[Catherine Mathis, Vice President, Corporate Communications]:
Thank you and good morning everyone. Welcome to our earnings conference call. We have several members of our senior management team here today to discuss our results with you, including: Janet Robinson, CEO and president; Len Forma, Executive Vice President and Chief Financial Officer; Scott Heekin-Canedy, President and General Manager of The New York Times; Martin Nisenholtz, Chief Digital Officer; Jim Lessersohn, Vice President of Finance and Corporate Development; Stu Stoller, Vice President, Process Engineering and Corporate Controller; and Tony Benten, Treasurer.
Our discussion today will include forward-looking statements and our actual results may differ from those predicted. The factors that may cause them to differ are outlined in our 2004 10K.
This presentation will also include a non-gap financial measure and we've provided a reconciliation to the most recently comparable GAAP measure in our earnings press release, which is available on our Web site, http://www.nytco.com/
This conference call is being webcast and an archive will be available on our Web site, as will a transcript. An audio replay will also be available and the directions for that are in our press release.
So with that let me turn the call over to Janet Robinson.
Thank you, Catherine, and good morning everyone. Our third-quarter earnings per share were 16 cents based on generally accepted accounting principles, compared with 33 cents in the same quarter last year.
The 16 cents is net of a charge of 5 cents per share for cost associated with our staff reduction and a penny per share of incremental costs associated with the expensing of stock-based compensation that we did not have in 2004. We came in above the earnings range of 11 to 14 cents that we had provided last month. While the advertising market remained challenging in the third quarter, our earnings were better than we expected as revenue growth improved in late September. This is particularly true with The New York Times Media Group.
Advertising revenues for our News Media Group increased 1.7 percent in the third quarter. Overall for the Group, national and retail were on par with last year, while classified was up nearly 4 percent with healthy gains in real estate and help-wanted advertising offsetting sluggishness in the automotive category. At The New York Times Media Group, advertising revenues rose 2.9 percent. We saw double-digit gains in several advertising categories, including:
Financial services, with increased advertising from American Express and Ameriprise,
Corporate, which saw increased advertising from Chevron and Exxon Mobil,
Banking, which benefited from campaigns from Citibank, Wells Fargo and Independence Community Bank, and International fashion, which continued to grow in part due to the very successful T Sunday magazines and Thursday Styles and Sunday Styles sections.
Weak categories were, Transportation and travel, where airlines and cruise lines reduced their spending, Telecommunications, which had difficult comparisons because of the AT&T-Cingular merger, Advocacy, which benefited from the elections last year, and Studio entertainment, which had a soft July and August, partially offset by a solid September. Color made up 29 percent of The Times' advertising revenues, up from 26 percent in the same period last year. We expect this to increase in the fourth quarter as we have just completed the addition of 40 percent more color capacity. This project came in several weeks earlier than anticipated and well in advance of the holiday season.
Advertising revenues at the New England Media Group reflected the continued weakness in the Boston economy and were down 2.8 percent. Classified advertising in the group declined 4 percent because of weak automotive and help-wanted advertising only partially offset by strong real estate advertising. Retail advertising decreased 3 percent due to softer department store and home-related advertising. The Group's national advertising was flat in the quarter with travel, telecommunications and technology advertising being soft and the overall entertainment category showing gain.
We continue to be pleased with our investment in Metro Boston, a free daily newspaper that targets commuters. It had its best month ever during the third quarter. The number of display advertisers placing ads in both the Globe and Metro is increasing and classified sales have gone extremely well.
In August, Metro, the Globe and Boston.com introduced a new offering called Boston Uncovered, designed for college and graduate students. It has proven to be attractive to readers and advertisers alike.
Our Regional Media Group showed the strongest advertising revenue growth of the three news media businesses, up 4.3 percent. This is consistent with what we have seen throughout 2005 when its properties in smaller markets have outperformed those in major metropolitan areas. Once again, the Group successfully achieved its goal of deriving a third of its total revenue growth through new products and services such as commercial printing, database marketing, weeklies, magazines and Web sites. This drove their revenues to increase 17 percent in the quarter.
The company's overall circulation revenues decreased 1.2 percent. We maintained flat circulation revenues at The New York Times Media Group and the Regional Media Group. Circulation revenues declined about 6 percent at the New England Media Group where volume was lower for both home delivery and single-copy sales. For the September ABC statement, The Times expects to show gains for both daily and Sunday circulation. The Globe anticipates declines for both daily and Sunday, reflecting the home delivery and single-copy decreases as well as a conscious decision to reduce its other paid or bulk circulation. We continue to make progress in expanding availability of The New York Times across the country. Next month we plan to launch a new contract print site in Toronto, our first outside the United States. In addition to the greater Toronto area, the new site will serve Buffalo, Rochester and other areas in upstate New York. In January, we expect to begin printing in Houston.
Our Web sites in the News Media Group had very strong growth in the online advertising revenues, up 31 percent in the quarter. Last month at NYTimes.com we launched TimesSelect, our new fee-based product that includes our distinctive columnists and extensive access to The Times archives as well as other features. Times subscribers receive TimesSelect free of charge as part of the benefits of subscribing. For others there are both monthly and annual packages available. The preliminary response has been very good, well ahead of our expectations. Traffic remains strong. As a matter of fact, NYTimes.com had record page views in the month of September as a result of Katrina and improved search engine optimization.
We continue to be very pleased with the performance of About.com. It recorded total revenues of $14.2 million in the quarter, with advertising revenues up an estimated 67 percent over the same period last year. About.com's integration is progressing very well. It has applied its expertise and search engine optimization to NYTimes.com and Boston.com, which has increased traffic at both sites. Joint sales are currently underway with major advertisers, and we continue to pursue innovative ways of driving traffic between About.com and NYTimes.com. With About.com, the Times Company is now the 12th largest corporate online network, generating nearly 35 million unique visitors a month and providing advertisers with a robust inventory with which to market their products and services.
Turning to our Broadcast Media Group, revenues decreased only 5.4 percent in the quarter, despite significantly lower levels of political advertising. In the third quarter, political advertising totaled $300,000 compared with $3.9 million in the same quarter of 2004. Last year we also benefited from $1.8 million of advertising related to the Olympics.
Before the end of the year, we expect to close on our acquisition of KAUT-TV in Oklahoma City, which will create our first duopoly. We believe that our ownership of both KFOR and KAUT will enable us to achieve operating efficiencies and to offer advertisers more and varied ways to reach their audiences in this market.
In the fourth quarter, The Times will have two new issues of its Sunday “T” magazine. The first appeared last Sunday and focused on beauty. The other will debut in December and is devoted to the holidays. “T” Design, which came out on October 9, was the largest Sunday supplemental magazine The Times has ever had. The entertainment category is showing strength in October and is expected to benefit from an increase in the number of wide screen releases, 48 anticipated this quarter compared with 28 in the fourth quarter a year ago. In December The Times will introduce a free pocket-sized magazine called “On Movies,” which will be distributed to more than one million moviegoers at Loews Cineplex Theatres and will generate incremental advertising dollars.
This month Boston will debut its enhanced classified auto section. In addition, Explore New England.com, a one-stop travel guide to the New England states with content from The Globe, Boston.com, The Times and About.com, launched this month with the goal of becoming a go-to site for New England travel. Our Regional properties will launch another magazine this quarter, adding to their growing stable of other products and services. Online advertising remains strong, with NYTimes.com and About.com showing particularly robust gains. So far in October, pacings at our Broadcast Media Group are down in the high teens. In the fourth quarter of last year, our Broadcast Group recorded $9.5 million in political advertising so the comparisons are quite challenging.
While the quarter was a difficult one and advertising growth remains uneven, we believe the steps we are taking to strengthen our businesses position us well. Going forward, we will continue to develop innovative ways to reach our audiences and serve our advertisers in print, online and broadcast media. At the same time, we will remain very disciplined in managing our costs. And now I'll turn the call over to Len.
Total costs increased 8.2 percent in the quarter. A significant portion of the increase was due to three items:
Staff reduction expenses, Costs related to About.com, which we acquired in March, and stock-based compensation costs, which were less than in the previous two quarters because of the valuation of our long-term incentive plan awards. Excluding expenses related to the staff reductions, About.com and stock-based compensation, total costs increased 4.6 percent primarily because of higher distribution and outside printing expense, higher wages and benefits and increased promotion expense.
Newsprint expense rose 3 percent, with 5.4 percent of the increase resulting from higher prices, partially offset by a 2.4 percent decrease from lower consumption. This quarter we plan to complete the conversion of all of our newspapers to a lighter weight newsprint as part of our efforts to reduce newsprint costs. In 2005 we expect to save approximately $1.6 million as a result of this step. Going forward, annualized savings are expected to be $3.5 million to $4 million.
Excluding the staff reductions, About.com and stock-based compensation, cash costs rose 5 percent in the quarter.
As many of you know, late last year we embarked on a systematic review across the Company to determine ways in which we can operate more efficiently. We are also eliminating activities that no longer support growth in order to reallocate those resources to areas that do. We reduced our staff by approximately 200 positions last summer and in September we announced that we will cut an additional 500 positions over the next six to nine months. These reductions were possible because of this productivity and efficiency initiative as well as our ability to leverage the investments we've made in technology and shared resources. Some of the recently announced job reductions will be accomplished through buyouts while others will be done through layoffs. The Company estimates that the total charge for this staff reduction will be $35 to $45 million, a portion of which will be recorded in the fourth quarter. The amount of annualized savings from this reduction is in the same range as the charge. Further, we plan to continue the process of critically examining all aspects of our business to improve the efficiency and productivity of our Company in order to enhance profitability. We are committed to reducing our cost base and ensuring that expense growth is below revenue growth.
In the fourth quarter, we plan to make a $45 to $50 million tax-deductible contribution to our pension plans. This is less than the contributions we made in each of the past three years and we expect that going forward higher interest rates will reduce contribution needs. Stock-based compensation in the fourth quarter will be higher than in previous quarters because of the acceleration of expense for awards granted to retirement-eligible employees in December. Therefore, our guidance for the year of $28 to $34 million remains unchanged. If we had expensed stock compensation two years ago, the cost would have been approximately $80 million. We've been able to reduce stock-based compensation by more than 50 percent by decreasing the number of option grants and accelerating the vesting of underwater options and modifying our compensation plans. And we'll continue to look for ways to further reduce stock-based compensation expense going forward.
Under GAAP, the total amount of capital expenditures for our new headquarters for both the Company and our development partner must be included on a consolidated basis in our financial statements. Therefore, our guidance and the quarterly numbers we provide for capex now include both The Times and our development partner's expenditures. For 2005, the total amount of capex we expect is $255 million to $285 million. Of this range, $200 to $220 million is our responsibility, including $85 to $100 million for our new headquarters. In the quarter, total cap expenditures were $63 million. Of this amount, $46 million was the Company's responsibility, including $27.8 million for our portion of the cost for the new building.
Year to date, total capital expenditures were $154 million. Of this amount, $117 million was the Company's responsibility, with approximately $59 million for our portion of the cost for the new building. In the fourth quarter, we'll complete the amortization of the non-compete agreement associated with the sale five years ago of the Santa Barbara News-Press. And looking ahead, we plan to provide you with guidance on the quarter before we present at the December conferences.
And now we're happy to respond to your questions.
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