Journal Communications Inc. Q1 2009 Earnings Call Transcript

Journal Communications Inc. (JRN)

Q1 2009 Earnings Call

April 22, 2009 11:00 am ET

Executives

Steven J. Smith – Chairman, Chief Executive Officer

Douglas G. Kiel – President, Chief Executive Officer of Journal Broadcast Group

Elizabeth Brenner – Chief Operating Officer, Publishing

Andre Fernandez – Executive Vice President Finance and Strategy and Chief Financial Officer

Analysts

Craig Huber – Barclays Capital

Barry Lucas – Gabelli & Company

Dan Leben – Robert W. Baird

[Mike Trainor - Neil O'Keefe Private West]

Presentation

Operator

Welcome everyone to the Journal Communications first quarter 2009 earnings conference call. As a reminder, this call is being taped. This conference call contains certain forward-looking statements related to Journal Communications businesses that are based on current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties, including changes in advertising demand and other economic conditions that could cause actual results to differ materially from the expectations expressed in forward-looking statements.

All forward-looking statements should be evaluated with the understanding of the inherent uncertainty. The written policy of forward-looking statements can be found on page one of Journal's most recently filed annual report on Form 10-K as filed with the Securities and Exchange Commission.

And now I would like to turn the call over to Mr. Steven Smith, Chairman of the Board and Chief Executive Officer.

Steven J. Smith

Andre Fernandez, Executive Vice President in Finance and Strategy and our Chief Financial Officer will participate in this morning's call. And also we have what we believe will be a positive adjustment to our call format. We've invited Doug Kiel, CEO of the Broadcast Group, and Betsy Brenner, COO of the Publishing business to address their businesses as part of both our prepared remarks and with the Q&A at the end of the call.

Any discussion of EBITA in today’s conference call may be referenced back to our unaudited reconciliation of consolidated net earnings to consolidated EBITA schedule, which accompanies today’s earnings release. Unless otherwise indicated, all comparisons are to the first quarter 2008.

This morning Journal Communications reported net earnings of $0.1 million dollars for the quarter ended March 29, 2009. In the midst of the most difficult economic conditions in our industry has faced, advertising expenditures continue to be muted across all of our local markets in the first quarter leading to lower revenue, and we have seen little sign of improvement as we enter the second quarter.

For the first quarter, revenue of $106.8 million decreased 20.4%. Broadcast revenues were down 20.5% overall with television revenue down 19.8% and radio down 21.9%. Excluding political revenue from 2008, total broadcast revenue was down 17.5%. Broadcast continues to be impacted by lower transactional revenue, especially in automotive. Doug will discuss the broadcast business later in this call.

The national recession also continues to impact our publishing business. Revenues were down 20.7%. Across publishing retail was down 21% with classified down 49%, national down 31%, and direct marketing down 57%. Outside of advertising publishing revenue showed slight improvement. Circulation revenue was up 4%. Other revenue, which consists primarily of commercial printing and delivery and event revenue, was up 4.6%. Betsy will talk more specifically about our publishing business in a moment.

Total company online revenue in the quarter was down 37%. This quarter and all of 2009 will be impacted by our new franchise arrangement with Carsoup.com. While we have experienced a revenue decline with a switch to Carsoup.com, we believe this long-term relationship positions us to retain online automotive revenues and do so in a more cost effective manner.

Our diligent focus on expense reduction continued this quarter. Total operating costs and expenses were $107.5 million an 11.7% decrease compared to last year. The decrease in operating cost was accomplished through signification actions taken throughout 2008 and in early 2009. Andre will detail the specific initiatives shortly.

We continue to effectively serve our local markets bringing audiences that advertisers are looking for. Despite economic turmoil, we continue to find ways to generate revenue and expand our local market reach and continue to reduce our operating expenses.

Now I would like to turn the call over to Andre Fernandez for more detail beginning with our expense reduction efforts.

Andre Fernandez

In this difficult environment we continue to tightly manage expenses. As Steve mentioned, we made a number of difficult decisions that help to reduce operating expenses in the quarter by $14.2 million or 11.7%. The most significant cost savings initiatives were, as a result of our efforts to reduce our workforce and employee related costs over the past year, we cut consolidated payroll and employee related expense by over $8 million compared to last year.

We reduced full time employee headcount by 14% since then end of 2007. We eliminated the match on the 401(k) plan saving $0.3 million in the quarter and $2 million for the full year. We suspended pension benefit accruals and the annual employer contribution to the 401(k) for employees not covered by the pension plan, reducing expense by $0.6 million in the quarter and saving $2.9 million for the full year. Finally, we reduced travel, entertainment, advertising, and promotion costs saving $1.2 million in the quarter.

Additionally on April 2 in an effort to achieve further cost reductions, we announced a 6% pay reduction for all executive managers, market managers, supervisors, exempt and corporate staff. We also asked our contracted on-air talent and union employees to join us in this program. Employees whose salaries were reduced received ten paid personal days for use by year end. The action will enable us to save an additional $3 million for the remainder of 2009.

While these are difficult decisions, we believe they are construction and necessary in the current environment. We will continue to proactively cut cost to generate expense savings to offset revenue shortfalls while we work to minimize further revenue reductions.

As we stated in our last call, a key financial objective for 2009 is to reduce outstanding debt. In the first quarter we were able to reduce total debit outstanding to $200 million down approximately $15 million from the end of 2008. In addition to the cost reduction items I just mentioned, the following items also helped us to generate cash and reduce our debt.

First, we reduced the quarterly dividend by 75% to $0.02. This action saved $3 million in the quarter. Year-over-year first quarter our total cash savings related to dividends was $3.6 million, also reflecting a lower share count in the first quarter of 2009 due to share repurchases in 2008.

Second, we cut capital spending to $2.2 million compared to $3.2 million in the first quarter of 2008. We curtailed all but absolutely necessary capital outlays. The capital spent in the quarter largely related to completing our digital PV build outs and completing our joint radio/TV facility in Tucson. Third, we improved working capital generating $8.5 million more cash in the first quarter compared to the first quarter of last year.

For the first quarter, interest expense was $0.8 million reflecting a decrease in the interest rate on our borrowings. During the first quarter, we borrowed at a weighted average interest rate of 1.15% compared to 4.32% during the first quarter of 2008. Our debt at $200.3 million represents 2.9 times our trailing four quarters of EBITA.

Our credit facility contains a leverage covenant of four times EBITA, leaving us with over $73 million in borrowing capacity at quarter end. Our credit facility also contains an interest coverage ration of a minimum of three times our trailing four quarters of EBITA to interest expense for the same period. As of the end of the first quarter, our interest coverage ratio was 10.2 times.

While we feel we have adequate operating flexibility today, Journal Communications filed an S3 registration statement or shelf with the SEC on April 3. Once declared effective by the SEC, the shelf will be in place for three years and permit us to issue a wide range of securities including debt or equity should we choose to do so. The company does not currently have any plans to issue any securities. The filing simply allows us additional financial flexibility for the future.

For the first quarter, our effective tax benefit rate was 108.3% compared to an effective tax provision rate of 39.1%. We reached a settlement with the Wisconsin Department of Revenue that favorably impacted our effective tax benefit rate for the quarter. This settlement had a favorable impact of $1.1 million or $0.02 on our fully diluted earnings per share. In connection with this settlement, we expect to receive a refund from the deposit we made with the Wisconsin Department of Revenue in 2007 of approximately $8.6 million some time in the second quarter.

Turning now to our segment results, as Steve mentioned, for the first quarter each of our reporting segments reported year-over-year decreases in revenue and operating earnings. Our financial tables provide detailed publishing and broadcast revenue and operating earnings. Betsy and Doug will go into more detail about the first quarter operating results for the publishing and broadcast segments.

Our printing services business saw first quarter revenue decrease $2.2 million to $14.3 million, primarily due to the effects of the economic slowdown. The reduction in print volumes, customers ceasing to print and/or taking their printing out to bid have had a negative impact on revenue. Operating earnings were breakeven compared to $0.8 million last year. Cost reduction initiatives and employee costs and production efficiencies have helped the business maintain profitability.

Our other segment, which consists of our direct marketing business and corporate, reported revenue of $5.2 million, revenue for mailing services and postage is soft, as many customers have reduced their direct marketing efforts during these difficult economic times. Specifically, as we move into the second quarter of 2009, the environment is similar to the first quarter.

We continue to expect that revenues across nearly all of our properties will be down compared to the prior year, but we also expect that the aggressive expense actions we’ve taken throughout 2008 and into 2009, combined with our continued focus on cash and debt reduction will enable us to weather the challenging environment and position us well for the future.

Now, I would like to invite Doug Kiel to discuss our broadcast segment results.

Douglas G. Kiel

Traditionally the first quarter is always our most difficult, especially in non-election years. Overall our revenue was down 20%, operating earnings down 88%. Local, national, and political revenue were all down. In television, revenue, excluding political revenue in both years and revenue of about $700,000 from the KWBA acquisition, which closed in July 2008, was down 17.6%. In radio, if you exclude political and then revenue on WTMJ AM for Packer play-off games in 2008, which didn’t occur this year, our revenue in radio decreased 19.3%.

When we look deeper into our revenue categories, auto revenue, our largest category, continues to show significant declines. Auto revenue was down 45.2% and that’s compared to first quarter of last year. So we’re working diligently to replace that auto revenue with other business. And one way that we work to replace the auto revenue decline is through developmental revenue. And while developmental revenue in Q1 was softer than last year by about 12%, it grew to 16.4% of our total revenue, and this is a significant help to us in this kind of economic environment.

We also finished the quarter with just under $78,000 of political revenue. Now, that’s compared with more than $1.9 million last year in the quarter. The absence of significant political revenue in this off year accounted for 3% of our revenue decrease. Auto and political were the largest declining categories for our group. In radio the communications, building and hardware, and medical categories also dropped.

There were some television revenue categories that did grow in the quarter, including supermarkets, packaged goods, and financial, which all grew by double digits in the first quarter. Now in television, our inventory sellout levels were higher than projected in the quarter. Positioning as well, for the second quarter, when we see other seasonal issues that help us and help television particularly, like Mother’s Day and the May sweep.

In radio, sellout levels had a slight decline in the first quarter compared to last year. Now this continues to provide headwinds for the industry, however our second quarter also brings the addition of Brewer’s baseball to Milwaukee’s WTMJ radio. Retransmission consent revenues grew strongly in the first quarter from last year.

We have finalized now 45 retransmission contracts covering more than 55% of our subscribers. We’re working on seven more that will cover approximately 30% additionally of our sub base. Now these contracts will continue to be additive throughout the remainder of this year into next. We have almost $2.7 million cable subscribers in our group. This does not include satellite subscribers for which we’ve been getting retransmission revenues for a while.

Premium and specialized products continue to sell well, including program-based developmental and new revenue programs like the Morning Blend programs on television in Milwaukee and Fort Myers, and as I mentioned, Brewer’s baseball.

In the first quarter several of our markets, while experiencing revenue declines, did better than our overall average percentage revenue decrease including Tulsa, Lansing, Omaha, and Tucson television and Wichita radio. And while our interactive revenue in the quarter declined slightly but a little over 6%, within that category our e-commerce revenue was up 10%.

Overall, costs in the first quarter declined by more than 9%, including KWBAs addition that was acquired in July 2008, and payroll cost decreased by over 11%. Since the end of 2007, we reduced our fulltime headcount by 11.2%. News and local programming continues to be a key part of our strategy and has been for some time. Now as we’ve discussed before, it makes our group less dependent on expensive, syndicated programming. We are pleased with the ratings performance of these shows.

WTMJ television of Milwaukee, for example, continued to lead in the highly competitive 10 pm news race, even increased it’s margin of victory over the other stations in the market in the just finished March sweeps and that’s in households, demo’s are yet to be reported. And that’s despite NBC being a distant fourth in primetime. And In Las Vegas, our ABC affiliate is closing the gap at 11 pm in households in this recent sweep. Our primetime ratings were up 37% in Las Vegas in households Monday through Friday.

The winter ratings books in radio across our markets were strong again. Of note, our projects to rebuild two radio positions on stations in Tucson, Arizona and Milwaukee are progressing well. In Tucson, our news talk station on FM, The Truth, is now the leader in that format and several key demos and has positioned very well for the future.

And in Milwaukee, The Lake on 94.5, an adult variety station, is now again a key player in the 2554 demo. And also, here in Milwaukee, WTMJ television premiered the first HD news product in that market and that project has helped us gain efficiencies in our operations as well.

And now, Betsy Brenner will discuss our publishing segment results.

Elizabeth Brenner

Well, as it did for all our publishing industry peers, the first quarter provided little relief from the economic pressures that have reduced advertising expenditures across all categories. Over half of our year-over-year ad revenue losses came in classified advertising. We’ve received our financial tables which provide the breakout of our revenue categories for both our daily newspaper and community newspaper and shoppers businesses.

At the daily newspaper, retail revenue was down 24.1%. Retail advertising losses came in consumer driven categories largely tied to homes and home improvement, like furniture and building and hardware, as well as the categories of finance and insurance, and dining and entertainment. In classified advertising at the daily newspaper, which includes print and online, category decreases were across the board, employment down 66.4%, auto down 61.7%, real estate down 50.2%, and other down 11.6%.

As Steve mentioned earlier, the auto decrease was negatively impacted by the switch to CarSoup.com. Auto advertising continues to be soft. It’s the combined retail and classified revenue for all products of the daily newspaper were down 51.8% to $1.5 million. National auto schedules were actually positive on a very small base, but losses from local dealers and regional dealer associations far outweighed the national automotive increase.

Additionally, national advertising and direct marketing revenues were also down for the quarter. In March we announced we were closing the operations of our Milwaukee area direct marketing facility. The near-term and longer term business prospects did not support continuing this service. We’re now developing the direct marketing potential in our new carrier-delivered total market coverage product.

We expect to save $1.5 annually by eliminating postal delivery costs. This should also give us a chance to boost the size of each delivered package beyond postal weight prescriptions. Overall, interactive advertising included in the various revenue categories at the daily newspaper decreased by 45.3% primarily driven by the move from cars.com to CarSoup.com. The economic downturn has negatively impacted up sells from employment, real estate, and automotive, all significant interactive revenue categories.

At the daily newspaper circulation revenue was up 2.1% in the quarter. All of the gain came in daily single copy sales following a price increase to $0.75 in the metro market in January. Circulation average rates are up 17% daily and 5.5% on Sunday, on the strength of these pricing gains that more than slightly offset a slightly worse trend in copy sales.

Our readers still value our newspaper and are willing to pay more for it. As we told you before we publish one of the best read newspapers in the country. The Milwaukee Journal Sentinel ranks number 1 in household penetration among newspapers in the top 50 US markets for integrated newspaper audience, showing strength in both print and online according to Scarborough Report.

Other revenue, which consists of primarily of commercial printing, delivery and events, has increased due to additional commercial delivery routes for USA Today. Revenue in our community newspapers and shoppers division was down 6.4%. The strategic acquisition of several publications in northern Wisconsin in late 2008 has helped us to expand our footprint, improve our revenue trend at additional product offerings and better serve our advertisers.

In publishing, we continue to reduce our expense platform to align with a smaller revenue base. Expenses were down $6.7 million or 12%. The primary driver of the expense reduction was the reduction in payroll related costs of $3.8 million. Since year end 2007 we’ve reduced our full time employee headcount by 15%.

When we look at non-paper cash cost, defined as total operating expenses less depreciation, amortization and paper cost, we saw a decline of 12.7% in the first quarter, specifically at the daily newspaper, non-paper cash costs decreased by 14.4%. We expect non-paper cash costs to continue to decrease in 2009. Newspaper costs at the daily newspaper decreased $0.6 million reflecting a 22% increase in price and an approximate 28% reduction in consumption.

We’re also driving savings for future quarters. On April 6, we announced the eliminations of 26 full time and five part time positions at the daily newspaper. This will result in a workforce reduction charge of $0.8 million in the second quarter and expect a cost savings of $2 million for the remainder of the year. In addition, we are working with all of our unions to seek our goal of an additional $2 million in annualized savings of which about half is already confirmed.

Journal Sentinel Editor Marty Kaiser, was named 2009 Editor of the Year by Editor of Publisher magazine. We won a Polk award for environmental reporting and the Scripps Howard Foundation for the environmental reporting prize. Three of the papers journalists received national headliner awards by the Press Club of Atlantic City.

By continuing to produce award winning journalism, we believe we strengthen our local market leadership and better serve our local advertising customers. While the strength of JSOnline.com brand is critical as we seek ways to capture more revenue online. Jobnoggin.com, our national partnership with monster.com, is now the leading jobsite in southeastern Wisconsin. In fact after about a year and a half onboard as an affiliate, we lead the monster affiliate group in sales performance outperforming our mid-sized peer group by 60% in the first quarter of 2009.

Our new carsoup.com website is also starting to see real traction. Since its debut on January 1, we've signed 122 area dealer rooftops as paying participants. And our first sales flips for online inventory for Yahoo behaviorally targeted advertising yielded great results. Some $600,000 in new online revenue, 70% of it sold to new online advertisers. We continue to seek more revenue opportunities including new commercial print customers for our state of the art production facility.

Our special events like the Milwaukee Journal Sentinel Sports Show at Metroparent KIDSfest are delivering new revenues, breaking attendance records, and offering additional way for us to connect with local audiences.

Now, I'd like to turn the call back over to Steve for a brief wrap up before we open it up to Q&A, Steve?

Steven J. Smith

Despite these challenges that we've outlined, we are executing our local market strategy and our business model. We continue to make difficult and aggressive decisions to reduce costs, but we believe these changes are necessary to position us for the future. We continue to produce high quality work and are constantly seeking ways to better serve our local markets.

Operator, this concludes our remarks you may begin the question and answer session.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from of Craig Huber – Barclays Capital.

Craig Huber – Barclays Capital

My first question, can you discuss your TV and radio revenue pay seen for the second quarter that track any better than you saw in the first quarter?

Douglas G. Kiel

Yes, Craig, this is Doug, as we've talked about before and did a little bit previously, advertisers and it sounds like an old song but it's true, they continue to make late decisions on placing buys, and they purchase for a shorter length of time so they kind of hedge their bets, so that's impacting our visibility, and that's been going on now for awhile as you know.

Auto hasn't rebounded yet, but it appears it's halted the pace of decline from the previous year. At least that's our early look into the quarter, a nearly 9% broadcast, this is radio and TV rolled up, revenue declined in the first quarter was due to the drop in that category alone. So if we haven't seen the bottom, we're clearly dragging close to it I can kind of feel it.

The second quarter for us has those seasonal issues I talked about return to Brewer baseball in Milwaukee, that's helpful. And of course the seasonal typically revenue generated by the May sweep and some other programs in television. Also our developmental programs including, these are new business initiatives, it's in the money we manufacture, I mentioned a little bit on my comments during the script.

This includes program-based interactive convergence programs that combined radio and interactive or television interactive. As I mentioned, they're selling quite well across our group. We're selling ahead of our pace last year so very hopeful in that going forward in the second quarter and beyond. And retransmission revenues will be added throughout the remainder of this year.

And while our interactive revenue was off a little bit in quarter one, we expect it to recover as we move through the year. So still visibility cloudy but there are some signs here that we're dragging towards the bottom.

Craig Huber – Barclays Capital

What about perhaps more near-term the month of April, and how is that stacking up relative to what you saw in the first quarter?

Douglas G. Kiel

I mentioned that early in auto seems to be sort of similar to what we've seen, the rest of it I'd rather have the quarter kind of shape up before we really step out there. It's just too early to tell.

Craig Huber – Barclays Capital

What about if you could switch over to the newspapers are you seeing anything different there in the month of April or the quarters in your forward bookings you have there?

Elizabeth Brenner

Sure Craig, this is Betsy, really very similar to what Doug is seeing in broadcast, continuation of the same trends we saw in first quarter, and much the same a lot of our advertisers are shying away from annual commitment and contract. They're dealing with national accounts on more of a buy by buy basis and really trying to hedge their bets as they look forward into a cloudy economy and trying to determine what their business will be doing.

Craig Huber – Barclays Capital

And on the cost front, this 6% I guess wage decrease for your employees, what is the quarterly I know you said, what is the quarterly cost savings there for that reduction for your whole company?

Andre Fernandez

It's going to be $1 million a quarter. We announced it in April so obviously no impact, this is Andre, and the first quarter so it would be $1 million a quarter now from the rest of the year, so $3 million for the remainder of the year.

Craig Huber – Barclays Capital

And lastly just help us, this change with your cars.com and carssoup.com, if you adjust for that, how much was your internet revenues down?

Elizabeth Brenner

Very close to 30%, right about 29%, 30% year-over-year, with the cars.com to carssoup.com change factored out.

Operator

Your next question comes from Barry Lucas – Gabelli & Company.

Barry Lucas – Gabelli & Company

Couple of quick ones, with CapEx down at $2.2 million or whatever in the quarter, you got a handle on what CapEx will be now be for the full year?

Andre Fernandez

We haven't put a number out there, Barry, but last year we did about $3.2 million in the quarter, that's about 15% of the year, which was at 22. So this year we did 2 here in the quarter, 15% would bring us to $14 to $15 million for the year. We're pretty confident at this point we're going to beat that, so I'd say that's a good number to go with.

Barry Lucas – Gabelli & Company

Second item is trying to work through the balance sheet and look at the reduction in debt in Q1 versus 12/31 given the modest cash flow and looking at the working capital accounts, how did you manage that because just fast look at receivables in inventory don't quite get me to a $14, $15 million reduction in debt.

Andre Fernandez

Well, starting with our EBITDA is as you know about $6.5 million and then you've got some add backs or some non-cash expenses so then you get the $8, $9 million. Then you're now our total cash from operating activities is I think we said was just north of $17 million and it was largely or a good portion of that was working capital driven, and so you go into those three components.

We had a good reduction in receivables and that's I think like most, we really put a lot of emphasis on driving our collections. We've centralized our efforts here at the company, adding resources. Now that said, that cuts both ways because I would still rather have higher revenue at the end of the quarter and a higher receivable balance, so I'm not replenishing my receivables at the rate that I would like to due to the lower revenue.

But receivables alone gave me approximately almost $9 million of cash as compared to a year ago same period, likewise as you continue through the other categories of working capital, a lot of efforts around payables. We've also centralized our payables efforts here and we're also either trying to negotiate more favorable payment terms with vendors or early payment discounts, which we've been able to do throughout the company, so that's helped our payables.

And also finally on inventory we don’t have too much, although we continue to drive reductions in the amount of inventory that we have on hand, obviously that we need to finance. And then the last piece is what also helped our receivable balances, is separate form the settlement which we mentioned in our release with the Wisconsin Department of Revenue. We also did get a tax refund in the order of about $2.8 million, federal tax refund in addition to a small state tax refund also in the quarter, so that helped to reduce, further helped reduce our receivable balance.

Barry Lucas – Gabelli & Company

That's great, that's real helpful Andre, last question, really for Betsy, and that is you commented on the behavioral ad targeting and just listening to the Yahoo call the other day, Carol Bartz made absolutely no comment about the newspaper partnership, so I just was hoping that you could maybe provide a little color on how you think that relationship stands today?

Elizabeth Brenner

We are, as you know, Barry, relatively late into it. We became a member of the consortium last summer, and so as a result we're not even up on the Yahoo ad serving platform yet. That will happen in June of this year. And when that happens, we expect to see yet another boost in our ability to drive advertising inventory through the Yahoo platform.

I think in this market what we've seen is the ability to go advertisers with a compelling new product. They get it. They understand the behaviorally targeted appeal of advertising, and we've seen a pretty significant reception from customers in this market who want to be part of that.

So I know that Yahoo has been very involved in convening a CEO group, convening sales groups and taking the probably several hundred now, I think it's close to 400 newspapers in the consortium through the mechanics of how to sell, how to use blitzes and how expand and drive that performance.

So as far as the Yahoo call, had a lot of things to talk about, but I think with regards to the newspaper industry, the Yahoo consortium partnership has been a significant source of new revenues for all of us, including here in Milwaukee.

Operator

Your next question comes from Dan Leben – Robert W. Baird.

Dan Leben – Robert W. Baird

Could you talk a little bit about the period trends within the first quarter what you saw kind of January through March if there were any sort of major kinds of changes on either side of the business?

Douglas Kiel

Yes, Dan, this is Doug, started out more slowly and this has been kind of a trend that we've seen over the last, say two or three quarters, since the economy really got difficult, particularly the last part of last year and that is the first month of quarter starts out very slowly, and then we see the pacing kind of improve towards the middle until we get close to the end.

And I think that's reflected, not of some overall strength or weakness, but this situation I talked about, about advertisers waiting, being slow to get in. Then when they get in they decide they have to make move. And that's what we saw in the first quarter. I think we're going to see that a little in the second quarter that it's slow starting and then builds.

The other piece of it for us is, of course, we're working incentives for our sellers across the country that help us to generate, especially in developmental and some of the manufactured, we call manufactured money, programs to get those inserted. And some of that also causes this issue.

And this is why we were pleased to see, although on the television side, inventory firm up more in the first quarter of this year than last year so that we have a chance, we don't have it really able to drive it yet, to get as we fill up a little bit of pricing pressure.

Elizabeth Brenner

Thank you, Doug. This is Betsy, Dan. I think what we saw in first quarter was level spending across the board, but a lot of our advertisers as you know are tied to annual contracts. And many of those contracts expired either at the end of last year or at the end of January for some of our major retailers. We didn't see the first significant reaction to market turmoil late last year until early first quarter '09.

And since then as I mentioned, spending has been level across the board both classified and retail were starting to see some signs of life, if you will, won't predict anything off the trends, but we've been able to get back in, talk with some of our advertisers and start to see their spending plans firms up for second quarter and beyond.

Dan Leben – Robert W. Baird

And then could you talk a little bit about, you mentioned the profitability of moving from cars.com to CarSoup.com, just what was the incremental change in the profitability given the revenue was down pretty materially? Did the profitability on that segment actually improve?

Elizabeth Brenner

We are in the process of buying packages now from CarSoup with a much improved margin for us, lower overall costs. We've sold fewer of them, of course, and the average rate on those is lower. So, essentially as of the end of first quarter we've sold about 63% of the rooftops that we had at the end of our agreement with CarSoup and that was 106 compared to 169 with, I'm sorry, with cars.com, 106 of CarSoup, 169 with cars.com.

And the average rate on those was about half of what we had sold with our cars.com program. So we're really encouraged by seeing the activity in the market place, the fact that our dealers are starting to get calls and generating leads off CarSoup.com. It's still a brand new program, but the fact that we're able to count 122 rooftops today is real sign of acceptance in our marketplace and we're very encouraged by it.

Dan Leben – Robert W. Baird

And, Andre, just on when we're looking at debt covenants, are there any pieces in the EBITDA you reported today that we should exclude when we're looking at calculations going forward?

Andre Fernandez

No, I think you've got the table in the, as one of the attached tables there. So that is the EBITDA for purposes of calculations for the quarter.

Dan Leben – Robert W. Baird

And if you could just talk a little bit about discussions you've had with your lenders in terms of looking out to a point with the EBITDA obviously materially down any possibilities of you do [recheck] covenant at some point their ability and willingness to renegotiate?

Andre Leben

Yes, I'd say, let's say, I'm new so I'm in the process of, or have now met with all of our banks. The nice thing is we're meeting our commitments and we still got even a 2.9 times versus 4 more than a turn away. So we're in a lot better shape certainly than a lot of other customers at the banks are working through. And so from that standpoint the banks are happy with what we're doing. They're telling us keep doing what you're doing.

Again, certainly they're working with a number of other companies through amendments and so forth. And so listen we're keeping them as we always have apprised, they've got our plans, keeping them updated and we have their full support. I think should we ever reach that point, which we don't think we will, and we've got an operating plan that allows us to meet all of our commitments. We'll expect that they'll be with us.

Dan Leben – Robert W. Baird

And then, obviously, generate a lot of cash from the receivables that the DSO did pickup just because receivables down about 10% with the top line down more than that, is there any trends within that you look at where you're seeing people stretching out on payments or so forth?

Andre Fernandez

Yes, I mean that's a part of the reason the DSO, it's funny we got a lot of receivables in the door, which drove working capital for the quarter. Unfortunately, our sales are dropping too so, as I mentioned earlier, we're unable to replenish the receivables quickly enough. So it's going to give a false impression that you've got a receivables driven working capital in progress here.

But likewise the DSO has lengthened slightly although manageable. Again, you do have customers that are having payment difficulties and/or have declared bankruptcy. And we're trying to, we've reserved those, but we continue to try to collect on those. But the longer they remain outstanding it obviously increases your overall DSO in the calculations.

So even more reason we needed to put even more resources on it and even more rigor around our whole collections process in general. And I think this quarter we saw the benefits of it by getting a lot of receivables cash in the door, but it wasn't enough to, we still have a lot of old, not a lot, but a number of old customers out there who are unable to pay and we're trying to work with them to reduce their balances, and that affects DSO ultimately.

Dan Leben – Robert W. Baird

And then could you just talk about bad debt expense in the quarter and what that did relative last year and also relative to the fourth quarter?

Andre Fernandez

Yes, it was up significantly and I think we were about $300,000 last quarter and we're about $900,000 here for this quarter. So again that's a reflection I think of the times. So despite everything that we're doing and putting efforts on collections, there were just some customers, and as we've spoken it's frustrating in that we do have customers actually that have been paying us on time, not necessarily had gotten away from us, and then simply would declare bankruptcy.

And it would come up on us fairly quickly. So even more reason we need greater scrutiny around the whole effort and now, looking closely now to putting overall credit lines on even paying customers, customers who are on time to limit our overall exposure to certain customers and certain industry segments.

Operator

Your next question comes from Craig Huber – Barclays Capital.

Craig Huber – Barclays Capital

Just back to the newspaper division maybe I missed this, but for your entire newspaper division, what was the percent change in your newspaper costs, and then breaking it down, what was the percent change for average price for newsprint and also your consumption decline percent?

Elizabeth Brenner

Craig, this is Betsy, overall costs or non-newsprint cash costs?

Craig Huber – Barclays Capital

I want to that actually, in a second, so I'm glad you brought that up. But just want to do just pure newsprint costs. What the percent change was there and then what the average price change was and what the usage percent change?

Elizabeth Brenner

And I'm going to talk total publishing now, not just the daily newspaper. Total publishing division, our newsprint cost was down 9.3%. And that reflects the fact our average price per ton was up 22%, and our consumption was down 27%.

Craig Huber – Barclays Capital

Okay, and then the non-newsprint cash costs for your division? What was the percent change there, please?

Elizabeth Brenner

Costs, all divisions, across publishing, non-newsprint cash costs were down 12.66% and that reflects a drop of 14.4% at the daily newspaper and 4.5% at our community newspapers.

Craig Huber – Barclays Capital

Do you think you have more room you can do it at your smaller papers?

Elizabeth Brenner

We have identified a number of consolidations and cost out opportunities, starting with the fact that we are consolidating our pre-print division in Northern Wisconsin in the second quarter and hope to see some pretty significant savings in terms of payroll coming out of that. So to answer your question, yes, we've identified and we are moving forward on some of those opportunities.

Craig Huber – Barclays Capital

And then my last sort of big question here, you guys have done a number of smaller acquisitions over the years and done some decent divestures, as well. Are you guys relatively comfortable with your overall portfolio as it stands right now?

Steven J. Smith

It's Steve, Craig. We are generally pleased with the portfolio. We've demonstrated a willingness to sell businesses in the past. As you know, it's always a possibility that the board would consider, but we are absolutely focused on operations, as you can tell from this call.

Operator

Your next question comes from Dan Leben - Robert W. Baird.

Dan Leben – Robert W. Baird

Yes, just a quick follow-up on the paper costs. Two pieces, one, when do we really lap the peak of the comparisons on the price side of that? And secondly, the negotiations you have with your suppliers, any looks to getting some price reductions as we go through '09.

Elizabeth Brenner

Dan, Betsy again, you've seen our price-per-ton drop by over $100 from its peak in December of '08, so we continue to watch that number come down. We hope there will continue to be a reflection in the pricing. We are sourced by a single supplier and so that gives us all of the leverage we could hope to gain as a relatively smaller company in the newsprint buying market. And we continue to watch and negotiate and have all of the hope that we'll watch that price continue to drop throughout this year.

Dan Leben – Robert W. Baird

And on the price-per-ton, the peak, you said, was December 2008. If we just were to carry forward the current costs you're paying right now, when would that 22% positive price comparison, when would that go to, say flat or something very reasonable?

Andre Fernandez

This is Andre. I would say about June, July, compared to last year.

Dan Leben – Robert W. Baird

Okay.

Operator

Your next question comes from [Mike Trainor - Neil O'Keefe Private West].

[Mike Trainor - Neil O'Keefe Private West]

With regard to the acquisitions you made in 2008, can you give us a summary in terms of how those have performed versus your expectation at the time of acquisition?

Douglas G. Kiel

The one in broadcast was KWBA in Tucson. That's performed right on our model in terms of operating earnings and revenue. It's been additive, and it's right on strategy for us, Mike, to get into a duopolies situation where we can add another revenue stream that's targeted at a different demo, which just happens to be a CW.

And we can run it without much incremental cost, other than syndicate expenses and electricity, and be able to add revenue and earnings to our portfolio and ultimately improve our revenue share in that marketplace. So that has been right on plan.

Steven J. Smith

Mike, I would add, as you may recall, we do have a contract to purchase KNIN-TV in Boise. We generally announce those when they close and we're working through the process. But again, KNIN-TV will create that additional television duopoly in Boise, and is right on strategy.

And Betsy, do you want to talk about North Wisconsin?

Elizabeth Brenner

Sure. Mike, you may recall, last year we made a number of acquisitions from very small papers in Northern Wisconsin early in the year, and then we acquired the asset to Waupaca Publishing of several smaller newspaper shoppers, and some magazines, also in the same Waupaca market, where we now have a significant concentration. We reach over two-thirds of the households in that market and that acquisition of Waupaca Publishing made that possible.

Those acquisitions, together with the Sarasota Shopping Guide in Florida, which we purchased last year, have produced this produced this past quarter $1.2 million in incremental revenue and about $300,000 in earnings. Their margin is significantly, actually significantly stronger than what we've seen in the rest of the county.

So we're very pleased with the performance of those acquisitions. And we have since consolidated all of those Northern Wisconsin papers into one countywide newspaper, and we've seen probably revenue and earnings up $10,000 and about $3,000 over our plan so far in the first quarter.

[Mike Trainor - Neil O'Keefe Private West]

If, in fact, your debt covenants aren't potentially in violation and the company has filed the shelf filing, is it reasonable to think that at this point, given the success you've had with previous acquisitions and the distressed pricing generally across media assets, that you may, in fact, be buyers of other assets?

Steven J. Smith

Mike, its Steve, I wouldn't connect the shelf necessarily with the acquisition right now, because the shelf was really, as Andre described, to give us flexibility. As to acquisitions in the future, I would say right now we are absolutely, as you can tell from the descriptors from all of our operating folks, we are very focused on day-to-day operating through this economic difficulty. We're focused on generating cash and driving value.

In the future, we're focused on local markets and we would like to grow in those local markets that we've identified, but I would stress that that's longer term. Right now, we are using our cash to reduce our debt.

[Mike Trainor - Neil O'Keefe Private West]

And final question regarding newspaper circulation, I don't think you gave us numbers, if you are at liberty to disclose those, as well as the trend, likewise, for your interactive media traffic.

Elizabeth Brenner

Mike, this is Betsy. As you know, AVC hasn't yet released the March 31 fast backs numbers and so we'll wait for them to release those specific figures. I'll tell you that we saw declines, both daily and Sunday, in mid-single digits. That's pretty consistent with the trend we saw throughout 2008.

We're encouraged by the fact that our home delivery business is holding up better than our single-copy, our subscribers being very important to us maintaining that number one leadership level in household penetration. So circulation, overall, we feel pretty good about. We think, when we compare ourselves to the rest of the country, we're doing relatively well, relative to other major metro markets our size.

In Internet traffic, our JS online sites in the most recent period measure reached 41 million page views and change. That's a nice tick up. And we're comparing ourselves to the same month a year ago where, as you probably recall, Brett Favre was going through his decision as to whether to stay a Green Bay Packer or not. And that generated a lot of traffic for us this time last year. We were pleased to see we even topped that number in March of '09.

[Mike Trainor - Neil O'Keefe Private West]

And then, thematically, when you look at the acquisition of the Waupaca franchise, it struck me that, pretty quickly after that, you tried to associate a website with each of the properties or collectively. Have you noticed in doing that, that there's been a cannibalization of your actual circulation of those community papers?

Elizabeth Brenner

Our business in that community is community newspapers and shoppers. And we think the customers, the readers we have in that area, come to us for a very specific set of features. They get a complimentary set of features off our website, but really in that market with kind of penetration we've been able to drive through this acquisition, we think we are delivering exactly what the marketplace wants with our shoppers and our paid products.

Operator

As there are no more questions, I will turn the call over to Mr. Smith for concluding remarks.

Steven J. Smith

Thank you, Operator. As a reminder to everyone, the replay of this call will be available through April 24, and we'll archive it on the website through May 6. So, once again, thanks again for joining us this morning. We appreciate your interest in Journal Communications.

Operator

Thank you for your participation in today's conference. You may no disconnect.

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