Journal Communications F3Q06 (Qtr End 9/24/06) Earnings Call Transcript

Journal Communications, Inc. (JRN)
F3Q06 Earnings Call
October 17, 2006 11:00 am ET

Executives

Sara Wilkins - Director of Investor Relations
Steven J. Smith - Chairman of the Board and CEO
Paul M. Bonaiuto - Executive Vice President and CFO
Douglas G. Kiel - President, Vice Chairman and CEO, Journal Broadcast Group Inc.
Betsy Brenner – EVP, COO Journal Sentinel Inc.
James J. Ditter - President, Norlight Telecommunications Inc.

Analysts

Mark Bacurin – Robert W. Baird
Stacy Fleck – Merrill Lynch
Debra Schwartz – Credit Suisse
Peter Salkowski – Goldman Sachs
Craig Huber – Lehman Brothers
DeForest Hinman - Paradigm Capital Management
Thomas Clack – UBS Financial Services
Jeff Allen - Silvercrest Asset Management

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Journal Communications third quarter 2006 earnings conference call. My name is Danielle and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn this presentation over to your host for today’s call, Ms. Sara Wilkins, Director of Investor Relations. Please proceed, ma’am.

Sara Wilkins

Thank you, Danielle, and welcome everyone. Before we being, I would like to introduce the Journal Communications senior management team who will participate in this morning’s call.

Speaking from prepared remarks this morning are Steve Smith, Chairman of the Board and Chief Executive Officer and Paul Bonaiuto, Executive Vice President and Chief Financial Officer.

Also with us today are Doug Kiel, President of Journal Communications and CEO of Journal Broadcast Group, Betsy Brenner, Executive Vice President of Journal Communications and Chief Operating Officer of our publishing businesses, and Jim Ditter, President of Norlight Telecommunications.

I would like to remind you that certain statements in this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally include all statements other than statements of historical facts including statements regarding our future financial position, business strategy, budgets, projected revenues and expenses, expected regulatory actions and plans and objectives of management for future operations. These statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements. Some such risks include decreases in advertising spending, loss of market share, inability to acquire or successfully manage broadcast properties and acquisitions, failure to retain adequate viewers and listeners, increases in the cost of television programming, broadcast limitations and/or sanctions imposed by the FCC, an ability to respond to changes in telecommunications technology, continued overcapacity in pricing pressure in the telecommunications industry, loss of large printing services customers, loss of key personnel and other uncertainties and other factors which are contained in our periodic filings under the Securities Exchange Act of 1934.

Additionally, any discussion of EBITDA in today’s conference call may be referenced back to our un-audited reconciliation of consolidated net earnings to consolidated EBITDA schedule, which accompanies today’s earnings release.

Now I would like to turn the call over to Steve Smith. Please go ahead, Steve.

Steve Smith

Thank you, Sara, and good morning everyone. This morning Journal Communications reported net earnings of $13.5 million for the quarter ended September 24, 2006. Earnings from continuing operations were $14.5 million. Included in these results is a $1 million loss from discontinued operations net of tax from a purchase price adjustment related to the January 2005 sale of NorthStar Print Group.

Note that unless otherwise indicated all comparisons today are to the third quarter ended September 25, 2005.

Basic and diluted earnings per share from continuing operations were $0.21 and $0.20 respectively and basic and diluted earnings per share from net earnings were $0.19.

Revenue from continuing operations of $194.3 million increased almost 4% compared to $187.4 million.

Our broadcast group continued its strong performance in the third quarter recording significant growth in revenue and earnings. We experienced robust political and local advertising at our television stations as well as appreciable growth in national business in our radio properties. Our three new television stations continued their solid performance.

Beyond the acquisitions, our TV stations in Las Vega, Palm Springs, Lansing and Green Bay and our radio clusters in Knoxville, Boise and Tulsa posted sizeable growth in both revenue and operating earnings. We are encouraged by television’s fourth quarter pacing, particularly for political revenue.

Our daily newspaper had a disappointing third quarter, impacted negatively by continued weakness in automotive classified and a decline in retail advertising. In the last period of the quarter, however, classified comparables were slightly more encouraging for help wanted and real estate. Interactive revenue continues to be strong, up 32.5% to $2.5 million in the third quarter. Journal Sentinel remains focused on cost containment, with payroll costs at the daily newspaper down 2.4%.

Late in the third quarter, Norlight kicked off IP Live, its newest integrated communications offering, in Green Bay and Madison, which enabled Norlight to be more competitive in its commercial business. Norlight's revenue and earnings continue to be negatively impacted by ongoing anticipated lower contact pricing in the wholesale business and significant competitive pricing pressure in the commercial business. Costs related to both the proposed spin-off and the start-up of IP Live further reduced Norlight’s earnings in the quarter.

The broadcast group reported its third consecutive quarter of solid results, driven by strength across all of our television and radio markets, better than expected political advertising, strong developmental revenue and continued overachievement in our new television stations. Notably, specialized developmental sales revenue remained robust, with $3.6 million in television and $2.8 million in radio, respectively, recorded in the third quarter of 2006.

Three years ago we discussed what we saw as a substantial opportunity for margin enhancement and are pleased with our progress on that front. Las Vegas for the third consecutive quarter recorded strong increases in revenue and operating earnings, up approximately 50% and 200% respectively for the third quarter 2006. In fact, our operating earnings margin in Las Vegas for the third quarter is now the highest among all of our television properties and in July sweeps, Las Vegas’ 6:00 a.m. news improved to number two for adults 25 to 54.

We continue to be encouraged by the progress at our Green Bay television operations, where revenue grew by 25% and operating earnings increased significantly in the third quarter 2006 compared to the 2005 quarter.

Since the acquisition, our three new television stations as a group have continued to exceed expectations every quarter for both revenue and operating earnings.

In the third quarter Fort Myers added a half hour of news at 11:00 p.m. This additional half-hour of news as well as the four hours of the morning news we added in the second quarter provides the station with additional inventory which is particularly valuable during political years.

In Omaha TV we added one half-hour of news at 6:00 p.m., which should allow us to better utilize our news department and provide more inventory.

In Milwaukee in television we premiered our locally produced, hour-long show The Morning Blend, a lifestyle show format whereby local advertisers have a long-form format to promote their products or services. The early response from local advertisers has been stronger than we originally anticipated.

In radio, revenue was up 4.7% in the quarter. We saw strength in all of our clusters with all but one of the eight hosting double-digit gains in operating earnings. Our ongoing commitment to cost control helped drive radio margin improvement in the quarter, up almost 400 basis points compared to last year.

In late September, General Broadcast Group sold KDBX FM for $7.5 million. The divestiture of KDBX is part of the General Broadcast Group’s compliance with the FCC’s cross-ownership rules as a result of our December 2005 agreement to acquire KMTV Omaha from Emmis Communications Corporation.

The daily newspaper, like so many others around the country, remained challenged by significant declines in automotive advertising. Retail advertising was down due to decreases in ROP and shared mail, partially offset by increases in our online and preprints.

We’ve been able to somewhat mitigate the impact of revenue declines in operating earnings by ongoing reductions in payroll expense and generally holding other expenses flat. Online remains a bright spot, with revenue up about 33% for the third quarter and 30% year-to-date. Specifically retail advertising on our new web sites grew almost 73% in the quarter to about $900,000. In addition, color ad revenue continues to increase as well, up about 17% for the quarter.

In circulation, Journal Sentinel continues to grow penetration in the 25 growth zip codes most attractive to our advertisers.

In the third quarter, Journal Sentinel signed a five-year agreement to print the national edition of USA Today for distribution in the northern and western suburbs of Chicago and the eastern half of Wisconsin. In choosing Journal Sentinel, USA Today cited its world-class newspaper production facility, exceptional team, superior color reproduction, significant capacity and centralized location. Journal Sentinel expects to print in excess of 75,000 copies of USA Today Monday through Friday and anticipates that printing will commence in late October. I’m please to report that with this new agreement Journal Sentinel has now essentially reached its $5 million capacity for commercial printing at the new production facility which was achieved in just three years time.

Also, Steve Broas joined Journal Sentinel as Senior Vice President in advertising. He was most recently publisher of the Fort Wayne News Sentinel and president of Fort Wayne Newspapers. At Journal Sentinel, Steve will be responsible for the advertising division and the local retail and JS Direct groups.

We are very pleased with the continued improvement in our community newspapers and shopper business, where the operating earnings margin was 8.4%. This reflects a number of economies we put in place in the past year, including the outsourcing of back office functions for community newspapers by Journal Sentinel.

In the third quarter, CNI announced the revamp of its Milwaukee area community newspapers. CNI also discontinued ten shopper publications, replacing them with Marketplace, a shared mail product for the Milwaukee market. By year end, eleven weekly community newspapers will match the coverage provided by 18 neighborhood web sites. The combination of print and web sites will enable CNI to provide unrivalled neighborhood coverage in the greater Milwaukee area around-the-clock online and once a week in print.

In September, JCPG announced the closure of its Hartland, Wisconsin commercial printing plant. JCPG’s Wisconsin-based printing will be consolidated at the company’s Wisconsin printing operations in Waupaca, Wisconsin. Additionally, the Harland print facility will transition into an additional newspaper distribution center to enable Journal Sentinel and JCPG to better serve readers in the growing Lake Country market west of Milwaukee. JCPG anticipates fourth quarter 2006 expenses related to the move, including employee-related charges, to approximate $700,000 and annualized savings to be between $600,000 and $800,000.

At Norlight, revenue decreased in both the wholesale and commercial businesses. The decline in wholesale had been anticipated and we have discussed this on previous calls. The decrease on the commercial side reflects ongoing significant competitive pricing pressure from the RBOC’s partially offset by the sale of new products.

In the third quarter, Norlight expanded its IP telephony solution by introducing IP Live, an integrated voice and data solution for small and medium businesses. Norlight’s IP Live solutions bundle local phone, long distance and data services over a single private IP connection at competitive prices. In the introduction of local phone services as part of Norlight’s products and services should improve its competitive position in the commercial business and complement existing premise-based IP telephony offerings. IP Live is now available to Madison and Green Bay-based businesses with future market deployment planned for Norlight’s other Midwestern markets.

As to an update on Norlight’s proposed spin-off, the process continues as we have previously announced.

And now I’d like to ask Paul to being his in-depth financial review. Paul?

Paul Bonaiuto

Thank you, Steve. For the third quarter 2006, revenue from continuing operations of $194.3 million increased 3.7% compared to $187.4 million last year. Note that in the third quarter of 2006, revenues from our newly acquired television operations totaled $12.6 million. This incremental revenue was partially offset by softness in retail and auto advertising within publishing, the expected declines in telecommunications and printing services revenue, the anticipated lost revenue from the hurricane and shutdown of our printing facility in Louisiana and weakness in our direct marketing business.

Net earnings were $13.5 million compared to $14 million 2005, a decrease of 3.5%. In the third quarter 2006 we recorded a $1 million loss from discontinued operations net of tax from a purchase price adjustment related to the sale of NorthStar Print Group. This adjustment had a negative impact of one tenth on net diluted earnings per share. Basic and diluted earnings per share on net earnings were both $0.19 for the quarter, which was equal to last year.

Earnings from continuing operations were $14.5 million compared to $14 million in 2005, an increase of 3.7%. Basic and diluted earnings per share from continuing operations of $0.21 and $0.20 respectively were up from $0.19.

Other expense, which primarily consists of interest expense, increased $3.3 million to $4 million in the third quarter. The increase is attributable in large part to an increase in debt outstanding related to the 2005 television stations acquisitions, share repurchases and higher short-term interest rates.

Within publishing, revenue was down 5.1% at the daily newspaper. Total revenue of $57.9 million was down 3.9% compared to 2005’s third quarter due to continued softness in auto advertising as well as weakness in retail.

At our community newspapers and shoppers, revenue of $22.5 million was down 8% compared to last year. About half of the revenue decline was due to the impact of Hurricane Katrina and the Louisiana print plant shutdown.

At the daily newspaper retail revenue of $21.9 million was 3.3% lower than last year. This reflects decreases in ROP and shared mail, partially offset by increases in online and preprints.

In ROP, increases in the building, hardware, lawn and garden, entertainment, real estate and food categories were offset by decreases in health services, auto dealers, department stores and finance/insurance.

Classified advertising at the daily newspaper of $16.7 million, which includes both print and online, declined 10.8% for the third quarter of 2006. This was primarily the result of a decline in the auto advertising vertical in which we experienced a $1.4 million or 32.4% drop. We also, however, saw a decline in the employment advertising vertical of $266,000 or 3.6%. The real estate vertical was down 3.9% for the third quarter 2006 while our advertising for home sales remained strong, up 2.2% through the quarter. The softness in rental advertising led to the overall vertical decline. The other classified vertical decreased $207,000 or 10% year over year.

Mirroring the national trend, automobile advertising at the daily newspaper continues to be weak across the board. On a combined retail and classified basis, auto advertising was down approximately $1.8 million or 31.4% compared to last year. This follows a combined 33.8% decline in the second quarter and a 29.6% decline in the first quarter of 2006.

Our national advertising revenue category increased for the firs time this year, up 13.8% for the quarter. This reflects growth in the business services, movies and other categories.

The direct marketing category at the daily newspaper was down 29.2%, largely due to Bon Ton’s consolidation of all Boston store mail programs with their current provider.

Although interactive advertising is reflected in the various revenue categories, total online revenue at the newspaper was up $619,000 to $2.5 million for an increase of 32.5% for the third quarter. Year-to-date online revenue is up 30.1% to $6.9 million.

Circulation revenue of $13.1 million for the third quarter was down 1.6% compared to last year.

Other revenue at the daily newspaper of $2.3 million was up 55.8% year over year for the quarter, principally reflecting gains in commercial delivery and commercial printing.

In the 2006 third quarter, total color advertising was up 17.3%, following gains of 15.1% and 16.5% in the second and first quarters of 2006, respectively.

Operating earnings from publishing decreased 6.6% to $9.7 million compared to $10.4 million last year, which included pre tax hurricane related costs of $1.6 million.

At the daily newspaper, operating earnings totaled $7.8 million, down 23% compared to $10.2 million last year. The decline was mostly attributable to the decrease in revenue. Operating margin was 13.5%, down from 16.9% last year.

Although total expenses were flat compared to last year, payroll costs were down $400,000 or 2.4%, reflecting a 3% decline in fulltime employees.

Third quarter 2006 paper costs were also down by $115,000. This drop in costs reflected a 10.9% reduction in newsprint consumption partially offset by a 6.1% increase in newsprint pricing.

Moving on to our community newspapers and shoppers, we recorded operating earnings of $1.9 million, up almost sevenfold from operating earnings of $249,000 in last year’s third quarter. This increase was due to $1.6 million in hurricane-related costs incurred in the 2005 third quarter. Operating margin was 8.4%.

At broadcasting, revenue increased 43.8% to $58.3 million and operating earnings were up 108.4% to $15.1 million. This reflects the positive impact of the new television stations, strength in our Las Vegas, Palm Springs, Lansing and Green Bay television operations as well as solid performance at our Knoxville, Boise, Tulsa and Milwaukee radio clusters. Of note, revenue and operating earnings at our Las Vegas station were up 49.8% and 200%, respectively. In our Green Bay operations, operating earnings improved $569,000 from a loss in last year’s third quarter.

Revenue at our television stations for the third quarter of 2006 increased $16.7 million or 90% to $35.3 million. The results include $12.6 million contributed from the television operations which we acquired in December 2005. Excluding the new operation, same-station revenue of $22.6 million increased 22%.

Total television political advertising was $3.8 million including $900,000 from our new stations.

Television operating earnings of $7.7 million increased almost sevenfold from $1 million the third quarter 2005. Excluding the new television operations, same-station operating earnings of $4 million increased by nearly 300%.

While softness in NBC prime continues to pressure our results, our improved network mix helped us record margin improvement during the 2006 third quarter. Clearly political and issue advertising was strong, yet we’ve also seen excellent growth in local developmental revenue. When coupled with a continued emphasis on cost containment, this has resulted in margin growth in every television market.

Radio revenue of $23 million was up $1.1 million or 4.7% including political and issue advertising of $433,000. Operating earnings of $7.4 million increased by $1.2 million or 18.9%, reflecting not only the increase in revenue but also a 1% reduction in expenses.

Note that every one of our radio markets posted an increase in operating margin in the 2006 third quarter as well as year-to-date. In total operating earnings margin in radio improved by 385 basis points in the quarter and 365 basis points year-to-date.

Moving on to our Norlight telecommunications business, revenues of $31 million were down 8.3% compared to the third quarter of 2005, reflecting anticipated service disconnections and re-pricing in the wholesale market along with ongoing formidable competition in the commercial business. Note however that on a sequential basis Norlight’s quarterly revenue declines in 2006 appear to be slowing. This reflects a slowdown in the significant re-pricings Norlight experienced during 2005 as well as sales of additional services to existing customers.

Operating earnings for the third quarter of 2006 at Norlight were down 50.4% to $2.4 million from $4.9 million in last year’s third quarter. The 2006 third quarter included spin-off expenses of $700,000 and $600,000 of costs related to Norlight’s IP Live initiative. These unusual expenses represented more than half of the decline in earnings.

As expected, wholesale revenues of $16.8 million were down 7.8% compared to 2005 and down 1.4% sequentially compared to the second quarter of 2006. Commercial revenues of $14.2 million were down 8.8% compared to the third quarter of 2005. This reflects a decrease in Norlight’s traditional voice and data services resulting from aggressive competition from the regional Bell operating companies.

New products, including managed services and BPMs were up about 6% compared to the second quarter. These products, along with the new IP Live offerings, should improve Norlight’s competitive position and be the catalyst for future selling opportunities.

Moving on to printing services, revenues in the third quarter of 2006 decreased 10.4% to $15.4 million. This reflects the expected decline in revenue from Dell Computer Corporation and other software customers, partially offset by $1.9 million in new print business.

For the third quarter of 2006, operating earnings from printing services were $421,000 compared to $584,000 for the third quarter of 2005, a decrease of 27.9%. This decline reflects nearly $300,000 in one time excess direct costs due to the start-up of IPC’s rebuilt binding line.

For the third quarter 2006, other revenue of $9.2 million decreased 16.6 percent due in large part to the loss of a large customer and continued weakness at PrimeNet’s Clearwater, Florida location.

For the third quarter 2006, other operating earnings were $700,000 compared to $1.1 million.

Our balance sheet remains sound. In the third quarter 2006 operating cash flow was $78.9 million. At the end of the quarter, debt was $260.2 million, reflecting our acquisition of television stations in late 2005 and share repurchases. Shareholder’s equity stood at $487.9 million. Our capital expenditures through third quarter 2006 were $26.1 million compared to $24.8 million through last year’s third quarter.

During the third quarter 2006, the company repurchased 239,800 of its Class A shares. Through September 24, 2006, the company has repurchased a total of 5,483,500 Class A shares. Approximately 4.5 million shares remain available for purchase under our second, 5 million share buyback authorization through October 2007.

In terms of our guidance for the fourth quarter of 2006, we currently anticipate total revenue including revenue from Norlight to be between $208 million and $213 million. The company also anticipates net earnings to be between $17 million and $19 million, which includes an estimated after-tax gain on the sale of KDBX-FM of $1.4 million.

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

Steve Smith

Thank you, Paul. The advertising climate in our Milwaukee market is still challenging as we look forward and the daily newspaper will continue to face some hurdles. Ownership changes in the department store category have lead to marketing program changes as well. Rising interest rates are beginning to impact area housing sales and like other markets around the country, we still don’t see an upturn in automotive spending by local dealers or factories anytime soon.

Despite these challenges, Journal Sentinel is pursuing margin growth by continued expansion of its online initiatives, growing single copy and home delivery sales, solidifying additional commercial print opportunities and developing new shared mail products.

We also continue to gain efficiencies in distribution, purchasing and cross-selling between the daily and weekly newspapers.

On the advertising front, sellers are focused on active account growth and developing new business. We expect continued margin improvement in our community newspapers and shoppers as we discussed previously.

Around Milwaukee, our weeklies are working together with the daily newspaper to supplement publications, events and other products with dynamic local news coverage and Internet capabilities while reducing duplicative operating costs.

In northern Wisconsin, further efficiencies will be gained through adds in capacity utilization and streamlining printing operations resulting from the consolidation of our Wisconsin printing operations.

At our television stations we continue to expect solid performance in the fourth quarter, driven by vibrant political and issue advertising, developmental revenue and enhanced programming such as The Morning Blend, Sunday Night Football on NBC and additional newscasts in several markets.

In particular, we expect Las Vegas to continue to outpace last year’s fourth quarter performance and we remain excited about our improved mix of network stations.

On the radio side, we are encouraged by the growth in developmental revenue and ongoing strength across most of our markets.

We are optimistic about Norlight’s newest offering, IP Live, which fills the local phone service gap in its product and service portfolio. IP Live is now available, as we have said, in Madison and Green Bay, but future market deployment is planned for Norlight’s other Midwest markets.

Norlight’s traditional business, however, should see further market degradation as the wholesale business continues to shrink in 2006 and the commercial business continues to be challenged in the traditional product lines as it competes with AT&T.

In particular, over the past 12 months, Norlight has developed a state-of-the-art converged IP network for a certain customer who is now preparing to disconnect the old design. We cannot predict the exact timing, but expect this to happen later this year.

Also, Norlight recently renewed a wholesale master service agreement with one of its top ten customers that extends service for five years and guarantees $26 million in revenue commitments over that time. But in exchange for the revenue commitment, the monthly recurring revenue will be reduced by approximately $280,000, which represents a 33% decrease. This will be reflected in the fourth quarter.

IPC, as previously discussed, has fully exited the Dell fulfillment business, which will continue to result in revenue declines through 2006. We remain encouraged by ongoing growth in IPC’s core printing business and expect continued margin improvement from IPC’s expanded parts capacity and enhanced finishing operations.

Finally, as Paul said, we continue to maintain a solid balance sheet with a low level of debt. We believe our debt capacity and significant free cash flow generation will allow us to continue repurchasing our Class A common stock under our share buyback program, fund our dividend program and make prudent capital expenditures.

As always, we remain committed to driving additional efficiencies through expense initiatives in every business and to delivering meaningful value to our shareholders.

Operator, this concludes my remarks. You may begin the question-and-answer session.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our your first question will come from the line of Mark Bacurin with Robert W. Baird. Please proceed, sir.

Mark Bacurin – Robert W. Baird

Can you hear me?

Steve Smith

Barely. We’ll turn it up, Mark. Go ahead.

Mark Bacurin – Robert W. Baird

How’s that?

Steve Smith

There you go. That’s good.

Mark Bacurin – Robert W. Baird

Perfect. A couple questions. You made a very brief comment about Norlight being on track with prior expectations. Can you give us any sense of timing of when the final spin may occur, what the pro forma debt structure is going to look like for the company?

Steve Smith

I would say that, you know, the process continues as we previously announced and we don’t have further updates today other than to say that the process is continuing and there’s a lot of people working hard and we appreciate that.

Mark Bacurin – Robert W. Baird

Okay. Any idea when you’re going to be prepared to give us another update on that?

Steve Smith

Not at this time, Mark.

Mark Bacurin – Robert W. Baird

Okay. Fair enough. Encouraging, the trends on the broadcast side. A couple things. On the national, it sounded like you said you saw an increase in national ad spend on radio. I was wondering if that was specific to any specific customer or could you just comment on where you’re seeing the strength, by category even?

Douglas Kiel

Yeah, Mark, this is Doug. No, it’s across a lot of our radio stations. We saw a surge in national. It traveled across several categories. Automotive came up. We, as you know, tend to see that when television stations and political markets tend to fill up and national radio tends to get a little stronger so there wasn’t any particular track to it in the quarter.

Mark Bacurin – Robert W. Baird

Okay, and then on the USA Today agreement, you said $5 million of commercial capacity, that this agreement pushes you to the limit of that $5 million but where were you before? Just trying to get a sense of how incremental this is as it starts ramping into the numbers of ’07.

Steve Smith

What I’d say to you Mark is up until this time we had kind of filled around $3 million of that capacity and that this will balance out to the $5 million.

Douglas Kiel

You’ll recall that during the road show we had targeted $5 million as the goal within a three-year period so that’s what we were referring to in getting to that number.

Mark Bacurin – Robert W. Baird

Okay, great. Then, you know, you’re still seeing very nice growth in your interactive platforms. I was just curious if you could give us a sense of what the growth would have been from your core or more legacy online properties such as, you know, Packer Insider versus some of the more newly acquired and newly launched properties.

Betsy Brenner

Yes, Mark. Well, we’re seeing pretty good double-digit growth as Paul mentioned in our newer, retail online properties. Our core business is still the bulk of what we have and it’s still growing right around the 30% rate per month year over year.

Mark Bacurin – Robert W. Baird

Okay, so it’s fair to say you haven’t seen a material contribution yet from the newer properties?

Betsy Brenner

No, but we’re very encouraged. Quite honestly, they’re quite new. We really started measuring that revenue performance over the course of the summer and we are encouraged by what we’re seeing.

Mark Bacurin – Robert W. Baird

Great. Then maybe one final one for Paul. Share buyback was a little bit lighter this quarter. I’m assuming maybe some of that was related to the spin-off activities but, you know, would you expect to return to a more normal pace for you guys, which I think was closer to $1 million – I’m sorry, 1 million shares a quarter?

Steve Smith

It’s due, you know, we don’t discuss when we’re in or out of the market and we were a little lighter than what we have been in past quarters this quarter. But most importantly we would say that we’re committed to the buyback program that we announced in April as is evidenced by the almost 5.5 million shares that we purchased.

Paul Bonaiuto

And I’d just add to that, Steve, that the authorization does run through October of 2007, so there’s plenty of time to build this particular tranche.

Mark Bacurin – Robert W. Baird

Great. Okay, great. Thanks, and actually I have one more quick one. On the guidance for Q4, there is an extra week in there. Could you give us a sense of what’s your thinking in terms of the political contribution in the Q4 timeframe?

Douglas Kiel

Mark, this is Doug. We see political is hard to put a finger on as we go forward. The pacing there is very good. We have political across several of our markets so Las Vegas, Milwaukee; we see it in Green Bay. It’s unusual this year. We’re seeing it in Omaha and Tucson as well so it’s strong. It’s hard to put a finger on exactly what the contribution is.

Our overall pacing for the fourth quarter in television generally is very strong, 25% or more plus, and of course that’s driven by strength across many categories political but also we do have five extra days.

Mark Bacurin – Robert W. Baird

Great. Thank you very much.

Operator

Your next question will come from the line of Stacy Fleck with Merrill Lynch. Please proceed.

Stacy Fleck - Merrill Lynch

Hey, good morning.

Steve Smith

Good morning, Stacy.

Stacy Fleck - Merrill Lynch

I just have a couple of questions just on early October trends. I know you talked a little bit about it but I guess specifically in publishing. I know you’re going to start running into some easier comparisons. I’m just wondering if you expect to see, you know, the declines at the daily newspaper just off the, you know, get a little bit lower going forward?

Betsy Brenner

No, I think not at this point. This is Betsy, Stacy. Not just for October but looking across the fourth quarter, I think we see slightly improved comparisons but nothing dramatic. In particular, we don’t see the automotive problem in our market turning around anytime soon and certainly not before the end of the year.

Stacy Fleck - Merrill Lynch

Okay, thanks. I guess a couple questions on the cost side. I guess, looking out to the fourth quarter, you guys did a good job at both publishing and radio in costs and I was wondering if you’re doing anything in the fourth quarter and maybe both of those, publishing and radio, could be down?

Betsy Brenner

Stacy, this is Betsy again. We look forward to the fourth quarter. We see some things that actually will help us manage costs, continue to manage them, particularly as we look at re-consolidating our circulation routes and seeing improvement in overall circulation costs throughout the marketplace and as we continue to operate off two presses, even with the increased holiday volume, and manage our payroll, our headcount pretty aggressively, I think we’re going to continue on the same track as you’ve seen this year.

Douglas Kiel

Stacy, this is Doug. For radio, it’s been going on now for several years as you know and our cost controls are very strict on our radio side throughout the broadcast company and that’ll continue to be true in the fourth quarter.

Stacy Fleck - Merrill Lynch

Okay, and I guess just one last question. I don’t know if you could, if you guys thought about updating your long-term margin targets, you know, specifically at the daily newspaper just given how challenging the revenues are and have been this year and also, you know, potentially could be looking out to 2007?

Steve Smith

Stacy, it’s Steve. No, I would tell you, we looked at that again this morning and I know that Betsy and her team are in profit planning right now and we’re actually doing long-term planning and we’re not ready to give up the margin target that we articulated a few years ago. Certainly challenging but, you know, we talked about that 20% operating margin target and clearly not going to be achieved this year but we are, as we go into profit planning, we certainly continue to be focused on it.

Paul Bonaiuto

One thing, if I may add to that, Stacy, we’ve certainly been challenged this year just as everyone else has but I would hasten to add that we’ve had quite an impact from the Shorewest Litigation which, in terms of revenues, had an impact of $5 million and in terms of overall earnings had an impact of over $6 million.

Stacy Fleck - Merrill Lynch

Great. Thank you.

Operator

And your next question will come from the line of Debra Schwartz with Credit Suisse. Please proceed.

Debra Schwartz – Credit Suisse

Hi, thank you. Question on radio. It seems like radio slowed down a little bit and I was just wondering if you could give us a sense of pacing for the quarter.

Douglas Kiel

Yes, Stacy, this is Doug again. We’re very encouraged by it. We actually are looking at the fourth quarter as being low to mid single digits. That slowdown in September is really about the comps; it had nothing to do with our basic business so we continue to be encouraged about our television revenue based on the fact that we’re spending a lot of time on developmental and other types of platforms to help us drive our revenue growth.

Steve Smith

The only thing I’d add to that is that we don’t see that one month’s performance in terms of revenue growth as a trend in radio.

Debra Schwartz – Credit Suisse

Great, thank you.

Douglas Kiel

Not at all.

Operator

And your next question will come from the line of Peter Salkowski with Goldman Sachs. Please proceed.

Peter Salkowski – Goldman Sachs

Good morning, everybody.

Steve Smith

Morning, Pete.

Peter Salkowski – Goldman Sachs

Just a couple of question for fall on the publishing side. You talked a little bit about the revenue environment in Milwaukee. I know you spoke of some of the direct marketing, things like that. If you could quantify that a little bit, give us a sense of what kind of revenue might you think that might be in the fourth quarter and/or in 2007? That would be appreciated.

Betsy Brenner

Sure. Peter, let me talk a little bit about Boston first as that’s probably where we see the greatest impact from ownership change. I think Paul mentioned, Bon-Ton, the new owner, consolidated all direct marketing and that’s going to have a particular impact on us in the fourth quarter when Boston store probably spent close to $0.5 million direct mail spending with us last year.

Overall, though, as we look at Marshall Fields, converted to Macy’s in September, we haven’t seen any reduction in spending there. The Boston store as well submitted the same dollar volume as its contract; it’s moving its spending around from ROP to preprint.

And then looking forward I’d say the Milwaukee retail market is really looking up. We’ve got some blue-chip retailers; they’re in our market. People like Cabela’s, Costco next year, Whole Foods opened a new store this year. We have a Fresh Market, a new upscale grocery store joining us, and those are just a few of the folks that are coming to open their first stores in the Milwaukee market.

Peter Salkowski – Goldman Sachs

Excellent, and then Betsy on the cost line of the publishing, revenues are a little bit lighter than expected in my model for the quarter but the margin was still in line. I’m just wondering the sustainability of that going into the fourth quarter? A lot of that has to do with payroll costs as you said but if we could talk a little bit about the other non-newsprint costs, the ability to keep those in line.

Also Paul or Betsy, what you guys are seeing for newsprint going into the fourth quarter, with regard to prices? It sounds like the announced August price increase is getting rolled back and/or getting eliminated so I was just wondering what you guys are hearing on that.

Betsy Brenner

Here, let me start with the direct costs and I’ll let Paul pick up the newsprint comment.

As we roll forward in the fourth quarter, I think I mentioned our route consolidation in circulation will continue to yield some savings for us. We’re 30% completed with that process and expect to see in excess of $1 million returned next year in improved carrier compensation.

We’re running on two presses. That enabled us to pick up USA Today on our third press at night. We’re continuing to consolidate FTEs from our weekly newspaper in the greater Milwaukee area into the daily and we’ve seen, for example, the FTE count at our CNI paper probably drop by close to 100 FTEs. Some of those moved over to daily but they’re going to be selling across all of our product lines. We hope to see that result in greater revenue for next year.

And then finally I think we mentioned the closure of our partner printing facility. That, too, will result in FTE savings and some labor savings as well as materials and we expect that total to amount to $750,000 next year.

So all of those things together should give us some momentum on the cost savings side as we move into ’07.

Paul Bonaiuto

And then, Pete, with respect to newsprint pricing, we’re seeing the same trends that you mentioned as part of your question so we’ve certainly seen a diminishment but as I recall over the past three or four years, just about every quarter we’ve been reporting high single to low double-digit increases in newsprint pricing and this is the first one I recall in quite some time where it was in the mid single digit range in terms of price increase. So I do think that we are hopefully starting to see a little bit of moderation in pricing.

Peter Salkowski – Goldman Sachs

Are you guys on the lower-weight paper now? Have you transferred over everything?

Paul Bonaiuto

We are. We made the transfer at the end of March of last year.

Peter Salkowski – Goldman Sachs

Okay, so everything transferred over? Okay. Then lastly, on the CapEx, what are you expecting for 2006? I’m just wondering if you have a number for 2007? I’d appreciate it.

Paul Bonaiuto

What we said all along for this year is that we’d spend about $50 million. Obviously through three quarters at $26 million we’re pacing a little bit slower than that but we do expect to see some strong spending in the fourth quarter. Betsy?

Betsy Brenner

Peter, I just wanted to mention also in terms of cost containment looking forward, we are converting to the 48 inch web on our presses in January of next year and we continue the conversion of our DCs consolidating into super DCs which again helps to save a lot on labor and on materials.

Peter Salkowski – Goldman Sachs

Great. Thank you guys very much.

Operator

Your next question will come from the line of Craig Huber with Lehman Brothers. Please proceed, sir.

Craig Huber – Lehman Brothers

Yes, good morning. Thank you. A few questions. First, the TV stations during the acquisition, what would you say your percent change was in your cash costs for the quarter?

Steve Smith

We don’t – we haven’t provided that in the past, Craig. We don’t tend to look at it that way so I don’t know, without calculating it and taking a moment to do that, I wouldn’t know that off the top of my head.

Craig Huber – Lehman Brothers

Is your sense, then, just given your comments about cost that it was flat to down or?

Douglas Kiel

Craig, this is Doug. Hi, I’ll talk about costs generally to date. They were, our costs through the year going into the third quarter for television same station were up slightly from last year to flat. We’ve been very cautious about costs, as you know, and we’ve had significant savings in syndicated costs over the last couple of years.

Our costs were up in the third quarter over what our expenses were, up from last year nearly 7%. Those were related to really three buckets. The biggest piece of them was related to the success we’ve had in revenue. Commission were up; bonuses related to sales programs were up. The costs of some of our specialized programs, because they did better than we’d expected, were up. As you know, our same-station television revenue was up in the quarter by 22%.

We also had a small amount of increase in our expense related to the additional newscast that we added as Paul mentioned in his remarks in Fort Myers and elsewhere to accommodate inventory both this year and next.

Paul Bonaiuto

What I’d add to that is I did mention in my prepared remarks that radio expenses were down 1% for the quarter and what I didn’t mention is if we look at radio expenses year-to-date, they’re down about 3.1%, Craig.

Craig Huber – Lehman Brothers

Thank you for that and also, your comments on your TV stations up 25% in the fourth quarter. If you stripped out political and you stripped out the acquisition, what would that be? Or maybe you –

Douglas Kiel

Those are – Craig, this is Doug. That’s without acquisition.

Craig Huber – Lehman Brothers

That’s without the acquisition.

Douglas Kiel

It’s the same station.

Craig Huber – Lehman Brothers

What about after the election? What’s your pacing like there?

Douglas Kiel

Our pacing in the pacings out after the election, really, in December, is a long way out there. They appear to be quite strong.

Craig Huber – Lehman Brothers

Okay. It’s good to hear. The timing of your spin-off -- and I know you don’t want to give me exact timing -- but are you hopeful, I assume, to have it done by the end of this calendar year?

Steve Smith

You know, Craig, I think we are - at this point have to stick by our comments that this process is continuing, as we’ve previously announced and we’re working hard to process.

Craig Huber – Lehman Brothers

Okay, but let me ask another classified question, then. Could you just give us the cost side detail of categories for the month of September, please?

Betsy Brenner

I’d be happy to do that, Craig. For the month of September we actually saw an improvement in our classified performance over the trends for the quarter. Classified overall was down 7.7% versus 10.8% for the quarter. Auto was down 29% pretty consistently. Recruitment was up almost 1% and that reflects some new initiatives we pushed into the market during the month of September. Rentals and real estate were down almost 2% and our other classified was down 7.5%.

Craig Huber – Lehman Brothers

Great. Thank you.

Operator

Your next question will come from the line of DeForest Hinman with Paradigm Capital Management. Please proceed.

DeForest Hinman - Paradigm Capital Management

Hi. Most of my questions are related to Norlight so maybe Jim can help us with these. In terms of the expenses related to the spin-off, is that going to be kind of similar to what we’re seeing in the third quarter if we don’t completely spin-off in the fourth quarter, is that kind of the run rate?

James Ditter

I would think that the pace of that run rate would be similar.

DeForest Hinman - Paradigm Capital Management

All right. And could you talk about some of the other cities that are looking to roll out the IP Live offering and the expenses possibly related to that?

James Ditter

Yeah, we have presence – I guess where we have presence today is where we’re looking at rolling that out so that would be for today, we rolled it out in Madison and Green Bay. We’d also roll out Milwaukee, Minneapolis, Ann Arbor, Grand Rapids, another one I’m missing, Lansing area. Those would be the target that we first look at.

In terms of costs for rolling that out, what we’ve said our capital perspective is as we’re building out central offices, the cost is anywhere from a $110,000 to $250,000 depending up how much facilities we deploy. So in other words, if there’s opportunity to augment our wholesale business with building out additional facilities as other pieces of our commercial business, it tends to be at the higher end because we’re preparing for that.

In addition to that, just from a operating expense standpoint in each of these markets, it’s about eight salespeople along with the related sales management customer service in order to go after those markets.

DeForest Hinman - Paradigm Capital Management

Then in terms of maybe CapEx for Norlight for ’06 and then possibly ’07. Can we talk about that?

James Ditter

Through three quarters we have spent about $12 million, of which about one-third relates to the VoIP growth initiative but I would anticipate a similar pace into the fourth quarter and as we take a look at next year.

DeForest Hinman - Paradigm Capital Management

All right and then, pending the one-time dividend to Journal, it looks like it’s going to be around $35 million, is the priority with that to pay down debt or is that to repurchase shares?

Steve Smith

In terms of whatever dividend we may receive from Norlight we would take a look at the items that you mentioned before, certainly. I mean, immediately there would be a debt pay down because that would be the utilization of the cash but as we said we are also committed to share repurchase, capital investment, etc.

So that would be how we would utilize any dividend we may receive.

DeForest Hinman - Paradigm Capital Management

All right and then one last question on the broadcast piece. How much of a positive impact has the Sunday Night Football been on NBC with the continued weakness in NBC prime?

Douglas Kiel

DeForest, this is Doug. We expect this year to have across our several – we have three NBC stations, as you know - about a $1 million impact by Sunday Night Football.

Secondarily, it has an impact that’s positive on us beyond the revenue because it’s a good platform for marketing. It allows us to promote our newscast during the rest of the week.

So it’s a double whammy for us and it’s a net, very positive for NBC stations like ours.

Craig Huber – Lehman Brothers

All right. Thanks a lot, guys.

Operator

Your next question will come from the line of Jeff Allen of Silvercrest Asset Management. Please proceed.

Jeff Allen - Silvercrest Asset Management

Hi, good morning. I had a question for Betsy, I guess. Betsy, could you please give us a little more color on the weakness in automotive’s classified advertising? It doesn’t seem like that would be related to the problems that the big three manufacturers are having and so what is happening there? Are you losing revenues to the online competitors? Am I on the right track here?

Betsy Brenner

Well, you know, I guess I’d say, Jeff, that if you look at Milwaukee, we are very solidly a Midwestern market, and are just proportionately represented by domestic auto dealers.

The first eight months of this year domestic new car registrations in this market were down 18%, which is a pretty significant hit and if you look at our advertising losses year-to-date, excluding the class action suit settlement that Paul mentioned, 92% of the total advertising losses we’ve experienced are due to advertisers in the automotive category. Both factory and local dealer have been hard hit; we’re overrepresented with domestic dealers and we love them when they’re spending but right now they’ve been really significantly challenged in this market and you’re seeing the impact in our automotive numbers.

Jeff Allen - Silvercrest Asset Management

Okay, well excuse my ignorance but does the automotive classified advertising category include, you know, like local people selling their used cars as well?

Betsy Brenner

Sure, it does. But the vast majority of it is commercial dealers, local dealerships, running ads to sell cars.

Jeff Allen - Silvercrest Asset Management

Okay. So used cars are a relatively small part of that.

Betsy Brenner

Yes. Well, I’d say not relatively small but it’s new and used commercial as well as private car.

Jeff Allen - Silvercrest Asset Management

Right. Got it. Can you give me a rough guess of how much advertising is as a proportion of total classified advertising?

Betsy Brenner

How much automotive is as a proportion to total classified?

Jeff Allen - Silvercrest Asset Management

Yeah.

Betsy Brenner

It’s not our largest category but it’s right up there and so I want to say probably about 35% to 40%.

Jeff Allen - Silvercrest Asset Management

Okay. Thank you.

Operator

Your final question will come form the line of Thomas Clack of UBS Financial Services. Please proceed.

Thomas Clack – UBS Financial Services

A lot of my questions have been answered but one remaining question. In the USA Today agreement, are you saying that there’s no room for doing further business with them because of capacity constraints or is there – for some reason I had the impression that this might be the camel’s nose in the tent, in that this was expandable into doing more business for a broader geography.

Betsy Brenner

Tom, this is Betsy answering your question. We’re starting off with USA Today. They’ve mapped out the geography that we can easily service and we’re eager to do that. I wouldn’t say that we couldn’t grow that business over time. Obviously they’ve got to look at other satellite print sites and where their agreements there come up for review. I also wouldn’t say that we couldn’t continue to take on more commercial customers. We’re always out there looking to fill every available window on our press. Obviously as a result of the USA Today deal, there are fewer available windows but there are some.

Thomas Clack – UBS Financial Services

Thank you.

Operator

I would now like to turn this conference back over to Sara Wilkins for closing remarks.

Sara Wilkins

Once again, thank you all for joining us on this morning’s call. We appreciate your interest in Journal Communications. As a reminder, a replay of the call will be available today through October 19. Please refer to this morning’s press release for the dial-in information for the replay of the call. Also, an archive of the webcast will be available today through October 24 at www.journalcommunications.com/investors. Thank you again.

Operator

Ladies and gentlemen, this concludes your presentation. You may now disconnect and have a great day.

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