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Dow Jones & Company, Inc. (DJ)

Q4 2006 Earnings Call

January 25, 2007 10:00 am ET

Executives

Mark Donohue - Director, Investor Relations

Richard F. Zannino - Chief Executive Officer, Director

William B. Plummer - Chief Financial Officer, Executive Vice President

L. Gordon Crovitz - Executive Vice President, President, Consumer Media Group, and Publisher of The Wall Street Journal

Clare Hart - Executive Vice President and President, Dow Jones Enterprise Media Group

Analysts

John Janedis - Wachovia Securities

Fred Searby - JP Morgan

Lauren R. Fine - Merrill Lynch

Debra Schwartz - Credit Suisse

Steven Barlow - Prudential Equity Group

Peter Appert - Goldman Sachs

Lisa Monaco - Morgan Stanley

Craig Huber - Lehman Brothers

Alexia Quadrani - Bear Stearns

Paul Ginocchio - Deutsche Bank

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Operator

Greetings, ladies and gentlemen, and welcome to the Dow Jones & Company fourth quarter fiscal year 2006 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

It is now my pleasure to introduce your host, Mr. Mark Donohue, Director of Investor Relations for Dow Jones & Company. Thank you, Mr. Donohue, you may begin.

Mark Donohue

Thank you. Good morning. Welcome to our fourth quarter 2006 earnings conference call and webcast at www.dowjones.com. On this morning’s call, we have with us: Rich Zannino, our Chief Executive Officer; Bill Plummer, our Chief Financial Officer; Gordon Crovitz, President of Consumer Media and Publisher of The Wall Street Journal; Clare Hart, President, Enterprise Media Group; and John Wilcox, President, Local Media Group. All will be available to take any questions you may have.

A transcript of today’s prepared remarks will be on our website shortly after the call. Finally, should you have any questions after the call, please feel free to telephone investor relations at 609-520-5660.

Our discussion today will include certain forward-looking statements and actual results may differ from those presented here. Factors that could cause such a difference are outlined in our SEC filings and on our website.

Reconciliation of non-GAAP financial measures disclosed today are available in our earnings release, which is available on the investor relations page of our website at www.dowjones.com.

With that, it is a pleasure to turn the call over to Rich Zannino.

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Richard F. Zannino

Thanks, Mark. Good morning all, and thanks for joining us.

I’ll start off this morning by discussing our improved fourth quarter and full year results and the progress we’re making in our efforts to retool our portfolio and business models to better exploit our assets and drive sustainable long term growth in our earnings and share price. Bill Plummer will follow with some additional comments on our financial results and on our 2007 outlook. Then we’ll open it up for any questions you may have.

We ended 2006 on a high note. Fourth quarter revenue was up 6%. Before special items, expenses were up only 2%, operating income was up 48%, operating margin was up 370 basis points to 13.1% and EPS came in at $0.47 per share, which was above our guidance and up almost 15% over last year’s fourth quarter.

While posting these solid short term results, we also kept working to create sustainable long term growth. Our long term strategy is straightforward. We want to:

  • Transform Dow Jones from a company heavily dependent on print revenue to a more diversified content-driven company, meeting the needs of its customers across all consumer and enterprise media channels;
  • We want to attract more customers and encourage them to use us across all media channels;
  • We want to diversify our reliance on unpredictable print revenue;
  • To smartly manage our costs; and finally
  • To generate superior value for all our customers and shareholders.

Our acquisition of Factiva, which closed in mid-December, is entirely consistent with this transformation. It will increase our non-print revenue and add nearly $300 million to our Enterprise Media Group in 2007. This increased scale together with Factiva’s product offerings, innovative search and delivery technology, international footprint, and complementary customer base turns EMG into a powerful platform for us to use to exploit the attractive business information services market and accelerate the growth of EMG.

Financially, Factiva’s a terrific deal by any measure -- an effective purchase price of only 4 times EBITDA, an un-levered after-tax return on investment well in excess of 25%, and EPS accretion of $0.11, up from our original estimate of $0.03 to $0.05 in 2007.

During the quarter, we also completed the sale of six of our Ottoway local newspapers. We used the $282 million in proceeds to fund the Factiva acquisition and to pay down debt. Financially, this was also a very good deal for us. While we expect the sale to be dilutive to our 2007 earnings by about $0.03 per share, the sale proceeds, which were sheltered from federal tax by our capital loss carry-forwards, far exceeds the present value of the future operating cash flow we would have derived from owning these properties.

By selling these papers for more than 11 times EBITDA and buying Factiva, again for an effective price of about 4 times EBITDA, we efficiently redeployed capital from print media to faster growing business information services media. Taken together, these two transactions take our print revenue from about 70% of total revenue in 2006 to less than 60% in 2007.

And finally, in late December, we sold our non-core minority interest in Economia for about $20 million. We’ll again use tax loss carry-forwards to offset taxes on the sale. The transaction will be minimally accretive in 2007.

So the fourth quarter was a busy end to a busy year. In addition to the Factiva, Ottaway and Economia deals, we also:

  • Reorganized our company structure and leadership to focus on markets and franchises rather than channels, saving $15 million in cost along the way;
  • We upgraded our leadership talent;
  • We successfully executed on Weekend Edition, which met our financial expectations in 2007;
  • We exceeded the $18 million in improved profitability we expected from our international print repositioning;
  • We exceeded our profit plan for Dow Jones Online, helped in large part by MarketWatch;
  • We increased Ottaway’s internet ad revenues by 56%;
  • Identified and implemented $65 million of cost reductions;
  • Revitalized our print ad sales and circulation;
  • Launched a number of new Newswires and Indexes products;
  • Finalized and began to implement our new long range plan; and
  • Completed over a year’s worth of design and press work to set the stage for the successful launch of the redesigned print Journal, which debuted on January 2nd of this year.

We’re seeing the financial payback on all these efforts in 2006. For the full year, we bucked print industry trends and posted healthy gains in print Journal paid circulation, readership, circulation revenue, and advertising revenue and market share. We also saw strong revenue and profit growth at Dow Jones Online and across our Enterprise Media group.

The net result was that in total, our full year 2006 revenue was up 7% and, before special items, our operating income was up 37%, margins increased 190 basis points to about 8%, and EPS was up 13%. This all translated into a total return for our shareholders in 2006 of 10%.

We’re starting 2007 right where we left off in 2006. On January 2nd, we launched a print Journal redesigned for the digital age. This is a key part of our strategy to encourage customers to use our offerings across all channels of distribution. Reaction from readers, advertisers, the Street and, uncharacteristically, even the media, has been quite positive. This project will pay immediate dividends as it reduces Journal newsprint costs by about $18 million in 2007.

Simultaneously, we also launched a free online Markets Data Center, which is driving increased traffic and ad inventory to the Online Journal.

Adding this to the many other cost reductions implemented in 2006 and to the many revenue-driving initiatives I just mentioned, we’re confident we can continue to buck industry trends as we press on with our transformation. As evidence, with this firepower we’re optimistic that we can grow 2007 revenue in the range of 18% to 20% and reach 2007 EPS before special items in the range of $1.40 to $1.55 per share, an increase of 25% to 40% over 2006, even with only low- to mid-single-digit growth in Journal print ad revenues.

Bill will have more on our forward outlook, but before he does, I’ll cover off some operating highlights of our 2006 performance.

At our Consumer Media Group, fourth quarter revenue increased 5% on a 6% gain in ad revenue and 2% gain in circulation revenue. Expenses declined 3.6% due to lower marketing, depreciation and compensation costs as a result of our restructuring and outsourcing initiatives.

We’ve said in the past that $0.80 of every incremental ad dollar flows thru to the bottom line. In the fourth quarter at CMG, this “flow-thru” was 176%. This, together with strong profit performances at Dow Jones Online and our international operations led to a 217% increase in operating income in the quarter and a 760 basis point improvement in operating margin to 11.3%.

For the full year, CMG revenue was up 8% on a 9% increase in ad revenue and 5% increase in circulation and other revenue. Expenses were up about 4%. Flow-thru, adjusted for a full year of Weekend Edition and newsprint prices, was 105%. This drove a return to profitability at this critically important segment, though the operating margin is still unacceptably low at only 3.0%.

In the quarter, the print Journal posted a 5% ad revenue gain despite a 1% drop in ad linage. For the full year, the print Journal’s ad revenue was up 9% on a 6% increase in linage. We’re very pleased to have increased our ad yield in such a tough and highly price-competitive print environment. We’re also pleased to have taken market share from our primary print competitors.

Based on CMR data through November, ad revenue was about flat for our peer group of major print publications, which includes names like Forbes, Fortune, Business Week, USA Today, Time and Newsweek. The Journal led that group by a wide margin with a 12% increase in CMR ad revenue, more than 6 percentage points better than the next best performance. This resulted in the Journal increasing its market share by 2 full percentage points in 2007. This performance is being driven by the revitalization of the Journal’s ad sales efforts and team, combined with its uniquely attractive audience and market-leading collaboration between its print and online sales and marketing teams.

In 2006, one of the biggest drivers of the Journal’s performance was Weekend Edition. Reader response remains overwhelmingly positive and advertisers are being attracted to Weekend Edition in increasing numbers. More than 1,900 advertisers have supported Weekend Edition since its launch, with about 60% of them new to the Journal and about 400 of them new in the fourth quarter.

It’s having a great effect on our ad sales and circulation revitalization programs, as well as on our consumer advertising. Not only is consumer making up about 70% of the display advertising in Weekend Edition but also, the additional sales reps, promotion, marketing, PR and focus we’ve layered on as part of Weekend Edition is generating significant new consumer revenue for us in the Monday thru Friday editions of the Journal.

For 2006, Weekend Edition, on an incremental basis -- meaning counting only the ads on Monday thru Saturday that originated primarily as a result of Weekend Edition -- was dilutive to EPS by about $0.15 per share. This is in line with our original estimate. We have a number of initiatives to drive Weekend Edition sales in 2007, including special sections, advertorials, new pricing programs, ad positions and content adjacencies.

Looking further at advertising results at the print Journal, we saw healthy revenue gains in financial advertising, which was up 12% in the quarter and up 17% for the year. Our consumer push continues to pay dividends as evidenced by the 25% gain posted in consumer advertising excluding auto, which was down 16% in the quarter. For the year, consumer ad revenue, again excluding auto, was up 13% while auto was down 8%.

Technology advertising continues to bounce around, declining 10% in the quarter and was flat for the year. And classified advertising revenue was down 8% on declines in commercial real estate in the quarter, but was up 11% for the year.

We also posted a 15% increase in color revenue in the quarter and 23% increase for the year, as many advertisers continue to pay a premium to tap the benefits of Journal color advertising. As a reminder, we’re adding another four pages of color capacity which will come online in January 2009.

Circulation trends were also challenging for the industry. The September ABC report showed individually paid circulation, which we believe is the best measure of truly paid circulation as it counts only those subs paying at least 25% of basic price, declined versus prior year for the great majority of newspapers.

Against that backdrop, the Journal posted a 9.2% increase in paid circulation and 3% increase in circulation revenue for the year, with lower total circulation marketing costs. This performance was driven by a revitalization of our circulation efforts, which included new professional marketing leadership, talent, tools and techniques, including more aggressive circulation marketing and promotional activity.

Moving on to Dow Jones Online, total revenue grew 21% in the quarter. Online ad revenue was up 23% on strong growth at MarketWatch. Circulation revenue was up 22%. Paid subs were up 6% to 811,000 at the Online Journal, and now stand at 73,000 at Barron’s Online, which launched as a separate paid site in January 2006.

Online monthly page views of the Dow Jones Online network were up 8% in the fourth quarter, despite an 11% decline in unique visitors. We expect to see growth in unique visitors and online page views as a result of a number of audience development initiatives currently in the works for 2007, as well as the recent launch of our free Markets Data Center.

We’re very pleased with the performance of our January 2005 MarketWatch acquisition. As previously disclosed, we’ve fully integrated all of MarketWatch.com’s ad sales, marketing and other operating functions with our other online operations to form Dow Jones Online, and we’ve also re-assigned MarketWatch’s enterprise-facing licensing business to our Enterprise Media Group.

This makes standalone analysis difficult, but using our best estimates, we beat our 2005 EBITDA projection by about $5 million. In 2006, you may recall we estimated EBITDA at $33 million; and we ended the year with $32 million. This performance was driven by MarketWatch.com, where online ad revenues in 2006 were up an estimated 24%. The shortfall to our 2006 EBITDA estimate came from MarketWatch Licensing, which had some struggles during the year, as we’ve noted on past calls.

Finally, looking at our original projections for Dow Jones Online, which included MarketWatch Licensing, we’re beating our original profit projections by nearly 30% in 2006.

Elsewhere in Consumer Media, the repositioning of the Journal editions in Europe and Asia continued to generate better-than-expected bottom line results in the fourth quarter, even though ad revenue was flat as a gain at the Asian Journal, which became profitable in 2006, was offset by a decline in Europe.

Moving on to our Enterprise Media Group, the positive revenue and profit momentum we saw in the first nine months of the year continued into the fourth quarter. Total revenue increased 16%, operating income was up 17%, and operating margins increased to 23%, driven by the acquisition of Factiva and strong results at Dow Jones Indexes, Newswires and Financial Information Services.

Excluding Factiva, total revenue at EMG increased 3% in the quarter, operating income increased 16%, and margins increased 290 basis points to 25.5%. For the full year, EMG posted a 7% revenue gain and 12% gain in operating income, with a 110 basis point increase in operating margins to a very healthy 25.2%.

Within EMG, at Newswires, revenue was up 5% in the quarter, primarily on international gains and its new pricing model. Our Indexes business posted another strong performance. Revenue was up 13% in the fourth quarter, driven mainly by an increase in assets under management, strong market performance and royalties from our STOXX JV. Dow Jones Licensing Services revenue declined 15% as we continued to feel the effects of online broker consolidation along with increased competition, which is depressing pricing. We’ve ramped up development spending and launched new products in 2006 and expect to see an improved trend in our licensing business in 2007.

We announced the Factiva deal in October, closed it in December, and on January 10th of this year, we announced and began to implement our plans to integrate Factiva and restructure EMG to better serve its customers and exploit growth opportunities in the business information services market.

EMG will now comprise three business units: Dow Jones Indexes, Dow Jones Financial Information Services, and a new unit, Dow Jones Content Technology Solutions, which combines Dow Jones Newswires, Dow Jones Licensing Services and Factiva. We’re bringing together content, product development, IT, sales and marketing and administrative functions for these three enterprise-facing units to combine the best of all our industry leading content and tools in order to cross-develop, promote and sell a full and compelling suite of technology-enabled, conveniently accessible and customizable content and tools to top enterprise customers on a global basis. This platform is aimed at propelling the growth of EMG organically and through additional acquisitions and partnerships.

Our Local Media Group’s fourth quarter performance continues to reflect industry-wide challenges. Fourth quarter revenue was down 1% on a 2% decrease in ad revenue, partially offset by a 3% increase in circulation and other revenue. Ad linage remained weak, declining 9.6% on declines in classified and display advertising, but was only partially offset by a 79% increase in Internet ad revenue, as the Internet initiative embarked upon last year continues to drive big gains.

Operating expenses increased only 2%, but as a result, operating income declined $2 million, or 11%, to $13 million, and margins declined to 20.2%. For the full year, LMG revenue was up 1%, boosted by a 56% increase in Internet ad revenue, but operating income was down 12%, and margins declined 270 basis points to 19%.

In conclusion, we’re operating in a challenging and rapidly changing environment of technological disruption to our, and others, long-held business models. We’re embracing this change and taking a leadership role by transforming Dow Jones.

We’re very optimistic for the future. We’re uniquely positioned to win with our powerful brands, indispensable content and products, uniquely attractive audiences and strong distribution platforms.

To exploit these assets, we’re strengthening our organizational structure, people and business processes. We’re innovating our offerings. We’re developing new revenue streams, revitalizing our sales and marketing efforts, re-tooling our cost structure, and repositioning our portfolio to focus on faster growing and higher margin digital and business information services.

Our many initiatives are working. We’re bucking industry trends with our strong operating and double-digit financial gains in 2006, and have set the stage to grow even faster in 2007, but we know we must do more to build on this momentum, and we are.

With that, I’ll turn it over to Bill.

William B. Plummer

Thanks Rich, and good morning to everyone. This morning, I’ll provide some additional background on our financial results, and close the earnings section of this morning’s call with some additional information on our 2007 outlook.

Rich has already addressed the highlights of our operating performance in the quarter, but let me add a little color on the expenses. The 2% increase in total expenses that Rich mentioned excluded the restructuring charge but included Factiva and items such as newsprint and Journal 3.0 launch costs. If you take out those three items, comparable expenses were actually down almost 2% for the quarter, reflecting the recent cost control efforts that we have been driving and that began in the first quarter of 2006.

To cite one specific example, our print delivery costs are down over $2 million for the year as a result of changes we made to optimize our mix of distribution and further efforts that we made to convert to subcontractors for delivery operations.

Now let me spend just a second on newsprint. Our total newsprint cost was down about 2% for the quarter, driven mainly by reduced consumption but partially offset by a slight rise in price. We used about 5% less newsprint in total as a result of several initiatives to reduce usage, including moving to a six page section minimum and reducing the amount of statistics that appear in the paper. The net save was reduced, however, by our average cost per ton, which was up about 3%.

Rich covered our 48% increase in operating income before special items in the quarter, but let me cover the items below the operating line. Our pre-tax equity income, excluding the $16.3 million after tax gain from the sale of Economia, declined $1.5 million as the acquisition of Factiva moved its results out of equity income and into operations as of the mid-December closing date, thereby allowed us to record less than a full quarter of equity income.

There was also a small decline in income at Stoxx. That’s off a strong 2005 quarter, and that was partially offset by an improvement at SmartMoney. For the full year, our equity income excluding special items, was $17 million, and that was up $1 million over 2005.

Interest expense increased $1.9 million in the fourth quarter, primarily due to the significantly higher debt level we carried for most of the quarter compared to the prior year. Funding the Cantor settlement was the primary driver of the higher debt balance. The average rate was also higher, as the additional debt was funded in the commercial paper market and CP rates have moved higher. For the year, interest expense increased nearly $11 million over the prior year.

Before special items, our effective tax rate was 40.5% in the fourth quarter versus last year’s rate of 36.9%. The fourth quarter ‘05 tax rate included several non-recurring benefits, including some capital loss benefits and some state tax credits, which explained the lower level for that quarter. For the full year, our effective tax rate in 2006 was 39.5%, and that was in line with our guidance but it was higher than last year’s 37.8%.

As Rich mentioned earlier, we earned $0.47 per share this quarter when you exclude special items, and that compares to $2.30 reported on a GAAP basis. The largest of those special items was an after tax gain on the sale of six Ottaway papers for $132.1 million, or $1.57 per share. We also took a gain on the sale of our stake in Economia, which totaled $16.3 million after taxes, and that was about $0.19 per share. Cash taxes on both those transactions were significantly reduced by the use of a portion of our capital loss carry-forwards.

We recorded a pre-tax restructuring charge during the quarter of $15.4 million. That equates to $0.11 per share after tax. That charge primarily reflects employee severance related to a workforce reduction of about 160 full-time employees, nearly half of which are in connection with the integration of Factiva and related restructuring of our enterprise media segment.

And finally, during the quarter we recognized a tax benefit of $13.9 million, or $0.16 per share, as a result of a favorable resolution of several federal and state tax matters.

Cap-ex totaled $37 million in the quarter, and that compares to $27 million for the prior year, with the increase primarily related to $11 million in capital for the Journal 3.0

project, $3 million for a new printing facility at our Portsmouth, New Hampshire community paper, and just under $3 million for the color print expansion project. For the full year, cap-ex totaled $93 million compared to the prior year’s $65 million.

Lastly, our balance sheet and cash flow were strong and we closed the quarter with total debt of $447 million, versus a debt level of $669 million at the end of the prior quarter. Proceeds from the sale of the six Ottaway papers and our interest in Economia, along with solid free cash flow, were the key drivers of the debt reduction, and they offset the cash outflow associated with the purchase of Factiva.

For the full year, we began 2006 with $472 million of debt and we incurred additional debt of $202 million to fund the settlement with Cantor and MDC. During the year, we generated about $70 million of excess cash flow, after capital investments, dividends and other outflows, which we combined with $160 million of proceeds from asset dispositions net of acquisitions, to reduce our total debt by $25 million.

Before I move to the forward outlook for ’07, let me note an upcoming change in how we present our results. Starting with our first quarter ‘07 results, we will begin reporting enterprise media segment to reflect the new organization that Rich previewed earlier. To help you better understand the transition and give a clear basis for comparison, we have restated 2006 quarterly segment results on a pro forma basis as though both the Factiva and Ottaway transactions had occurred on January 1, 2006. That information will be posted on the investor relations section of our corporate website shortly after this call.

Now on to the forward outlook. As we start 2007, we have decided to modify our practice of providing quarterly earnings guidance and instead focus your attention on the full-year outlook for the company.

In the past, we have provided quarterly EPS and Wall Street Journal advertising guidance at the beginning of a quarter, but we have always had a sense that this provides only a short-term look into our business. With the ongoing transformation of Dow Jones, we feel that eliminating upfront quarterly guidance will help shift the focus from short-term performance toward our long-term goals, our expectations of future business conditions, and toward the drivers of long-term health of the company.

While we will continue to provide some qualitative thoughts on the current quarter, we have decided that moving to an annual view of our business is more consistent with how we run the company.

Now to the numbers. And for emphasis, I will note here that the following discussion references changes from 2006 EPS excluding special items of $1.11 a share. The sold Ottaway papers are excluded from 2006 revenue, expense, operating income and segment results and the ’06 results also include a half a month of Factiva. EPS, however, includes the discontinued Ottaway results as well as the half month of Factiva.

In a few cases where it is helpful, we will include comparisons to a pro forma 2006 in which Factiva is assumed to have occurred on January 1, 2006.

For the full year, we expect to post a significant increase in our earnings driven by the numerous revenue and cost saving initiatives we’ve implemented. We expect total company revenue to increase in the 8% to 20% range, with that increase driven primarily by the acquisition of Factiva, and by low- to mid-single-digit growth at Consumer Media from increased Journal print advertising revenue and continued strong growth at Dow Jones Online. We also expect revenue growth in excess of 60% for the enterprise media businesses, including Factiva, and low-single-digit growth at the retained Local Media papers.

Compared to the pro forma basis for 2006 the we just discussed, EMG revenue we expect to be up in the low- to mid-single digits, and total company revenue would be up in the 3% to 5% range.

We will continue to keep a tight lid on spending during the year. While total 2007 operating expenses are planned to increase about 16%, the majority of that increase is a result of the acquisition of Factiva. On the pro forma basis, expenses are only expected to increase about 1% as wage increases, benefit costs, general price inflation, and adverse

foreign exchange translation, plus investments in growth initiatives, are nearly entirely offset by modestly lower newsprint prices and $53 million in incremental savings from Journal 3.0 and other cost reduction initiatives.

Depreciation and amortization expense are expected to be about $107 million, up from the prior year due to the acquisition of Factiva, but down slightly versus pro forma.

The combination of revenue growth and tight control will enable us to produce a double-digit increase in operating income, yielding a total operating margin in the 10% to 11% range, up from 2006’s 8.3%. That improvement reflects the strong operating leverage in our business, as nearly 80% of the forecast revenue growth flows thru to pre-tax profits on a pro forma basis.

Below the operating line, our equity investments will add $9 to $10 million in earnings, down about $7 million from the prior year when you exclude the gain on sale from Economia, and driven by the elimination of Factiva and Economia income. Net interest expense should be in the low $20 million range, down about $10 million on lower debt balances. Our effective tax rate will be about 41%, and that’s up from last year’s 39.5%, due to our overall foreign tax loss position, which limits our ability to credit incremental Factiva’s foreign taxes against U.S. taxes.

Diluted shares outstanding should average about 84.5 million shares.

Looking at key cash flow items, we are expecting to spend about $100 million for capital expenditures in 2007. That covers items such as: $40 million for normal recurring expenditures; $14 million to start our latest color print expansion project; $12 million for upgrading the Wall Street Journal franchise’s classified advertising and circulation systems; and $7 million remaining from our web width reduction project. We will continue to use excess free cash flow to reduce our debt unless a more strategic and financially attractive use of the proceeds becomes available.

So putting all of this together, we expect 2007 EPS growth in the range of $1.40 to $1.55, and that’s up 25% to 40% over 2006, as Rich mentioned previously. To help you with your quarterly modeling, let me offer a few comments on the phasing of that improvement.

We expect to see double-digit percentage improvements throughout the year, with the absolute and percentage EPS improvement higher in the second-half. In particular, the second-half of the year should benefit from easier comps at the U.S. print Journal and the full effect of Factiva-related cost synergies. That said, the first quarter is off to a good start to the year. While it’s still early and advertisers are still finalizing their ad budgets for the year, our reservations are tracking to a solid start to the quarter, and in line with our annual expectations. We are hopeful that our many initiatives, such as our newly revamped print Journal, our attractive and growing online products, our revitalized print ad sales approach, and other expense management activities, will continue the momentum that we started so far this year.

With that, I’ll turn it back to Mark to open it up for questions.

Mark Donohue

Diego.

Question-and-Answer Session

Operator

(Operator Instructions)

Our first question comes from John Janedis with Wachovia Securities. Please state your question.

John Janedis - Wachovia Securities

Thank you. Good morning. Could you just talk about the [SFI] test that you’re doing, and if you plan on expanding that nationally this year? Then, could you also give us an update on some of the expense opportunities that Paul Ingrassia is looking at. Are any potential initiatives in your current ’07 outlook?

L. Gordon Crovitz

Let me touch first on the new strategy project. As I think you know, that is a project designed to make sure we have an optimal approach to our journalism across all of Dow Jones. We have a unique opportunity because we have a number of news departments, all focused on business and financial news reporting. We’ve made a lot of progress already. Dow Jones Newswire and MarketWatch, for example, have divided up responsibility, so that MarketWatch is responsible for several categories of first headlines.

More recently, in support of Journal 3.0, Dow Jones Newswire is now responsible for the first stories based on all disclosure news across the company, including The Wall Street Journal, which has supported Journal 3.0 and is focused what does the news mean. In other words, allowing print journal reporters to focus on the next stage print story to be much more forward-looking.

This is really not about cost-cutting. On the other hand, we have found and we continue to expect to find more opportunities to allocate our resources more effectively and to fund new initiatives like the blogs that our journalists do. We’ve recently launched blogs on everything from legal topics to personal wealth to juggling family and work, so it’s been a great project and it continues and we continue to have high hopes for it.

In terms of inserts, we had a number of inserts really primarily focused on Weekend Edition in 2006. We reached about 600,000 subscribers. We’re now able to reach about a million of our subscribers. The revenue impact from inserts was relatively small in 2006, but I think we’re now on the path to produce several million dollars in incremental revenue in 2007, based on our ability to insert.

I would just say in the context of inserting, this is a great example of innovation, as The Wall Street Journal for years, we wished that we had inserting equipment at our 19 presses. We couldn’t justify the capital expense. We’re producing these inserts the old-fashioned way -- by hand, which turned out to be highly economical and highly profitable and you’ll see more of them.

Richard F. Zannino

I’d add to what Gordon said on the news strategy project, that this is really a cross-company collaborative effort. Journalism and indispensable, differentiated content is really our stock and trade, and so the first objective for the news strategy group is to make sure that our journalism content stays as strong as its been and even gets stronger.

Another object for that group is also to make sure that we can push that content efficiently through all channels of distribution, consistent with our overall strategy. We’ve said in the past that we win by encouraging all of our customers to use us across channels, in multiple channels. So we need to get better at making sure we’re able to push our content through print, through online, through mobile using video, using podcast, et cetera, et cetera. So that’s the second objective of this group.

Then, a third objective is looking for cost efficiencies by eliminating redundancies, some of which will be reinvested back into our coverage areas to make our content even stronger going forward. So it’s very consistent with our overall strategy for the company.

We have 1700 journalists across the company. We want to make sure that they’re all working together as efficiently as possible, and that we’re serving customers -- readers, in this instance -- across all enterprise and media channels.

John Janedis - Wachovia Securities

Thanks, Rich. Gordon, just one quick follow-up: in terms of that $7 million of insert revenue, would that be considered or should we think about that as incremental or as a shift or how?

L. Gordon Crovitz

Several I think was the word I used.

Richard F. Zannino

Not seven, John -- several.

L. Gordon Crovitz

That could be more or less than seven, I guess but -- and I would view that as really largely incremental. You know, the inserts we had in 2006 were from Century 21, the real estate, Charles Dewitt, the clothier, Brooks Brothers, in many metro markets. Today there was an insert from OfficeMAX, and those are advertisers we really did not have before, so those should be viewed as incremental sources of revenue.

Again, just to be very clear, the reference was to several million dollars in 2007.

Richard F. Zannino

Which, to not be facetious, would be less than $7 million in 2007.

John Janedis - Wachovia Securities

All right. Thanks a lot, guys.

Operator

Our next question comes from Fred Searby with JP Morgan. Please state your question.

Fred Searby - JP Morgan

Quick question, just what your thoughts are on technology. It was weak this year, and if you see any signs that could indicate we could see some kind of an up-turn in technology advertising for you in ’07.

Richard F. Zannino

I’ll start and then Gordon can round it off, but tech advertising did bounce around all year, up and down. For the year, tech revenues, tech advertising revenue was flat. It was up a tick. What we’re seeing is we’re seeing a few large advertisers who didn’t spend much with the Journal in 2006, and that hurt us on the downside, but on the upside, we had a few other large advertisers who came back to the Journal in 2006. If you look at the front page today, that’s one of the advertisers that came back in 2007.

We would hope that the advertisers who have been strong with us in ’06 continue to be strong with us in ’07 and that a couple of the larger ones who reduced their spending with us in ’06 come back in ’07. But it’s likely to continue to be I think volatile.

We include communications advertising in tech advertising, as part of our definition of tech. Communications advertising was very, very strong in the beginning of the year, as you may have noticed. It tailed off a little bit at the end of the year. It looks pretty good here at the start of 2007.

With that, I’ll throw it over to Gordon.

L. Gordon Crovitz

Maybe just to add to that to give you a little sense of what we’re expecting in Q1. We do expect technology performance to have improved in Q1. That’s probably driven by our section front positions that are now available, so that could be the post section A and Market Place, page one ads from Intel and HP, which will be incremental in 2007.

I think like a lot of others, we are looking forward to the launch of Microsoft Vista, which launches I think on Tuesday. So we are feeling more confident about technology growth than we have in several quarters.

Fred Searby - JP Morgan

Just one follow-up. I couldn’t find the Factiva. They used to break out international and domestic. It may be in there. Maybe I missed it, but what was Factiva International and were you seeing a lot of growth and domestic growth? Thank you.

Mark Donohue

Fred, we’re going to -- you’ll see up on the website later today a breakdown of that information. We can dig it up here and get back to you on it, but why don’t we go to the next question.

Operator

Our next question comes from Lauren Fine with Merrill Lynch. Please state your question.

Lauren R. Fine - Merrill Lynch

Thank you. I have a couple of questions for you. I guess the first is, when you look at the improvement in the ad deals in the fourth quarter, is there any way to isolate how much of that was from the benefit of the front page ads? Is that ad deal improvement something that we can expect to continue over the next few quarters as you look at the mix? I’ll ask my follow-ups after that.

Richard F. Zannino

I’ll take a shot and then Gordon can chime in, Lauren. We had very favorable mix in the fourth quarter, so we had very strong financial advertising, for example, and that’s our highest margin advertising. The Journal audience is worth an awful lot to financial advertisers, and that’s reflected in that. I would say that’s one piece of it.

The other piece of it is, as we said, we’re now seeing the flip side of what we always said when classified was booming and it was hurting our yield. When classified is falling, as it did in the fourth quarter, that helps our yield. So those are two of the big mix issues.

The other benefit that we saw was the increased color advertising, which as we’ve said in the past, sells anywhere from a 40% to 50% premium to black and white, so that helps our yield in the fourth quarter.

We said at the beginning of 2006 that we weren’t going to be as focused on yield in 2006. We were going to be more focused on generating incremental revenue and using price where it made sense to use price to do that. So we’re very happy with the way we improved yield in the quarter. But also, there’s a three percentage point increase in yield for the year, so we’re also very happy with the way we improved yield for the year.

Looking at ’07, I’d probably say the same thing, that we’re not going to be as focused on yield as we’re going to be on driving incremental revenue dollars. You can’t spend yield. You can spend incremental revenue dollars.

Having said that, we’re going to be obviously very careful with what we’re doing. I think our plans are to see a little bit of an up-tick in yield for the year, driven by the price increase and full year of front page ads and what not. That would be my view of it.

L. Gordon Crovitz

Lauren, just a little bit of detail and that, as Rich said, a big positive impact on yield was the increase in color. Color penetration in the quarter was up to 54%. That’s up a couple of percent from a year ago, so that’s good progress. As Rich mentioned, classified linage declined, which had a good impact on yield, that being the silver lining.

You’re right that the page one ads did have a positive impact on yield. Two-thirds of that revenue was incremental revenue. As you think about Q1 and for all 2007, those ads are now sold out six days a week through 2007, and will drive quite a lot of increased revenue and will benefit yield.

Lauren R. Fine - Merrill Lynch

Thanks. And then, just to check, I in discussions with advertisers don’t get a sense that you’re getting any push-back on the reduced size in terms of your pricing on ads. Is that true?

L. Gordon Crovitz

Lauren, I’m not going to say any, but I can say of all the 2500 advertisers my colleagues and I spoke to before and since about 3.0, I can count on the fingers of one hand the number of people who even raised it and said there’s been no push-back that’s material at all.

I think there’s a lot going on with the redesign of the Journal that has pleased advertisers significantly. It’s everything from the general confidence that we have that we’re going to be able to continue to make the Journal more essential and attract new leaders to it, to changes that were made specifically for advertisers, from going to standard advertiser units to moving to revenue contracts that recognize volume discounts, online, a number of new advertiser positions and opportunities.

As we say, we’re feeling very good about the first quarter, which is the ultimate test of how enthusiastic advertisers have been about the redesigned Journal. So we are very pleased with the advertiser reaction.

Lauren R. Fine - Merrill Lynch

Great, and then a couple of other quick ones. I guess as you added new inventory online with the free Markets Data Center, how is that going in terms of your ability to sell that inventory? Is it affecting any of the sales that your, just ad sales for either the Journal online or MarketWatch?

L. Gordon Crovitz

The online Markets Data Center, which launched on January 2nd, along with the redesigned Journal, in three weeks has had 3 million page views. You can do the math on the value of that, given our CPM. So that’s been a nice boost to revenue and to unique visitors and to usage.

I don’t think that is cannibalistic in any way of anything else that we were doing. There’s another well-known financial website produced on the west coast that I think used to have the state-of-the-art Markets Data Center. We do now, and so we’re very pleased about that.

Lauren R. Fine - Merrill Lynch

Last question, I think you mentioned, and you might’ve given the reason and I missed it, you changed your accretion estimate for Factiva, you raised it. I was curious what the reason was.

Richard F. Zannino

It was really a few of our original assumptions being conservative and actual plans based on the implementation plans both breaking in our favor, so cross synergies are greater than we expected, both for this year as well as for the full run-rate of those cost synergies. We said 15 for this year, 19 on a full run-rate basis, and we’re doing significantly better than that.

We also had a slightly lower tax rate than we pro forma’d, and we had a little bit less purchase accounting amortizations than we had pro forma’d. So when the teams dug in to those figures, they came up with those benefits, so it went from $0.03 to $0.05 to the $0.11.

Lauren R. Fine - Merrill Lynch

I’m going to sneak in one more. Did you give an update on what you expected the Weekend Edition dilution to be for ’07?

Richard F. Zannino

No, we didn’t.

Lauren R. Fine - Merrill Lynch

Do you want to?

Richard F. Zannino

We originally said that it would be break-even in ’07. It’s likely to be a few pennies dilutive in ’07, just based on ad revenue. We had a huge ad revenue increase planned for ’07, and based on the current trend, we’re not going to hit that huge increase. We nonetheless have a very strong expectation for ad revenue increases at Weekend Edition, in the 20% range. Still positive growth and positive momentum, but it just won’t be enough to get us to accretion, or to break even in 2007.

Lauren R. Fine - Merrill Lynch

Great. Thank you.

Operator

Our next question comes from Debra Schwartz with Credit Suisse. Please state your question.

Debra Schwartz - Credit Suisse

Great, thank you. I’m not sure if you have it in front of you, and if not, I can certainly get it from the website later, but do you have the total revenue number for Factiva for 2006? I ask only because your revenue guidance for the enterprise unit segment seems a little bit light to me, so I’m just wondering what you’re expecting for Factiva revenue growth for 2007. Perhaps I’m just using the wrong 2006 phase.

Richard F. Zannino

There’s pro forma EMG revenue growth for 2007, the press release said low singles. We probably should have said low- to mid-single digit growth there. Clare can give you some color on where the growth will come from. Why don’t you go ahead, Clare?

Clare Hart

If you look at the EMG business, Debra, financial information services and indexes, we’re going to see mid- to high-single digit growth in 2007. The largest business, the new CTS, will show a lower growth rate, and that’s really driven by two key factors. In news wires, the loss of a major bundling deal that’s going to result in total international revenues being about flat. Reuters is replacing the [teller A] terminal business it bought in 2005 with Reuters Terminal, so overseas, those are going to carry primarily Reuters news.

As you know, the licensing services business, the challenges we had with cancellations in 2006, we’re going to see the full-year impact, and we’ll show slightly negative growth in 2007.

The Factiva business is expected to grow between 5% and 6% in 2007.

Richard F. Zannino

Just for additional information, we’ll post a look at 2006 supplemental information that breaks out Factiva on a quarterly basis. You’ll see there that the total ’06 revenues will have $290 million for Factiva.

William B. Plummer

Debra, that was up about 3% over 2005.

Debra Schwartz - Credit Suisse

Thanks, that’s helpful. Also, could you quantify the cost savings you expect to see from the restructuring in the enterprise media group?

Richard F. Zannino

We originally said $15 million this year and $19 million on a run-rate basis. We’re considerably better than that, based on our current thinking. We’ll send some of it back this year to accelerate some additional integration work, primarily some systems work, some back-office systems work, and we’ll spend some of it back going after additional revenue. For example, going after the Newsedge revenue, where Thomson has announced that they’re going to either sell or shut that business this year, so we’ll put some extra incentives in place to see that we’re capturing as much of that business as we can.

So net net, we’re ahead of our cost synergies, even after spending a couple million dollars of the increased synergies we found back on growing the business.

Operator

Our next question comes from Steven Barlow with Prudential. Please state your question.

Steven Barlow - Prudential Equity Group

Thanks. Your operating income in the Consumer Media business is normally negative in the first and third quarters. Is that an expectation again in 2007, as we’re trying to figure out the seasonality here of the quarters?

Richard F. Zannino

For CMG in the quarter, the expectation is that we will certainly experience an improvement over the prior year. We haven’t really talked much about exactly where it will fall out. Modestly negative is where you should probably think about it.

Steven Barlow - Prudential Equity Group

That’s just for the first quarter?

Richard F. Zannino

For the first quarter, yes.

Steven Barlow - Prudential Equity Group

Okay, and the third one is usually really negative, and I gather that based on the first, that would stay negative as well? I guess no comment.

Richard F. Zannino

No, we’re looking. We just want to make sure what we’re saying is accurate, Steve.

Steven Barlow - Prudential Equity Group

Okay, well then let me ask another question while you -- Bill, could you talk about what the cash tax payments would look like in 2007, if there’s anything we should focus on in terms of a quarterly payment as well?

William B. Plummer

I don’t have that in front of me. I would expect that there are no unusual items that would drive ’07 cash tax payments, but I don’t have the exact numbers in front of me.

Steven Barlow - Prudential Equity Group

Okay, I didn’t know whether you -- I guess you have NOLs on the other things, so there really isn’t much of a change. I wanted to double-check that.

Lastly, just to remind us as we’re looking at the Consumer Media business, with the revenue growth that you’ve given us, what is the average rate change that you’re using for the print Journal and for your online products?

L. Gordon Crovitz

For the print Journal, Steve, we raised advertising rates by 2.5%, for advertisers who have contracts with us. In terms of online, there are increases in many of the categories. We’re very focused on continuing to improve our yields, which we’ve done a very good job of over the last year or so. But it’s easier to identify the rate increase, which is [quite public], on the print side.

The online side, it’s going to be the effect of yield as we sell more of our advertising in more targeted areas of the website, which carries a premium. We expect to continue to see increases in our effective rates and in our yield online, which has been a major driver of our revenue growth and our increased operating income at Dow Jones Online.

Steven Barlow - Prudential Equity Group

Fair enough. Thank you.

Richard F. Zannino

Steve, I’m not sure what question you actually asked about the first and the third quarter, but CMG will be profitable in the first quarter. It will still be loss-making in the third quarter.

Steven Barlow - Prudential Equity Group

Okay, and that was on an operating income basis?

Richard F. Zannino

On an operating income basis, yes.

Steven Barlow - Prudential Equity Group

Thank you.

Operator

Our next question comes from Peter Appert with Goldman Sachs. Please state your question.

Peter Appert - Goldman Sachs

Good morning. Congratulations on a strong end to the year. Rich, could you give us anymore color on the evolution and the economics of the weekend Journal, and specifically, are there things that could be done from a cost perspective, or are costs an issue in terms of getting profitability? Or is it just all about bulking up the revenue side?

L. Gordon Crovitz

Let me touch on why it is that we’re pretty optimistic about accelerated revenue growth at Weekend Edition. The first point to acknowledge, we’re expecting revenue growth in excess of our average and in excess of what other newspapers are expecting. We have a lot of drivers. We have the momentum that we built from our increased market share in the B to C segment. The Journal is by far the greatest market share gainer in the B to C category. Last year, as you know, well over half of Weekend Edition revenue comes from that B to C category.

We’re also doing a lot of things to drive more kinds of business into Weekend Edition in ’07. We’re expanding our special advertising sections that cover both B to C and B to B topics. We’ve got ones planned in travel, consumer electronics, wealth management. Some of these will be single-sponsored, like the UBS section that ran in December. Others will be multi-sponsored.

We’re also expanding the Journal Reports. Those are the news department produced reports to include quite a number in Weekend Edition. We’re planning a dozen of those in Weekend Edition in 2007 -- topics like Encore, a new series called Business Insights, which we’re doing with a business school. We didn’t run any Journal reports in weekend in ’06.

We’re also going to, as we mentioned earlier, continue to expand our insert capability and many of those inserts run in Weekend Edition. And we have a lot of new content adjacencies in Weekend Edition, from the page one ads to jumps in money and investing. We’re getting a lot more interest in money and investing advertising generally with 3.0, including Weekend Edition.

We’ve got a lot of new marketing events and programs. Last week, a lot of colleagues were out at Sundance, where The Wall Street Journal booth I’m told is one of the most popular ones, and that’s probably some surprising positioning for the Journal, given how most people perceive us.

We think there’s a lot of momentum now in Weekend Edition. A lot of new initiatives around Weekend Edition. More and more of our advertisers understand that readers are in a somewhat different frame of mind on the weekend. Many of our advertisers tell us that they know that families, when they talk about personal investing and financial planning, do it on the weekend, and you’ll see a lot more of that kind of advertising in Weekend Edition in ’07.

Peter Appert - Goldman Sachs

It sounds, Gordon, like it is revenue driven in terms of getting the road to profitability?

L. Gordon Crovitz

Did I forget to mention that in my long answers? Yes, it is.

Peter Appert - Goldman Sachs

Okay. In terms of the 2.5% rate increase, does that apply to the weekend Journal as well?

L. Gordon Crovitz

It does. We have some special rates for Weekend Edition to target specific categories of advertisers, but that 2.5% rate is an increase across all contracts that we have with advertisers.

Peter Appert - Goldman Sachs

Could you just remind me: is it the one sales force sells all Journal advertising or do you have a special weekend sales force?

L. Gordon Crovitz

When we launched Weekend Edition, we hired a staff that was incremental to the staff. It’s all now one team, but as we’ve said, one of the great results of Weekend Edition is that you have a number of advertisers who have appeared first in the Journal through Weekend Edition, many of whom now are advertising Monday to Friday as well, once they’ve understood the quality of our audience.

Peter Appert - Goldman Sachs

Great, got it. Rich, unrelated question, how are you thinking strategically about the Ottaway papers in the context of all the discussion of accelerating the transition to the electronic business?

Richard F. Zannino

We have a very strong portfolio of Ottaway papers remaining. Cape Cod, Massachusetts, and New Bedford, Massachusetts and Stockton, California and Metro, Oregon; Portsmouth, New Hampshire. I mean, they’re very, very strong papers in very good markets, growing markets. So we’re optimistic as we convert from community newspapers to community media franchises that we’ll be able to get back on the grow again in those markets. So there’s no intention at this point to do anything with the Ottoway papers, other than help them with their own transformation from print to all forms of media.

Now, what we said in the past is if a compelling use of proceeds came along with a much higher ROI than the ROI that we have from Ottoway, that we would consider it, but we don’t see anything like that right now.

Peter Appert - Goldman Sachs

Great, thank you.

Operator

Our next question comes from Lisa Monaco with Morgan Stanley. Please state your question.

Lisa Monaco - Morgan Stanley

Yes, just a couple of questions. Following up on the Weekend Edition, can you just provide us with what the growth rate was in the fourth quarter in revenues?

L. Gordon Crovitz

For the quarter, volume was down slightly versus the previous year. As you adjust though for the difference in publication days, Weekend Edition volume was up. We had a modest decline in revenue for the fourth quarter, and as I indicated earlier, if you’ll recall the previous year, we had a one-time very large display campaign from Jaguar. Again, the difference in number of publication days.

As I have mentioned earlier, we are very optimistic about 2007, despite what we would acknowledge is a somewhat disappointing fourth quarter for Weekend Edition.

Richard F. Zannino

And we’re expecting a much better first quarter, based on our current reservation flow, current reservations and reservation flow, so we’re very optimistic for a strong first quarter for weekend.

Lisa Monaco - Morgan Stanley

Okay, and then perhaps this will be cleared up when you post the pro forma numbers, but it looks like in the release, total revenues for ’06, excluding discontinued ops, the six Ottoway papers, total revenue in ’06 was $1.78 billion. Now, if I look at the ranges of revenue growth that you see, the 18% to 20% total revenue growth, and then I believe it was 3% to 5% pro forma. If you take the difference between those two revenue figures on a dollar basis, that gets you to about $268 million of revenues. I would assume that the difference would just be Factiva, which is, as you said, $300 million. Is there something that I’m missing there? I know there’s a lot of ins and outs, but --

William B. Plummer

That’s basically it. You have to remember that there are some eliminations between Factiva and the historic Dow Jones that would net down. You’ll see more of that information if you refer back to the pro forma analysis that we’ll post a little later.

Lisa Monaco - Morgan Stanley

Okay, so that difference of $35 million or so is net of the eliminations?

William B. Plummer

That’s right. The eliminations are a little bit less than that total amount. But you’ll see more data as we will post it.

Lisa Monaco - Morgan Stanley

Okay, and then just quickly on the guidance, Rich. In the past, I think you guys have been reluctant to give full-year guidance, just given the volatility of revenue and earnings. What gives you the increased comfort level to now provide full year numbers? Thanks.

Richard F. Zannino

I think it’s a couple of things. One is having a much larger non-print piece of our portfolio, with EMG being larger, so that’s a part of it, which gives us a little more stability and therefore a little more predictability.

The other is based on bucking trends at the print Journal, in particular, in 2006 and visibility coming into the year for 2007, being reasonably comfortable with a low- to mid-single digit increase in print Journal’s revenue for the year, which would drive a similar increase in CMG revenue for the year. Those would be the two primary reasons for it.

Lisa Monaco - Morgan Stanley

Okay, thank you.

Operator

Our next question comes from Craig Huber with Lehman Brothers. Please state your question.

Craig Huber - Lehman Brothers

Yes, good morning. Thank you. Rich, this low- to mid-single digit ad revenue growth at The Wall Street Journal for this year, could you just go through, if you would, some of the categories that give you the optimism for that number? I realize it is a little different than what you wrote in the press release with mid-single digit ad revenue growth, but cutting hairs there.

Richard F. Zannino

Yes, well, I know, and -- so it’s low to mid to sync up with the 18 to 20. The mid would be at the upper end of that range, but Gordon can walk you through some of the categories.

L. Gordon Crovitz

Just at a high level, just to follow on what Rich said earlier, we are looking at low-single digit volume growth, given the yield that we anticipate, the increase in rate, the increase in color penetration. A lot of new initiatives going on, from inserts to one I think I might mention on this call, which is we now have the capability actually to publish scented ads in The Wall Street Journal, so innovations will continue.

To your precise question on which categories do we think will help support the growth, we are forecasting low- to mid-single digit growth in the consumer category. We’re anticipating gains in categories like luxury, travel, our other consumer category.

On the B-to-B side, we anticipate continued strength in financial. We talked a bit about technology improving in ’07 and our other business category.

We do think that we won’t see a year like we saw last year in classifieds, where we had a high single-digit low double-digit gain, but we are forecasting low- to mid-single digit growth. Even in real estate, we think we’ll do all right in ’07.

Those are some of the more specific reasons why we’re optimistic about the year.

Craig Huber - Lehman Brothers

My other question has to do with the earnings dilution you’ve talked about in the past for your Weekend Edition. I know you changed the definition there about six months ago, but your original guidance was for $0.15 of dilution there, and you adjusted it to include Monday to Friday volume by the Saturday advertisers, but on an apples-to-apples basis, relative to the original guidance, isn’t it about $0.06 to $0.08 more diluted than the original? I’m getting a little -- I just want to clarify that.

Richard F. Zannino

Craig, I don’t know because I haven’t looked at it on that old basis. We never anticipated it pushing as much volume into Monday to Friday as it has pushed into Monday to Friday, and therefore, we anticipated that volume occurring on Saturday.

We think this is the heads-up way of looking at it, and that’s the way we’re looking at it.

Craig Huber - Lehman Brothers

Okay, so on this new basis then, it’s $0.15 dilutive in ’06. You’re expecting to be down a few pennies dilutive in this new year. Is that fair?

Richard F. Zannino

Correct.

Craig Huber - Lehman Brothers

Okay, and my last quick question, are you guys pretty comfortable with your overall portfolio here, or should investors expect some further tweaks in the acquisition and divestiture front as we think out over the next 12 to 18 months?

Richard F. Zannino

I don’t think we’ll see anything on the divestiture front. We’re pretty much cleaned up now with the sale of Economia in terms of -- I can’t think of anything that’s in the portfolio that I would consider “non-core”.

But on the acquisition side, we’ve said in the past that we are interested in doing deals in digital media and business information services media, where our criteria are met of strategically right, financially attractive with manageable execution risk.

We’re in the deal flow on media transactions and we look at just about everything that comes along, but they have to hit those strict criteria in order for us to do something.

Craig Huber - Lehman Brothers

Thank you.

Operator

Our next question comes from Alexia Quadrani with Bear Stearns. Please state your question.

Alexia Quadrani - Bear Stearns

Thank you. Just a couple quick questions. First, what are your assumptions that you’ve built in your guidance for newsprint pricing?

Richard F. Zannino

We see a modest decline in newsprint pricing over the course of the year -- low, couple of percentage points area.

Alexia Quadrani - Bear Stearns

Do you think the European Journal can be -- given that we’re seeing some --

Richard F. Zannino

Alexia, you’re breaking up on us.

Alexia Quadrani - Bear Stearns

Do you think it’s possible the European Journal can be profitable in ’07, given some early signs of improvement or stabilization in the ad market over there?

Richard F. Zannino

Not in ’07.

Alexia Quadrani - Bear Stearns

Not in ’07. Okay, thank you.

Mark Donohue

We’ll take one more question, Diego.

Operator

Thank you. Our last question comes from Paul Ginocchio with Deutsche Bank. Please state your question.

Paul Ginocchio - Deutsche Bank

Great, thanks. Just two questions. U.S. circulation revenue decelerate in growth, decelerate in the fourth quarter, despite I think a price rise in October for the print Journal. Is there something unusual there?

Second, is there anything unusual in January that is happening January ’07, because obviously it looks very strong. Our count put plus 15% on linage. Is something unusual going on there?

L. Gordon Crovitz

Good spotting, Paul. Circulation revenue did decline just slightly in the fourth quarter. This was primarily due to a reduction in the prices in short-term subscriptions to college students as part of our Journal Education Program, where we’re obviously trying to encourage college students to try the journal. This program was pretty successful. It resulted in a significant increase in new orders. For ’07, the program has been modified with an increase in the price, so we expect to see some reduction in orders in ’07, but still higher than ’05.

For the full year 2006, circ revenue was higher than ’05, despite this reduction education revenue. For ’07, we expect circ revenue to increase modestly.

While we’re on the topic of circ revenue, just to underscore what I think, as Rich mentioned, is really an unusual situation for the Journal, and one that I hope continues, which is the fact that we managed to grow our individually paid category circulation according to the September ABC. That really has set us apart, and we hope to continue to do that as we encourage more people to use us across both print and online.

The increase in individually paid subscribers to some degree reflects the most successful offer in the market now, which is the print and online journals together at a single price which, of course, because no other newspaper has a pay model for its website, is a marketing opportunity available only to us.

Richard F. Zannino

I might pile on to Gordon’s answer there, but we put up circulation revenue gains at the Journal and at CMG for the last six out of seven quarters. You’re right, it was down a bit, like 1% in the fourth quarter, for the reasons that Gordon mentioned. We expect to get back on the grow and increase it again in 2007, based on a variety of factors, including a print circulation price increase, including renewals of those bundled offers at higher rates.

So I think you’ll see us getting back on the plus side again in 2007 as far as Journal circulation revenue gains.

On the linage, we’re not seeing that kind of linage bump, so I know you can count, but I know there are also issues around regional ads and forms and fills and things like that, but as Bill said in his remarks, based on our visibility right now into the first quarter, it looks to be tracking in line with the underlying assumptions in our guidance. We’re not seeing a double-digit January.

Paul Ginocchio - Deutsche Bank

Great. Thank you.

Richard F. Zannino

Well, thank you all and we’ll be in touch.

Operator

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you all for your participation. All parties may disconnect now.

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Source: Dow Jones Q4 2006 Earnings Call Transcript
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