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Executives

Mike Lovell - Director, IR

Steve Lacy - President and CEO

Joe Ceryanec - VP and CFO

Jack Griffin - President, National Media Group

Paul Karpowicz - President, Local Media Group

Analysts

Jared Schramm - Roth Capital Partners

Jason Bazinet - Citi

Michael Meltz - J. P. Morgan

Peter Stabler - Credit Suisse

Ed Atorino - Benchmark Company

Meredith Corporation (MDP) F2Q10 (Qtr End 12/31/09) Earnings Call Transcript January 21, 2009 11:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator instructions) As a reminder, today’s call is being recorded.

I would now like to turn the conference over to our host, Mr. Mike Lovell. Please go ahead, sir.

Mike Lovell

Good morning everyone. Before Chief Executive Officer, Steve Lacy begins our discussion, I will take care of a few housekeeping items. In our remarks today, we will include statements that are considered forward-looking within the meaning of Federal Securities Laws.

Forward-looking statements are based on management's current knowledge and expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. A description of certain of those risks and uncertainties can be found in our earnings release issued today and in certain of our SEC filings. The company undertakes no obligation to update any forward-looking statement. We will refer to non-GAAP measures, which in combination with GAAP results provide additional analytic tools to understand our operations. Tables that reconcile non-GAAP measures to GAAP results are posted on Meredith's Website as well.

And with that, Steve will begin the presentation.

Steve Lacy

Thank you and good morning everyone. Today, I will start with some thoughts on the current business environment and the trends that we are experiencing, followed by a discussion of a series of strategic initiatives to improve our market position and of course to grow revenue.

Joe Ceryanec, our Chief Financial Officer, will go into greater depth on our financials and provide our earnings outlook. Following our prepared remarks, we will be happy to answer any questions that you might have. Joining us for the Q&A is Jack Griffin, our National Media Group President; and Paul Karpowicz, the President of our Local Media Group.

Let me start this morning with a very brief financial overview. Earnings per share were $0.42 in the second quarter, including a special charge of $0.07 related to the repositioning of our Special Interest Media business as we announced earlier. Excluding special charges in both periods, earnings per share were $0.49, even with the prior year and slightly ahead of our previously stated expectation.

Revenues were $337 million compared to $360 million a year ago. We recorded $14 million or $0.19 per share less in net political advertising revenues during the second quarter of fiscal ’10, a non-political year compared to last year of fiscal ’09. Looking broadly across our businesses, we are continuing to see improving trends in advertising. However, advertising revenues are still weak compared to historic levels and our visibility is increasingly limited. This of course makes forecasting future results more difficult.

I would like to spend just a minute or two reviewing our calendar 2009 advertising performance. Our National Media Group delivered sequential quarterly improvement in advertising revenues, by far the best performance in our peer group and much better than the industry taken as a whole. Five Meredith titles, Better Homes and Gardens, Family Circle, More, Fitness along with Ladies’ Home Journal increased ad revenues as measured by Publishers Information Bureau. That’s a remarkable achievement when you consider that just 14 titles among the more than 200 measured magazines across the industry had growth in calendar 2009.

Additionally, Family Circle and Better Homes and Gardens finished Number 1 and Number 2 in advertising pages in the highly competitive women’s lifestyle category. Both titles were named to Advertising Age’s A-list of the nation’s top magazines, while Fitness was named the most improved publication by the Media Industry Newsletter. Our Local Media Group also delivered sequential quarterly improvement in non-political advertising revenue, gaining market share in the process. We finished the calendar year, particularly strong, delivering a 4% gain in non-political advertising revenues in the fourth calendar quarter.

Clearly, the performance improvement plan we formulated 18 months ago has helped us navigate what was a very difficult calendar 2009 across the media industry. The four key elements of that plan include gaining market share in our national magazine and local television operations, increasing our already strong connection to the American consumer, growing new streams of revenue, particularly those not dependent on traditional advertising, along with exercising disciplined expense control and aggressive cash management. I will detail the progress we are making on those initiatives as we take a closer look at operating group performance in the second quarter and first six months of fiscal ’10, starting with our National Media Group.

During the second quarter, we continued to see National Media Group advertising revenues improve. While off 2% from a year ago, advertising revenue performance has improved in each of the last four quarters. At the same time, the National Media Group operating expenses declined 10%, driving a 25% increase in group operating profit in the second quarter compared to the year-ago period. Better Homes and Gardens grew advertising revenues by 7%. More and Fitness magazines also grew ad revenue in the quarter.

Our share of overall magazine industry advertising revenues increased to 11.7% in the second quarter of fiscal ’10, up from 9.4% in the prior year, once again according to the latest data from the Publishers Information Bureau. Additionally, our market share grew by about 2 points to 37% as measured against our 28-title competitive set. The market share gains we are delivering are driven by several factors. First of all, our branded editorial content focuses on the subjects that matter most to women. That emphasis is more important than ever as consumers look for sound practical advice.

Second, our advertisers are seeking the most value for their advertising dollars. The reach and the efficiency of our portfolio particularly among our largest brands continue to work in our favor. Third, we have a sales organization that can create and also deliver multi-platform marketing campaigns that help our customers sell more products at retail. These programs now represent approximately 20% of our overall advertising revenues. During the second quarter, Family Circle partnered with IKEA to launch an experiential cooking program, featuring seminars taught by celebrity chefs.

The Better Homes and Gardens’ 2010 Best New Products Award attracted more than 50 brands to participate. More magazines signed Wells Fargo as the presenting sponsor for its three reinvention conventions that are scheduled in 2010, and also one new advertising business from Cadillac, Lincoln, and Ford. Finally, during the quarter, we were ranked Number 1 among all media companies by the Advertiser Intelligence Report in terms of advertiser perception. We were ahead of both our publishing peers as well as other media companies, including Google, ESPN, and Disney.

Turning now to circulation, revenues rose slightly in the period. Profit and related margin increased during the quarter compared to the prior period as well. Our performance was assisted by efficiencies in our subscription operation. Total readership across our magazines increased in the most recent report from Mediamark Research & Intelligence and we gained market share of the newsstand as well. Average monthly unique visitors to Meredith nationally branded Website increased more than 35% to over 20 million and page views per month averaged over 260 million, both were record levels.

These gains were driven by a wide variety of content created for the holiday season along with new social media capabilities. Visitors viewed more than 6 million videos during the quarter, four times the number seen a year ago. During the quarter, we announced our investment in a new venture with Time Inc, Conde Nast, Hearst, and News Corp to create open standards for a new digital store front, allowing consumers to enjoy their favorite media content on portable digital devices.

It will also include a rich array of innovative advertising opportunities. We will derive revenue from content creation, advertising, along with sales of traditional print subscription. At Meredith Integrated Marketing, we are seeing a strong pipeline of new business activity and have been successful in turning some of those proposals into significant new business. In December, Meredith Integrated Marketing won new business, developing and managing Chrysler Group’s customer relationship management initiative in both the United States and in Canada. The assignment covers the full vehicle ownership life cycle from welcome packages through off-lease marketing. It includes communicating with in-market and prospective customers via direct mail and email marketing along with social media initiatives as well.

In addition, Wells Fargo commissioned integrated marketing to complete an analysis of its digital space and helped develop a customer relationship management program for that company as well. Our brand licensing revenues grew 25% in the quarter primarily as a result of our ongoing relationship with Walmart. The number of SKUs at Walmart tripled to over 1,500 compared to the year-ago period. During the quarter, we announced a new bedding program called Seasonal Harvest, a line of custom paint and a number of new holiday décor items.

To summarize the National Media Group discussions, while the advertising environment remains challenging, we are encouraged by the market share gains and improving quarter-over-quarter revenue trends. Our consumer connection is strong. We continue to develop businesses that are not dependent on advertising, and we are prudently managing our expenses.

Now, turning to our Local Media Group, as I mentioned a few moments ago, fiscal 2010 second quarter non-political advertising revenues grew 4%. Stations in 9 of our 10 television markets posted growth in non-political ad revenues. The Local Media Group also outperformed the industry as a whole by approximately 3 percentage points in non-political advertising revenues during the quarter according to the most recently available data from the Television Bureau of Advertising. These gains were aided by stronger ratings posted by many of our television stations during the November suite period.

Our CBS affiliate in Atlanta made significant rating gains across all key newscast. We more than doubled our ratings in morning news and late news by nearly 30%. Our stations in Hartford, Nashville and Las Vegas captured a larger share of morning news viewers while Harford and Portland maintained their Number 1 position. In the evening and late news periods where advertising rates are the highest, we grew viewership and ratings in Kansas City, Las Vegas and Phoenix. Hartford maintained its # 1 position across all of its newscast.

Looking at new revenue streams, re-transmission fees nearly doubled in the second quarter and we expect those fees will be more than $20 million as we close fiscal 2010. Meredith Video Studios also posted strong revenue growth in the quarter. The gains were driven primarily by growth in custom video projects for corporate clients as well as the continued expansion of the daily Better television show. Better is now in 55 markets and reaches more than 45% of the US households. During the quarter, Video Studios formed distribution agreements with YouTube, Google, Sprint TV, Grab Network and others that will include carriage of our branded video content across more than 150,000 new Websites.

To summarize our Local Media Group discussion, the television industry has been experiencing one of the most difficult advertising environments in its history, but we are driving improved non-political advertising revenue performance and continue to believe that television is the most powerful and efficient way for advertisers to reach the American consumer. Additionally, we are encouraged by our ability to grow new revenue streams, including re-transmission fees and video content creation.

Now, I will turn the discussion over to our Chief Financial Officer, Joe Ceryanec.

Joe Ceryanec

Thanks Steve, and good morning. As Steve noted, earnings per share were $0.42 in the second quarter, and that included a special charge of $0.07 per share, that’s $0.49 without the special charge. During the fiscal second quarter, we recorded a special charge of approximately $5 million or $3 million after-tax. The charge includes the cost of repositioning our Special Interest Media business. Additional information on the special charge is available in tables 1 through 4 in today’s earnings release and in our press release dated January 14th, 2010. As we have discussed, key elements of our performance improvement plan focus on operating efficiencies, managing our cash and aggressively reducing debt,

Companywide operating expenses declined 8% in the second quarter of fiscal 2010. They were down 10% in our National Media Group and down 6% in our Local Media Group, 2% without last year’s charge. Corporate unallocated expenses rose approximately $2 million as we expected due primarily to higher retirement plan costs and third-party consulting fees. As we mentioned during our last conference call, we have engaged consultants to help us be more efficient in the areas of creating and distributing our branded content, sourcing the materials we purchase, providing support functions across our organization, particularly in the IT area, and at managing our employee benefits. Our repositioning of the Special Interest Media operation is one example of the deliverable from this initiative.

We generated approximately $76 million in cash flow from operations during the first six months of fiscal 2010 and reduced debt by $30 million so far in fiscal ’10. Our total debt was $350 million at the end of the second quarter and our debt-to-EBITDA ratio was 1.7 to 1, well under covenants and appropriately conservative. We had a $175 million of debt flip from long-term to current from our prior year-end due to a $75 million term payment due July 1st 2010, and $100 million outstanding on our revolver, which expires in October of 2010.

We are in the early stages of working with our bank group to renew the revolver. We continue to strengthen our balance sheet and are well positioned to continue to weather the softness in advertising space. We are also well poised to capitalize on opportunities as they arrive.

Turning to our outlook, looking at the third quarter of fiscal 2010, with two of the three magazine issues closed and National Media Group advertising, we are expecting to be flat to up slightly. Local Media Group non-political advertising pacings, which are a snapshot in time and change frequently, are currently up in the mid teens.

We expect fiscal 2010 third quarter earnings per share to range from $0.55 to $0.60. Looking at the remainder of the fiscal 2010, with limited visibility into customers’ ad budgets, we are currently expecting full-year earnings per share to range from $1.90 to $2.05, excluding the special items that were reported in the first half of fiscal 2010.

A number of uncertainties remain that may affect our outlook for the third fiscal quarter and full year of 2010. These are referenced in the Safe Harbor statement in today’s press release and in our SEC filings.

With that, I will turn it back to Steve for some closing comments.

Steve Lacy

Thank you very much, Joe. Calendar 2009 was clearly a difficult one for the media industry. However taking a bit of a longer-term view, the alarm of chatter can sometime obscure the more entire story. Without a doubt, the media industry was and remains in need of consolidation. Simply, the number of outlet continues to exceed both consumer and marketer demand. Thus, the weaker channels are following by the wayside and they will continue to do so.

But this is hardly the death knell for all traditional media, rather as an opportunity for the stronger players to reenergize and to gain share. Additionally, companies with a sound strategic vision such as Meredith continue to work diligently to expand beyond traditional advertising and develop new sources of revenue. In our case, it’s through expansion of our integrated marketing, digital, video, licensing and mobile initiatives.

Throughout today’s discussion, I pointed out examples where Meredith is, exceeding industry metrics in our core businesses, repositioning those businesses to meet new market demand, strengthening our consumer connection across channels, growing new sources of revenue and efficiently utilizing capital. We call it our performance improvement plan, but obviously it’s much more than that.

We believe it’s the blueprint for success in a rapidly-changing media and marketing landscape. In the early goings of calendar 2010, we continue to look for ways to refine and expand these strategies. I am extremely confident that Meredith is emerging in a stronger competitive position and that we are well positioned to build shareholder value overtime.

Now, we would be happy to answer any questions that you might have.

Question-and-Answer Session

Operator

(Operator instructions) And we do have a question from the line of Richard Ingrassia with Roth Capital Partners. Please go ahead.

Jared Schramm - Roth Capital Partners

Good morning. This is Jared Schramm for Rich today.

Steve Lacy

Hi Jared, how are you doing?

Jared Schramm - Roth Capital Partners

Good. Yourself?

Steve Lacy

Just great, what can we help you with?

Jared Schramm - Roth Capital Partners

You mentioned paper prices were down 15% year-over-year, could you give some insight into what you are seeing over the next six months in the horizon in regards to paper prices?

Steve Lacy

Yes, we see that paper prices continue to moderate in the early goings of calendar 2010. We don’t think that we will have dramatic changes in pricing, but probably by the time we get into our fourth calendar quarter year-over-year, you know, we will probably be down about 20% from the peak, which happened in the first half a year ago.

Jared Schramm - Roth Capital Partners

Okay, thank you. Secondly, the gain, the market share gains keep coming on here. I was wondering if you can attribute that mostly to fewer titles in the space as a whole or are you gaining share directly from other existing titles, and if so, which titles?

Steve Lacy

I am going to, and you are speaking I presume on the magazine side of business?

Jared Schramm - Roth Capital Partners

Yes, yes.

Steve Lacy

Yes, I will ask Jack to respond to that, but generally speaking just as an opener, the titles that have closed were not aggregating thousands and thousands of ad pages. So, not a lot of it comes from that space generally, but Jack, why don’t you add your own color to that question?

Jack Griffin

Hi, this is Jack Griffin. What Steve said about closed titles is right. They are insignificant in the larger scheme of the volume picture. As we have been saying to you for at least a year, went into 2009, prepared with a deliberate strategy to take share in a downturn, and we have consistently done that and have taken in our competitive set depending on the time period that you look at 3 to 4 points of share, and nearly 2 points in the magazine category overall. So, the competitive set by definition is our direct competitors, it’s a set of about 28 to 30 magazines that are in the women’s lifestyle and service category and that’s where our share gains are coming from as well as in the health set where the very strong performance of fitness magazine is starting to pay benefits for us. So, we are doing it in a very explicit way, in a very measurable way and we think in a very consistent way.

Jared Schramm - Roth Capital Partners

Okay, thank you. And lastly, just a housekeeping item, my apologies if I missed this. Do you have a stock comp figure for the quarter?

Steve Lacy

What?

Jared Schramm - Roth Capital Partners

Stock comp figure for the quarter?

Steve Lacy

You know what, Jared, we will – maybe we do, hold on a minute.

Joe Ceryanec

Yes, it’s in the cash flow statement, Jared. It’s 6.5 million for the first six months. I don’t have that number broken down, but it’s probably and fairly evenly split between Q1 and Q2.

Jared Schramm - Roth Capital Partners

Okay, great. Thank you very much for your time today.

Steve Lacy

Thanks Jared.

Operator

Next, we will go to the line of Jason Bazinet with Citi. Please go ahead.

Jason Bazinet - Citi

Thanks so much. There’s been, you guys have shown tremendous progress, I guess in ratings of the TV stations. If you just had to prognosticate on what sort of impact if any of the Conan O'Brien, sort of Jay Leno flap is having at NBC, how do you think that will sort of play out over the next six months or so if at all?

Steve Lacy

Well, the good news is, as it relates to that, as I know you are well aware, Jason, that we own one NBC station in Nashville, which in its own right is a powerhouse, but I will ask Paul to elaborate a bit on that particular issue. If you would please, Paul?

Paul Karpowicz

Sure thing. Honestly, we have been with the predominance of our stations being CBS and Fox stations, we have been the beneficiary of Jay Leno at 10 o’clock Eastern Time, there is no question. I do think it’s going to take some time for NBC to kind of reconfigure their primetime lineup and certainly for Leno to reestablish himself in the 11:30 Eastern Time period. So, you know, quite frankly, we have been very pleased with the great results we have gotten from CBS and Fox, and then our ability to translate that lead-in, into strong late local news. And I think that’s been particularly important that we have been given an advantage, there is no question, and we have been able to take that advantage and translate that into increased ratings into our local news time period.

Jason Bazinet - Citi

If Leno sort of regains traction at 11 PM, do you guys think it will be applying on to a portion of the gains, or you think -?

Paul Karpowicz

Yes, I absolutely do. I think, first of all, I think it’s going to take some time for him to rebuild that franchise, I don’t think he can just move right back into that time period after the Olympics and have an expectation his numbers will go back to where they had been kind of prior to all of this. So, that still remains to be seen, and I truly do anticipate that we will hold on to the gains that we have seen to date.

Jason Bazinet - Citi

Okay, thank you.

Steve Lacy

Thanks Jason.

Operator

Next, from the line of Michael Meltz with J. P. Morgan. Please go ahead.

Michael Meltz - J. P. Morgan

Thank you. Steve, at the magazine group on the pricing side, what’s the expectation and now in calendar 2010, we have been through a few quarters where you had pushed for market share and I think pricing had been a little bit of a drag. Does that revert or how are you thinking about that? And then I have two follow-ups.

Steve Lacy

I will give you kind of a high level and then I will ask Jack if he wants to add, you know, add any color. You know, we continue to execute as we have for many, many years as we have talked about it. Michael, since you are longer-standing analyst, you know, a strategy where through a tiered pricing initiative, we incent the advertiser to move volume to Meredith, and of course, in a time where budgets were cut severely and the efficiency of our portfolio compared to some of our competitive titles, that has clearly worked in our favor. In calendar 2010, we continue to experience very, very strong pricing pressure, and if you were to look at it on an overall basis and kind of say, you know, where is it year-over-year, depending on title and depending on the month, it will bounce somewhere in kind of down in sort of the low to kind of a mid-single digit range for pricing compared with where we would have been a year or 18 months ago. Personally, I don’t feel that, that pricing will abate in the near term, although I don’t think there is dramatic decline that we will feel in pricing as we move through 2010. So –

Michael Meltz - J. P. Morgan

Let me jump in before, and Jack could probably clarify, and Steve, thank you for the compliment about my tenure, although that in a dime still won’t get me a phone call. So, are you saying, I mean, Better Homes and Gardens for instance, in the quarter, you were saying ad revenues were up 7%, which is excellent, but pages were up I believe double that. So, you were saying you think that there will be some pricing degradation going forward, and you will offset that with increased ad pages. But will there be less of a pricing drag or, you know, how should I think about that?

Steve Lacy

I don’t think that there will be less of a pricing drag from where we are right now. I just don’t think it will be a lot worse than it is right now.

Michael Meltz - J. P. Morgan

Okay.

Steve Lacy

Jack, you want to add anything to that?

Jack Griffin

Unless there is more detail that people are interested in, I don’t think there is much to add to it.

Steve Lacy

Okay.

Michael Meltz - J. P. Morgan

Okay. On the cost side, I think if I back into your guidance, it would imply to get, from the revenue guidance, the EPS guidance would imply cost up a little bit year-over-year in the March quarter, is that fair, Joe?

Joe Ceryanec

I would say, and as we have talked before, Michael, the beginning of last calendar year is where we started taking significant costs out, we had a fairly sizeable reduction in force. So, the cost decreases that we have seen, you know, up till our second quarter, we do not expect to continue. Overall, right now, as we look into the third quarter, we are looking at cost flat to up maybe 1%.

Michael Meltz - J. P. Morgan

Okay. Thank you. And on the corporate line, the December, that would be incorporated in there, but the December number I would think isn’t a run rate, what is the – what should we expect in terms of corporate expense?

Joe Ceryanec

Corporate was up, as we said, due to one, the retirement which, you know, at the beginning of the year we guided that retirement was going to be up. We have had the consulting expenses, which we do not expect to be as high next quarter. I would say next quarter corporate should be down about $1 million from this quarter.

Michael Meltz - J. P. Morgan

Okay. All right. And then, in terms of the TV ad pacings, can you tell us, I mean, certainly we are all pleased with mid-teens, what by months, how does that look, please?

Joe Ceryanec

I am sorry. Could you repeat that one, Michael?

Michael Meltz - J. P. Morgan

TV ad, I guess my question is, how is March pacing in terms of advertisement?

Steve Lacy

You know, Michael, we will have to get back to you with that. We don’t have pacings by month in our data, but clearly we have pacings by months. So, I bet we will talk to you again later today, and we will have that at our fingertips.

Michael Meltz - J. P. Morgan

All right. And last question, for Paul, the Supreme Court came out with a ruling that appears to be pretty favorable for political ad spending going forward. What is your take on that and what’s the implication for your stations?

Paul Karpowicz

I guess the best way to characterize it would be cautiously optimistic that this could be a very positive thing. However, I would say that, that even with that limitation in place, and it has been in place for a number of years, quite honestly, I have a feeling that people figure it out ways to spend money on candidates, whether they used, you know, other ways to channel the money through. But basically, my understanding is what this does, it eliminates the need to do that, so it makes it easier for corporations and unions and organizations like that to spend freely, directly to candidates as opposed to going through third party. So, bottom line, I think it is a very positive development for local TV.

Michael Meltz - J. P. Morgan

Okay, thank you for your time.

Paul Karpowicz

Sure, thanks.

Steve Lacy

Thanks Michael.

Operator

And next, we will go to the line of Peter Stabler with Credit Suisse. Please go ahead.

Peter Stabler - Credit Suisse

Thanks very much for taking the question. Steve, you recently mentioned that circulation activities have become more efficient and more profitable, yet on a revenue basis, we really haven’t seen growth there. Can you give me some sense to how we should be thinking about circ revenues going forward, let’s say on kind of remainder of year, multi-year basis?

Steve Lacy

Well, generally speaking, if you look at that line item over the last few years, we saw declines as we were continuing to translate if you will from acquisitions that we made to our direct to publisher model. In the current environment, you know, there is a combination of activities inside that revenue number where our subscription revenue is actually up a couple of points due to some, I think very innovative pricing strategies that Jack and his team have put in place, but the newsstand is still quite weak from an industry perspective, and so our newsstand revenue, which is a smaller component is actually down about 5%. And once again, I would ask Jack to comment, but I would probably think that, that sort of a trend is probably at least what we will see persist over the relative near term. So, when you add the two together, you are going to see, you know, a little difference quarter-to-quarter. It might be up a little or down a little, but it’s really the newsstand drags the overall number down. Jack, do you have any other thoughts on that circulation revenue component?

Jack Griffin

I think Steve covered it pretty completely. There are many factors that drive total circulation revenue, the intricacies of subscription revenue and the fundamentals on newsstand get winded in. Together, as Steve mentioned, and what we are in overall we believe is from a revenue standpoint a fairly flat environment with respect to circulation for our magazines.

Peter Stabler - Credit Suisse

I am sorry, on the newsstand side, that’s notwithstanding cover price increases you think that for kind of looking at a flat operating environment for the foreseeable future?

Jack Griffin

The newsstand environment for our business, you will see going forward, our numbers will be colored by the action that we just took to reduce the size of our Special Interest Media business. So, you will see that going forward. And then with respect to rate-based titles, for those of you who followed Meredith for a long time, you know that we have not a whole lot of exposure to that segment in terms of the way we deliver our rate-based, which is heavily a subscription revenue. At the same time, there is no getting around that the newsstand environment in the current economic climate is pretty difficult, and the ABC, Audit Bureau of Circulations will come out with its FAS-FAX in a few weeks and the newsstand environment will be reflected there, and I think you will see the results of what I am saying for the industry overall.

Peter Stabler - Credit Suisse

And lastly if I may, on the sub side though, you feel like, you know, gains are possible going forward.

Steve Lacy

We are very encouraged about what has gone on inside of our consumer subscription circulation business. As we are becoming more successful in getting the consumer to pay more, our renewal and retention rates are very strong, our consumer acquisition new subscribers is exceeding our expectations, and are doing more and more work to bring the consumer from an offline relationship to an online relationship, which helps margins. So, we feel very good about our subscription business, and we feel very good about its position in our overall relationship with the consumer.

Peter Stabler - Credit Suisse

Many thanks for taking the question.

Steve Lacy

You bet.

Operator

If there are any additional questions, please press star one at this time. And we will go to the line of Ed Atorino with Benchmark Company.

Ed Atorino - Benchmark Company

Hi, good morning. Got three questions. One, tax rate is going to stay around 41 or will it slide over the balance of the year, you said it was going to 40 for the year based on that. Second, is the higher level of corporate expense we have seen in the first half going to continue in the second half? It’s up quite a bit year-over-year, can understand the reasons why, and that’s second question. And third, regarding the TV business, could you talk about a couple of categories in this, and auto still pretty strong and any other categories that you would care to mention as sort of coming back to life?

Joe Ceryanec

Ed, it’s Joe. I will take the tax question and the corporate expense question, and then Paul and Steve could handle the last one. As you see in the last couple of years, historically our Q3 tax rate has been down because of the way we account under FIN 48, and we do have some expectations but Q3 will be down, you know, lower than kind of our typical 40% for the year. That would put us probably 39% to 40%. So, if you look at last year, we expect to be somewhere close to that from a tax rate standpoint. On the corporate expense line, what I said to Michael a little bit ago, we do expect corporate expenses to be down next quarter and fourth quarter. I told Michael, $1 million down from this quarter, that number could be, maybe down $2 million. You know, the retirement expense is kind of blended through the year, but we do expect some decreases in the control thing side. So, next quarter, down a million to two [ph] and probably similar results in the fourth quarter.

Ed Atorino - Benchmark Company

And down from the second quarter, not year-over-year.

Joe Ceryanec

I am sorry, down from the second quarter.

Ed Atorino - Benchmark Company

Yes, okay. Thanks.

Joe Ceryanec

Yes, we are up year-over-year.

Ed Atorino - Benchmark Company

That’s what I was getting. Thanks.

Joe Ceryanec

Thanks for correcting me.

Ed Atorino - Benchmark Company

Sure, that’s all right. On the auto stuff?

Steve Lacy

Sure, absolutely. I am sure many of you remember that in this period a year ago, we were really experiencing some dramatic declines in automotive, which is the Number 1 category, and while it’s still down, not down nearly as much, so automotive was down 6% in the quarter, professional services the Number 2 category was up 7%, and retail up 13% over ’09. And if you aggregate those top three categories, you got about 45% of the non-political revenue of the TV operations.

Ed Atorino - Benchmark Company

If you said this, I apologize, what was auto down in the fourth quarter?

Steve Lacy

6.

Ed Atorino - Benchmark Company

6. And it’s now down – that’s the fourth quarter, and it’s running down 6 in the first quarter?

Joe Ceryanec

No.

Steve Lacy

No. It was down 6 in –

Ed Atorino - Benchmark Company

4Q?

Steve Lacy

Fourth calendar quarter.

Ed Atorino - Benchmark Company

Got you.

Steve Lacy

And inside the pacings that we have right now, it’s up over 50% compared to the prior year.

Ed Atorino - Benchmark Company

50?

Steve Lacy

50. And that would be in the quarter ended March 31st, 2010.

Ed Atorino - Benchmark Company

Yes. Well, last year, it was down a few hundred million dollars, so if that’s understandable.

Joe Ceryanec

If I understand, Ed, was down over 50%.

Ed Atorino - Benchmark Company

Yes, I remember.

Joe Ceryanec

This quarter, as Steve just said, we are up over 50% this quarter, so far, it’s kind of bounced back.

Ed Atorino - Benchmark Company

Okay, thank you very much.

Operator

There are no additional questions at this time. Please continue.

Steve Lacy

Okay. Thank you all very much for participating this morning. We appreciate your ongoing support of Meredith Corporation, and we will all get back to work. So, thank you very much.

Operator

And ladies and gentlemen, that does conclude our conference for today. Thank you for using AT&T Executive TeleConference Service. You may now disconnect.

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Source: Meredith Corporation F2Q10 (Qtr End 12/31/09) Earnings Call Transcript
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