressive piece of work right now, that is not quite finished and we'll certainly be talking about downstream in calendar '13, to do a little more of what I would call aggressive bifurcation of the rate bases of some of these titles.

It really follows along, Jason, and I don't know if you've watched some work that Gannett has done where they've taken certain portions of their rate base and really significantly increased the amount that they charge to the consumer. As a result of that, in certain places, you might lop off part of the file, but the net result is another opportunity to improve circulation profitability.

And although that work isn't finished and I don't think Tom has entirely signed off on it with the exception of maybe one or two of our titles, and as we look out probably over like a three to five year period based on what we know today, I don't think we believe there would be like dramatic changes in our rate bases. But there certainly might be some places where we might make some modifications in maybe 10% or less of what is the current guaranteed rate base.

And this is of course, after you test these price increases. We now have a lot more products to bundle together. You think of a year ago, we couldn't sell Rachael Ray along with Better Homes and Gardens, and so there is a lot of that work that we're doing as well. So I don't think you're going to see us do anything dramatic, but I think you know by following us that every year we look very hard at frequency and at rate base and we have taken changes where we had places that we're weak. So Tom, what would you like to add to that?

Tom Harty

I agree. I think that right now when we look at the analysis, and we don't see any short term changes in our rate bases, moving forward.

Operator

The next question is from the line of Rich Ingrassia of Roth Capital.

Rich Ingrassia - Roth Capital

You talked last quarter about a sales guarantee, the Meredith Guarantee Program, a new program for pharma. Did you comment on that at all or can you give us an update on where that program is?

Tom Harty

We are still working through the research on that. We haven't brought it fully to market yet, but we feel pretty confident we will in calendar year '13. We just want to make sure, because it's a different way of measurement. It's not using the Nielsen Homescani Panel. So we just want to make sure that we have all of our ducks in a row with the research piece of it. But we feel very confident with the results that we're seeing in the packaged good area that that could be transferred over to the pharma category.

Rich Ingrassia - Roth Capital

My bigger question, I did hear them answered, so just a couple of smaller ones. Plans for new SKUs at Wal-Mart in the back half of the year?

Stephen Lacy

The answer is yes. This is sort of anecdotal, but I sort of stumbled across the Wal-Mart team who was here at our corporate office last week working with our creative people. We do all the photography and all the layout for the advertising that they do around the product. And they are very, very fired up about what is coming online for spring and into the summer.

So yes, there will be. I don't have the detail at my fingertips. But there is a broadening SKU count, but probably more importantly, some new product from a design and a color and aesthetic perspective that they are really quite roundup about. So we're looking for continued good things, as it rolls out towards spring.

Rich Ingrassia - Roth Capital

And finally, just what can you say about trends in mobile advertising in market? A lot of talk about that in the industry overall? And either, from the MXM perspective or from the National perspective, anything meaningful to talk about in 2013 on mobile for you guys?

Stephen Lacy

They are really kind of different, because on the MXM perspective, in that business we don't place any advertising. But we're working very aggressively with a lot of our clients to try, to figure out how to monetize this mobile traffic, which is a challenge for everybody that we're dealing with.

The beauty of our situation is we have so much, what I would call, traditional digital traffic that we've got plenty of capacity to handle the current growth we're seeing in digital advertising. But I don't think Meredith know or anybody else does, that I interact with has sort of cracked the code on a good way to monetize this huge surge that we see in mobile.

And Tom, I don't know if you'd want to add anything to that. It's not crating a problem for our business, but it's sort of like an unmonetized opportunity out there.

Tom Harty

It's still very small percentage of the overall digital advertising revenue, but there are a lot more clients talking about it. It's just, as Steve talks about we have to figure how to crack the code. But there has been some enquires recently from Amazon and some other advertisers who asked about our mobile traffic.

Operator

And the next question is from the line of Matt Chesler of Deutsche Bank.

Matt Chesler - Deutsche Bank

Couple of follow-up questions, one would be on MXM. It sounds like it's going to be up for the calendar year, but that means still down for the fiscal year. Can you comment on what the long-term growth profile is for that business once you're back up and running?

Stephen Lacy

Everything that you see, Matt, in the marketplace for that business, says it ought to be very consistently 10% to15% improvements on the bottomline. And the trick with that of course, is not having some massive change in of one your major, major, major customers.

So I think although I can't prove it yet, we will see that kind of improvement in the back half of our fiscal '13, and then going forward in the calendar '13 that the risk around any sort of agency business like that, of course, is that one of our longstanding fans, the CMO of company X, Y, or Z is gone, and then oftentimes his program come to market and they change dramatically. But that should be and that really, until calendar '12 for about a five-year period of time was our historic growth pattern around that business.

Matt Chesler - Deutsche Bank

On that topic, I think you had mentioned that you'd renewed all your customers. I think that a large one of your customers has a global consolidation out there. So I was just wondering if your statements earlier already reflected some knowledge that you're not going to be part of that review or either you are, but you prevailed. If you aren't too successful in retaining that business, would that jeopardize what you're talking about for the year?

Stephen Lacy

We can catch, I'm not sure which one of our customers were talking about, but trust me, I go through these top-ten in significant detail every week including all day, Tuesday with the MXM team. So we don't believe right now there is anything in our big customers that is at risk in calendar '13.

Matt Chesler - Deutsche Bank

And then, just in general, can you talk a little bit more about what mobile and social means for the business? Because as I look, your PC-based website traffic continues to be really strong and you guys have worked hard to increase the availability of your tablet editions and the distribution options for those are increasing. Your digital revenue decelerated in the quarter. So just trying to figure out what the puts and takes there? And how you guys are going to monetize that? And your view on the back half for the year, it sort of presumes a reacceleration of digital as well?

Stephen Lacy

So I think I'd take it in two or three pieces. I mean, you know, Matt, how aggressively we would love to see dramatic consumer acceptance of the tablet platform, because it has tremendous cost opportunities for us. Having said that we haven't had 100 million women beating down the door of the building, saying, I don't want my printed magazine any more. But we are pushing hard to have that increment by about 2% a year. And that's against about $300 million spent on paper printing and postage. So that's meaningful.

On the traditional digital side, the combination of Allrecipes with our existing properties, and Tom talked about earlier the unified sales force, I think gives us an opportunity there that we really haven't had before because we didn't have the scale. And I think that there is every reason to believe that we will for some period of time outperform the industry in that space. And if you look at the fourth calendar quarter, there was a decelerating rate across the whole industry in that piece.

The trick that we just talked about that we haven't really cracked the code down, as Tom said, is this huge surge in mobile. And that's coming to all size including coming to Allrecipes. The growth in their traditional traffics, certainly allowed us to place all the revenue, we needed to, but that's sort of a massive untapped opportunity, as we go forward.

And we think if that's going to come to play more and what we can do in shop or marketing and in sort of just-in-time advertising, while she is standing in the supermarket accessing recipes from Allrecipes. But that isn't all like in place with the advertising base yet, but it will be.

Matt Chesler - Deutsche Bank

The circulation question follow-up. Thanks for the great color on what happened in the quarter and the reminder about the work you're doing to look at the, I guess, elasticities. What's the near-term outlook for circulation revenue? And then if the secondary one would be? What you're doing with the special interest publications, is that something structural where you think we might see fewer of those going forward?

Stephen Lacy

As we look going forward, I think you're going to see in Q3 an increase in circulation driven a little bit more, we think on the subscription side in Q3. It looks like the newsstand, and of course once again, we had no newsstand read. So we're making a guess, it looks like the number of copies that are out there, its going to be fairly consistent, period-over-period in Q3.

And we are going to have a new opportunity come into the marketplace in Q3, which is a test issue of the Allrecipes magazine. Because you remember that when we bought that business, it operated as the biggest brand in the food space digitally, but operated only on one platform.

We added the mobile capability, which didn't exist at all. There was no mobile site. And now, we think there is a tremendous opportunity for an Allrecipes magazine. And, Tom, you might talk about just a cover testing you did earlier, and why we think we should forge ahead with that as a model.

Tom Harty

Last summer, one of our SIP's that we did. Last year, we did for recipe.com, branded SIP's on the new stand. And we took one of those and we did a copy test where we just put the Allrecipes brand on the cover instead of recipe.com, it was exactly the same content. And the lift from the Allrecipes branding was 45% lift in sale. So that gets us to great newsstand test. So now we're in the middle of doing consumer research, which has just comeback very positive. And as Steve mentioned, we'll be going to market doing a bigger consumer test to our database coming up in the third quarter.

Stephen Lacy

And that's really the reason, Matt, that we thought Allrecipes was such an interesting opportunity, because we would not operate any of our businesses today on only one platform. And that huge audience of female consumers around Allrecipes, we're pretty darn sure that they also read magazines. So we think it's an interesting opportunity.

Matt Chesler - Deutsche Bank

And Allrecipes currently has a 100,000 paying customers who pay for enhanced features. They pay roughly $19, and we think there is a great opportunity to have adding a magazine benefit to those people also.

Joseph Ceryanec

And Matt, I take the second part of your question. We're not ready to put a number on it. But we have talked about the work we're doing on elasticity and bundling. And I think in addition to the Allrecipes opportunity we think there will be revenue enhancement opportunities in calendar '13 related to that project. And I don't know if it was John or Craig asked earlier about Home, if we do see a resurgent and a new home sales as well as remodeling, there is opportunity for us on the SIP business as well. So the net-net is yes. We feel very bullish on the subscription and circ revenue.

Stephen Lacy

And interestingly enough, not to beat a dead horse, but always and even today through the most difficult part of the housing market, our Kitchen And Bath SIP product that at onetime was up to six times a year on the newsstand, and we pulled that frequency back, but it's still the most profitable thing that we do, because if you're going to go out to back your house and drop a $150,000 on the kitchen, it's the not the same investment as address a pair of shoes. So there is a lot. So if that begins to lift, we can, we always think of that SIM business is sort of accordion, we can ramp that thing up like crazy and take advantage of it. So we'll see. We're ready.

Operator

And the next question is from the line of Edward Atorino of Benchmark.

Edward Atorino - Benchmark

I've got sort of three topics. Number one, on your magazines Traditional Home, Ladies' Home Journal, Parents have really been struggling according to the (NASDAQ:BIB) numbers. Is there something aging in those titles that affecting the Traditional Home in today's society, it sounds like an anachronism, if you got my point.

Stephen Lacy

I want to get these down, Ed, Traditional Homes, Ladies' Home Journal and Parents. So Tom, do you want to speak to that. Those are really category issues I believe.

Tom Harty

We went through. I'm sure it will take them one at a time. Traditional Homes are actually performing very well for us. From an advertising perspective, this fiscal year it's doing better than we had expected from previous. The actual, the editorial was revamp last year, and it's been very well received.

Ladies' Home Journal, I think we talked about this before, Sally Lee's, the Editor-In-Chief has actually been modifying that brand and bringing in social media. So it's really where the leadership is participating in developing the editorial. So it's kind of the unique, if you read. You can read in the trades, but it's kind of the unique positioning for a magazine that's been around for a long time to kind of change in the digital age.

So it has tougher issues related to the advertising environment because of their position in syndicated research. So when you look at the overall audiences of our big brands, Better Homes and Family Circle, Ladies' Home Journal is in a weaker position from an audience perspective. But that's always been the case. So when there is less advertising in the marketplace, that brand gets hurt harder than our other bigger brands.

Edward Atorino - Benchmark

And looking towards modern women, you've got ladies and you've home in there, which to me doesn't strike today's modern women?

Tom Harty

The research so far on the product change has been very positive. So we do a lot of consumer testing and research, and the satisfaction with the changes that we've made to Ladies' Home Journal and bringing in the social media is actually been very well received from the leadership. And Parents magazine we just revamped the website. The magazine, still from our perspective, the leader in the parenthood category, it's been like that for a long time and we feel very bullish on that brand moving forward.

Edward Atorino - Benchmark

On the Cable retrans could you give us some idea, the trends going forward? You're cycling through some contracts, if I recall and so that should be a growing revenue stream, it seems to me.

Stephen Lacy

Yes, I'll have Joe review that because it's sort of a first half, second half story on net retrans profitability?

Joseph Ceryanec

Ed, when you look quarter-over-quarter, as I said earlier, the other revenue line within the local media was up $6 million. That is all the retrans revenue from the new MSO contracts and that number will continue to grow, because we are renegotiating those as we move through the year. The expenses were up as we've said more earlier in the year, because we had CBS and FOX starting earlier in the year. So expenses were up a little more than the revenue.

So we had a little bit of a drag on the profit, but as we move into the second half, starting in our third quarter that revenue growth will exceed the cost growth and will see the operating profit actually grow. So by the end of the year, we'll be ahead of where we were in fiscal '12. And the good news as we move into our fiscal '14, we'll have a full year run rate on the MSO contracts, so that that net operating profit should grow quite significantly next year.

Edward Atorino - Benchmark

You said numbers are going to grow to fixed gross or the other gross?

Joseph Ceryanec

I think the fixed will grow much more significantly than the cost.

Edward Atorino - Benchmark

On the TV side and looking at the comment in your text, non-political is going to be flat and yet you're looking for a high-single digit growth. Political is not going to be much.

Stephen Lacy

At the retransmission that Joe just told you about, Ed.

Operator

The next question is from the line of Barry Lucas of Gabelli & Company, Inc.

Barry Lucas - Gabelli & Company, Inc.

If I try to look through the body language here on growing optimism, derisking, I think the term that you used the guidance, yet the return the cash in the quarter was considerably smaller than the first quarter. I think you only bought about 220,000 shares. So is there something else in the wings, whether its M&A opportunities or just wanting to get through this smaller quarter that we're looking at and in the March quarter. You've done a good but what's happening there that may have limited the appetite to deliver more cash to shareholders.

Stephen Lacy

We're going to top again as Joe said at the end of the month regarding the dividend. But we try to be on the share repurchase very, very careful and very opportunistic in that regard, and obviously try to be taking advantage of weakness, which was not really the circumstance in the recent past. And so there is not like any change in philosophy or not like trying to horde a war chest or anything like that. It's just the nature of what's going on with our particular stock in the marketplace. So I would not read anything into that in anyway shape or form.

Joseph Ceryanec

One other thing, Barry, this is more mechanical, but as we saw the share price in the broader market it was pretty strong back in, remember at August and September, which is also when some of our equity vests, with the junior and our equity brands usually are in August. So we had restricted shares vesting. We had a fairly strong share price, which caused people to exercise options. And so part of just the math was we were keeping the delusion flat.

So we were in the market pulling those shares back, if you will, whereas in our second quarter, it was more actually just taking shares out of the market. So part of the q-over-q delta might have just been the mechanics on us not having a dilutive effect as shares were coming into the market.

Barry Lucas - Gabelli & Company, Inc.

So when you view those comments against what you actually did, does that argue, and have you considered something a little bit different in the form of an accelerated share repurchase or a Dutch tender?

Joseph Ceryanec

Yeah, I think Barry, as Steve said we will be talking to our board, starting at the end of the next week about historically that would be the time we would adjust our dividend. So we'll be having that discussion. We still have a pretty significant amount of availability under the share repurchase but we'll be looking at that in tandem. So it's hard for me to give you some specifics until we spend a little time with our board next week.

Operator

You have a question from the line of Michael Schechter of Mentor.

Michael Schechter - Mentor

Just a question on your acquisition strategy. It looks like the last couple have all been on the digital front, more so on the national marketing. Have you given the number of TV stations sales we've seen recently, and I guess a couple of properties that are back up? Do you have a desire at all to extend your TV franchise, or is it not where your focus is?

Stephen Lacy

No, the answer is that in every meaningful deal that happened in calendar 2012, we participated. And Paul is very, I guess I would say, disciplined in the way he puts together an operating model to make sure that it's good for shareholder value and we had establish parameters, and our development people bid within those parameters and we just weren't able to make one of those happen.

But we agree, that it looks like there will be some decent deal flow. And we certainly have an appetite in that space. I think there has just been more opportunistic ways that we could bring other businesses into the portfolio and we were more successful in another places, but not, we certainly would love the opportunity to add another high cash flow margin stationed to the portfolio.

Michael Schechter - Mentor

Looking back at some of these, you see bidder multiples of six, sevens, seller multiples of eight, nine, 10. Were you just not within the ranges or it were just not the right properties within the ranges?

Stephen Lacy

I think that from our perspective, and people always tell you multiple is an interesting calculation that everybody makes in a different way, but we think some of these properties are based on the work we did sold, into the low teens. And that's just from a long-term operator perspective having been at this the long time that just doesn't work. So I don't think we missed an opportunity in a high-single digit range from at least the way we did the math.

Michael Schechter - Mentor

And is there a particular part of the country or a station that you want? I mean, you'd prefer an ABC, an NBC, CBS or Southeast, Southwest, Northeast, Northwest? I mean, is there an area you're looking to fill in or?

Stephen Lacy

Paul, why don't you speak to the areas of interest that that you have and how we sort of decide when an opportunity comes up, whether we even participate or not.

Paul Karpowicz

Sure, we have a very strong portfolio with CBS and FOX right now, so we'd loved to bring a little diversity to the portfolio with some additional NBC's and certainly get into business with ABC. Relative to geography I think we certainly like the Sun Belt, but so does everyone.

So we're very open to looking at virtually all parts of the country. And when you look at where our stations are currently, we go all the way from Portland to Oregon to Hartford, Connecticut, so we're pretty much cross every region that country as it is. So it really wouldn't matter that much.

If the particular station falls into the criteria that we're looking for, and again we're really not in the small market business. And we again, been disciplined to say that we really want to just look at big-four affiliates and that's where our interest has been.

Stephen Lacy

So thank you all for participating today. We appreciate you hanging with us for a significant amount of time. Joe Ceryanec and I are certainly available, if there any other follow-on calls. And I think we'll get back to work. Thank you very much.

Operator

Thank you. And that concludes our conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.

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