Dow Jones Q2 2007 Earnings Call

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Dow Jones & Company, Inc. (DJ)
Q2 2007 Earnings Call
July 19, 2007 10:00 am ET

Executives

Mark Donohue - Director, IR
Rich Zannino - CEO
Bill Plummer - CFO, EVP
Gordon Crovitz - EVP, President, Consumer Media Group, and Publisher of The Wall Street Journal
Clare Hart - EVP, President, Dow Jones Enterprise Media Group
John Wilcox - President, Local Media Group

Analysts

John Janedis - Wachovia Securities
Sylvia Jasaroska - Bear Stearns
Paul Ginocchio - Deutsche Bank
Peter Appert -Goldman Sachs
Lisa Monaco - Morgan Stanley
Craig Huber - Lehman Brothers

Presentation

Operator

Greetings, ladies and gentlemen, and welcome to the Dow Jones & Company Second Quarter 2007 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow a formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Mark Donohue, Director of Investor Relations for Dow Jones & Company. Thank you, sir, you may begin.

Mark Donohue

Thanks Diego. Good morning. Welcome to our second quarter 2007 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, 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 your questions you may have.

A copy 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. The factors that could cause such a difference are outlined in our SEC filings and on our website. Reconciliations 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, I am pleased to turn the call over to Rich Zannino.

Rich Zannino

Okay, thanks Mark. Good morning all, and thank you for joining us. I'll kick it off this morning by summarizing our strong second quarter results and the many additional steps we took in the quarter as part of our transformation plan to retool our businesses and position us to win in this new media environment. I'll also briefly address the News Corp. bid. Bill Plummer will then follow with details on our financial results and then we'll open it up for your questions.

In early 2006, we embarked on a plan to transform Dow Jones from the company heavily reliant on newspaper publishing toward a diversified business information services company.

Our aim is to be the world best provider of high quality, premium branded, indispensable, and conveniently accessible business and related content across all consumer and enterprise media channel.

Our second quarter operating results are the latest evidence that this transformation plan is working. Revenue was up 16% over the last year and our $0.45 of EPS before special items beat the Street consensus and was up 15% over last year.

As Bill will elaborate, we posted a 31% profit gains at Consumer Media highlighted by 24% organic growth in ad revenue in our international print businesses, 26% ad revenue growth at Barron’s, 5% total revenue growth at Wall Street Journal Digital and increased print and online circulation revenue.

Expenses at CMG declined more than 2%. All of these combined to more than offset the profit impact of the 7% decline in print ad revenue at the US Journal.

At Enterprise Media on a pro forma basis, we posted a 44% profit gain as the Factiva acquisition continues to outpace our expectation. We also posted a 42% jump in revenue at Dow Jones Indexes and a 10% bump in revenue at Financial Information Services.

On a pro forma basis, expenses at EMG declined 1%. At Local Media, revenue declined 6% and profit fell by about 20%. While the market for Print Advertising remains difficult for us and our print peers, our overall revenue and earnings growth in the quarter proves that we are no longer dependent on Journal print advertising to drive our total company growth. While we can't control the Prints Ad market, we can improve our performance by further leveraging the assets of our Legacy print businesses for fuel growth and the fast growing products of our brand franchises.

These assets include our brands, contents, audiences, customer relationships and marketing platforms. This is what our transformation plan is all about and we made substantial additional progress on this plan again in the second quarter.

In May, we closed the acquisition of eFinancialNews, a diversified media company serving the UK financial services community, with fast growing print, online, training and events businesses. The acquisition of eFN adds critical mass to new distribution channels and profitable businesses to enhance our other European Consumer Media operations, particularly in the attractive UK market.

We expect eFN to have no impact on EPS this year, and to be $0.03 to $0.05 accretive in 2008. Also during the quarter, the new Managing Editor of the Journal, Marcus Brauchli re-aligned his news organization to completely integrate the Journal's print and online news operation. Provides for the seamless flow of news between Print, Online and Newswires, simplify international news operation, strengthen global news coverage and streamline reporting lines.

We took another big step towards whole print and online integration of our brands and further strengthened our management team with the hiring of Michael Rooney as Chief Revenue Officer for CMG. We are combining all of our domestic and international print and online advertising sales and marketing organization under Michael.

This will accelerate our efforts to foster greater collaboration among these diverse sales teams to help advertisers make the most of our unique audience of 19 million highly affluent and engaged consumers. Michael is already reorganizing staff, upgrading talents and implementing new customer programs.

But his first priority is to fully leverage our Wall Street Journal Print and Online sales efforts to increase ad revenue at the Wall Street Journal's franchise. This will be a key focus and metric of ours going forward.

During the second quarter, we also continue to invest in and upgrade our online operations. We launched a new public homepage at wsj.com, a new the AllThingsDigital website and a new auto site.

We are also investing in our online video capabilities and video usage continues to grow rapidly with a record 1.9 million videos viewed in the month of May.

And last, but certainly not least; during the quarter, we identified and began implementing an additional $55 million of cost reduction. We anticipate that about $16 million of this total will be realized this year and the balance realized in 2008.

So all in all, another busy and productive quarter on the transformation front.

I'd like to close with some brief remarks concerning News Corp's bid to acquire Dow Jones. As I am sure you all know, our Board of Directors on Tuesday evening voted that it would be prepared to approve News Corp's bid to acquire Dow Jones at $50 per share and to recommend the transaction to all shareholders including the Bancroft family. News has indicated that it would enter into the merger agreement if members of the Bancroft family and trustees with the satisfactory level of voting power support the transaction by promptly entering into voting agreements with News Corp.

News Corp sought us out because we have industry leading brands, contents, businesses, products and potential. We are tapping in to this potential with our transformation plan. Our results so far this year prove that this plan is working and that we haven't been distracted by the News Corp. process.

Through the first six months, our revenue is up 17% over last year and our EPS before special items is up 30%. We know we must do more to build on this momentum and we will. Whatever happens next, we are very focused on building on this success with the past in order to make Dow Jones even better for the future.

And with that, I will turn it over to Bill.

Bill Plummer

Thanks Rich, and good morning everyone. As Rich noted, we grew our revenue 16%, operating income before special items 28% and EPS before special items 15% in the second quarter. Adjusted for the impact of recent acquisition, our revenue increased 1% and operating income before special items increased 24%.

These results are further evidence that we are successfully executing our transformation plan, as one measure that transformation print revenue as a percent of total revenue is now down to 57% for the quarter versus nearly 68% last year.

We achieved these results in spite of the soft ad revenue environment that in prior years would have made improving profitability very difficult. A key component of our profit improvement for the quarter was our continued tight management of expenses across company.

On an adjusted basis, total expenses declined about 2% due to reduced compensation, newsprint and print delivery costs resulting from our restructuring, outsourcing and other initiatives.

A key driver of that expense performance was further realization on the $65 million of run rate expense initiatives that we implemented last year. As we have said before, we expect to realize an incremental $53 million of those saves this year over what we saved last year.

On top of that as Rich mentioned earlier, we've put into play an additional $55 million of run rate saves through new initiatives implemented this year. Examples of these initiatives include saves associated with our restructuring efforts, incremental print delivery outsourcing saves, a new corporate cost initiative and several circulation initiatives focused on reducing unpaid or low paid print copies. We expect to realize about $16 million of these saves over the remainder of 2007. These initiatives represent significant expense fuel for growth and will give us the opportunity to reinvest some of the savings to drive growth, also allowing the bulk of the saves to drop to the bottom line.

During the quarter, we recorded two special items totaling $0.20 per share. We recorded $18.2 million or $0.13 per share for stock-based compensation resulting from the increase in the company stock price with the announcement of News Corp. proposed acquisition.

Certain of our stock-based compensation is payable in cash, based on underlying value of our common stock. Accordingly, GAAP requires that we adjust the liability for these future payments to reflect the market value of the stock at quarter end. We also recorded $10 million or $0.07 per share for employee severance related to restructuring activity, primarily our Consumer Media segment which was largely related to reorganizing certain staff responsibilities in advertising and the news department under their new leadership. There are also smaller reductions at our other segments as well. This restructuring will impact the total of about 100 positions and result in annual savings of about $13 million when fully implemented.

Moving on to our segment results; at Consumer Media Group, second quarter revenue was down tenth of a percent as a 2% decline in advertising revenue was almost entirely offset by a 3% increase in circulation and other revenues.

The 2% ad revenue decline was driven by a 6.8% decrease at the domestic Wall Street Journal, which continues to operate in a challenging advertising environment. Partially offsetting this decline was a very strong 41% increase in international advertising revenue, led by strong growth at the Wall Street Journal Asia, plus the acquisition of eFinancial News.

Baron's also contributed nicely with a 26% increase in advertising revenue, and we saw a 3% ad revenue increase at the Wall Street Journal Digital Network.

Circulation and other revenue contributed as well, including 3% for the quarter on gains at both the print and online editions of the Journal. Expenses at CMG declined more than 2%, due primarily to lower news print delivery and depreciation costs and partially offset by increased marketing costs.

This revenue on expense performance combined to deliver 31% increase in operating income for the quarter, an impressive accomplishment in the face of the 6.8% ad revenue decline at the Journal.

Operating margin also improved significantly, up 210 basis points to 8.8%.

Looking more closely at ad revenue performance at the domestic print Journal, the 6.8% ad revenue decline we mentioned, came on in an 11% decline in volumes and a roughly 5% increased in yields. The increase in yield was mainly due to improvements in colored ad penetration and price premium. We're obviously disappointed with the overall weakness we're experiencing, and we're only modestly comforted by the fact that we were up against 12% comp last year and that we posted very strong performance in many of our consumer categories.

Consumer volume was up a strong 15% if we exclude the depressed auto category. With this strong growth led by travel, luxury and healthcare subcategory.

Within other ad categories, all of our major categories, technology, financials, general and classified saw volume declines in the second quarter. Technology and auto advertising were hit especially hard declining 42% and 47% respectively during the quarter. Technology advertising was week across the board, while auto continue to experience weakness from both domestic and foreign advertisers.

Financial advertising declined 9% mainly due to weak insurance and wholesale advertising, although retail saw a modest increase. The classified volume was down 4% on weak residential real-estate result, which more than offsets the gains that we saw in recruitments, commercial real-estate and other classified advertising.

With regard to circulations, we continue to grow the most valuable measures of print circulation, bucking industry trends. Our individually paid circulation numbers, the best measure of truly paid circulation as accounts only those subs paying at least 25% of basic price, continue to grow. In the March ABC period, our individually paid circulation was up 3%.

This performance was driven by a revitalization of our circulation efforts, leveraging new professional marketing leadership, talents, tools and techniques and more aggressive marketing and promotional activity.

One important example is our $99 bundled offer of print and online subscription to new subscribers. This offer is driving significant increases in print online usage, while at the same time yielding higher circulation revenue and lower circulation expenses. Our circulation profitability is up sharply as a result.

Moving to our online operations. Total revenue at the Wall Street Journal Digital Network grew 5%, primarily due to a 13% increase in online circulation revenue, as we continue to experience healthy levels of online circulation growth at the Online Journal.

Paid subs to the Online Journal were up almost 24% to 983,000 driven in part by the aforementioned $99 bundle. As a reminder, we noted last quarter that we changed that methodology for accounting online paid subscribers to the Online Journal. We now include both online-only subscribers and print-online bundled subscribers, who had paid and registered at the Online Journal.

For reference, paid subscribers to the Online Journal were still up a strong 11% using our previous methodology. We also posted strong subscriber growth Barron's Online. BOL subs grew 43% in the second quarter up to 97,000 paid subscribers.

Online advertising revenue at the Wall Street Journal Digital Network increased 3% in the second quarter a slow down from the double-digit growth levels we've experienced in the past. This is almost exclusively attributable to significant decline in technology advertising, which represents about 22% of our online advertising base. We believe this is more an anomaly than a trend. In fact, we already see examples of accounts that were part of the decline in the second quarter, having scheduled ads for the third quarter. And while not all have yet rescheduled ads, we see enough to continue to expect that our online tech advertising to recover in the third and fourth quarter.

Offsetting this tech softness were double-digit gains in financial, business services, consumer, retail, and travel categories. For the first half of the year, online advertising revenue was up 15% and we continue to expect double-digit ad revenue growth for the remainder of the year.

The repositioning of the journal editions in Europe and Asia continue to generate better than expected top line and bottom line results. Total international media revenue was up 39% driven by 41% gain in advertising revenue due to the strong growth at the Wall Street Journal Asia and to our recent acquisition of eFN, which was completed in mid May.

Circulation and other revenue increased 35% internationally, primarily due to the acquisition of eFN, plus the modest growth at international editions of the Journal.

Let me offer a little more detail on the eFN acquisition. As Rich mentioned, we expect the acquisition of eFN will profitably enhance our overall European strategy, and add high growth businesses to help diversify our reliance on traditional print revenue.

In 2006, eFN posted revenue growth of 31% and EBITDA growth of 90%. For 2007, we are forecasting revenue growth of 21% and EBITDA growth of 26%, with strong growth in subsequent years as well. And again, we expect eFN to be neutral to EPS in 2007 and to contribute $0.03 to $0.05 of accretion in 2008.

Within our Enterprise Media Group, we continue to see positive revenue and profit momentum. Total revenue increased 81% and operating income increased 57%. This was driven by the acquisition of Factiva as well as strong increase at the Dow Jones Indexes and Dow Jones Financial Information Services.

On an adjusted basis assuming we owned Factiva in the second quarter last year, total EMG revenue was up 7%, operating income improved a strong 44% and operating margin improved 600 basis points to 23.2%. We also tightly managed the expenses, which were down 1% on an adjusted basis.

Within EMG, Content Technology Solutions revenue increased a 104%. That was up more than 3% on an adjusted basis and was driven by growth in subscription revenue of Factiva and Newswire, plus new product initiatives.

Our Indexes business had a very strong quarter as part of the Indexes and other business segment. Indexes posted revenue growth of nearly 42%, driven mainly by strong increases in assets under management and trading volumes. We also saw a 10% revenue gain at our Financial Information Services business, a good grow in publication and data base revenue.

We continue to make significant progress on the integration of Factiva and continue to benefit from the expense synergies that we previously described.

We have implemented nearly all of the actions needed to realize those savings, and they continue to play out better than planned, further to our plan to reinvest some of the exits in client facing activities. For example, we are investing additional funds in sales training and in sales and marketing efforts to accelerate the realization of revenue synergies. But we are also taking some of them to the bottom line as evidenced by our previously communicated forecast for Factiva to be accretive to EPS in 2007, at least $0.11 per share. Factiva was $0.03 per share accretive in the second quarter.

Our Local Media Group's second quarter performance continues to reflect industry wide challenges. Revenue was down 6% as ad revenue declined 8% while circulation and other revenue was flat for the quarter. Ad linage remained weak, especially in the northeast where we generate about 70% of our revenue. Total ad volume declined 13% and was only partially offset by strong legal advertising and 55% increase in our internet ad revenue from the internet initiatives that we embarked upon last year.

Operating expenses declined over 2% as we continue to aggressively manage expenses in response to the environment, through actions such as shutting down non-daily products that do not produce acceptable returns, and outsourcing certain activities. Unfortunately, the revenue decline more than offsets this expense management, resulting in an operating income decline of about $3 million, or 20%, to $12 million and a margin decline of 320 basis points to 18.9%. And while it is a good news that this business still generates an attractive margin relative to our overall portfolio, we remain focused on returning to the higher profit and margin levels that we have experienced in the past.

Now let me spend just a minute on some other key figures. Our total news print cost were down about 28% for the quarter as reduce web width of the reformatted Journal continue to deliver the expected saves in usage.

In addition other usage reductions at LMG and CMG plus 9% decline in price added to the overall newsprint sale. Our average cost per ton declined about $40 to $45 during the quarter, as suppliers lowered prices each month in an attempt to hold market share and to keep newsprint production equipment operating at capacity.

Looking forward, we expect an additional modest price decline in the third quarter before stabilizing in the later part to year.

Equity earnings which were now reported on a net of tax basis increased about $400,000 in the quarter. Gains at SmartMoney, STOXX and Vedomosti more than made-up for the elimination of earnings from Factiva which are now consolidated under our operating results, and for the sale of Economia. Our interest expense decreased almost $3 million in the second quarter, due to the $116 million reduction in outstanding debt during the quarter.

Debt stood at $392 million at the end of the quarter, down from $508 million at the end of first quarter. And it was primarily driven by proceeds received from the exercise of employee stock options due to the significant increase in Dow Jones share price during the quarter.

Capital expenditures totaled about $18 million in the quarter, compared to $19 million last year. And finally, we end the second quarter 2007 with cash-on-hand of $28 million. In conclusion, we continue to be pleased with our progress in the first half of 2007. Despite a weak print advertising environment, evidence of our transformation of Dow Jones shines through in the improved results of CMG, a realigned and stronger EMG, and our tight expense management overall. All of which continue to propel our earnings for the full year 2007.

With that I will turn it over to Mark and Diego, and we'll open up for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. (Operators Instructions) The first question comes from John Janedis with Wachovia. Please state your question.

John Janedis - Wachovia Securities

Hi, good morning, guys. Is it fair to say that most of the new print subscribers are coming to you as part of the bundled offer, and is there plan over time to migrate them to online-only or do you expect them to continue to pay for both after the promotion rolls off?

Rich Zannino

I will kick it up, John and Gordon will fill in. The print online bundle is part of a two-fold strategy. The first part of the strategy is consistent with our transformation, and our overall strategy, which is to encourage consumers and customers to use us cross all channels of distribution. So by putting together the $99 bundled offer, we enticed many, many more subscribers to come into the journal franchise and use us in print and online.

And once we have them using us in print and online, we can then market to them the benefit of using both together. And when we do that long term we are successful because we are able to monetize those customers in both channels of distribution. Those subs are replacing non-revenue generating subs. So as a result of this, we are increasing our overall circulation revenue. We are also increasing our circulation revenue per subscriber. And because of the attractiveness of the offer, we are able to acquire these subs at a very, very low cost. And so our cost per order is going down.

When we put all that together, it's having very, very nice effects on our circulation profitability. So it's working the touch part of the strategy which is to encourage people to use this in both channel and is doing it in a very economically advantages way. And of course the plan going forward is the renewal to step these subscribers up to pay more than $99 per year and have them to continue accessing both.

Gordon, do you want to add anything to that?

Gordon Crovitz

Just a couple of other data points to help you understand the strategy of it, which outlined in the March ABC statement. If you get us the detail, you will see that we increased our individually paid subscribers by over 3% after a third straight (inaudible) growth, 5% increase in September period. And by the way since the relaunch of the Journal in January, a 4.5% increase in that category. That's very important to us because we are able to reduce the other paid category, a lot of which is low revenue or no revenue copies that other paid was down 12%.

Compare that to our competitors with national newspapers, both of which have declined into this weekend and showed significant increases in that other paid. So our CPO, the acquisition cost for the print journal is down 12% this quarter, down 26% for the first half of the year. And it's part of our segment strategy of having an attractive offer for new subscribers, taking them through the renewal cycle, getting them to the higher prices and up to the higher prices they were now charging or subscribers who have the renewed at certain number of time. As you may have noticed on Monday, we increased price of our newsstand copies of the Journal $2.50, a 50% increase. Another example of the strong pricing power which the journal has which I think set us quite apart in the market.

John Janedis - Wachovia Securities

Thanks. And I just have one follow-up. Rich, on the Saturday Journal, it seems to be a little bit lighter than it has over the past few months. And I am wondering if that's tracking according to the plan here, or is the dilution a bit more than you would have expected?

Rich Zannino

Now, the dilution is a bit more than we would have expected it. It's tracking a bit behind plan. But again, I would point out that our consumer advertising overall is going gangbusters. And when you think about retains, you have to think about in the context of what is done for our Monday to Friday consumer advertising as well. So net overall, we're pleased with the way it's helping us drive incremental consumer advertising and build out consumer franchises there. But we're working hard on increasing the heft of and the numbers of ads in the weekend edition.

John Janedis - Wachovia Securities

All right, thank you very much.

Operator

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

Sylvia Jasaroska - Bear Stearns

Hi. Actually this is Sylvia Jasaroska calling in for Alexia. Just a couple of questions if I could. For the Wall Street Journal digital slowdown is there anything else going on besides the technology slowdown. Can you maybe talk about some online ad pricing trends?

Gordon Crovitz

Let me explain. I think we would say the second quarter, so that there is some volatility in the growth of online advertising. April for us grew with single digits, May we had double digits, June we actually experienced a decline in the high single digits. But to put that performance in some perspective with over $20 million in advertising revenue in Q2 that's our second highest quarter ever for online ad revenue. And the low percentage growth really is an anomaly we have averaged about 18% per quarter from Q1 2005 to Q1 2007 and we expect 2007 to finish in that range.

So to give a little bit more detail on what happened during the quarter as Rich and Bill mentioned the driver really was the softness in technology and communications category. Those categories contributed about 20% of the business that were down significantly about a third year-on-year. And to give you just a sense of what can happen when a few accounts move whether for timing purposes or otherwise, essentially the whole of the decrease in that category came from three advertisers; Cisco, Apple and IBM. And in some cases it was very simply shifting from one quarter to the next quarter.

There were some high points in the quarter that you are happy to call out finance, business services did very, very well. I think what we are seeing were July and for the third quarter some bookings are quite strong and would expect to return to that more normal level double digit growth in Q3 and as I say we finished the year last year in the 20% range in terms of a revenue increase. We obviously got a higher base from which we are growing. We expect then 2007 roughly in line with that same percentage increase that we grew in 2006.

Sylvia Jasaroska - Bear Stearns

Okay, and so there is no business chance to speak up on the ad pricing [periods]?

Bill Plummer

No, I think we continue to have market leading pricing in terms of our EPM advertising we have actually increased yields significantly on display advertising. I think really for the year is one very focused on new technology and communications advertisers and that's largely timing issues we have on our internal more on a give and take.

Sylvia Jasaroska - Bear Stearns

Sir if I can just ask one more can you maybe speak about the July transfer of the journal first?

Gordon Crovitz

Sure. So --

Rich Zannino

Well, Sylvia you are probably counting pages so you can tell that they are not great right now. But, we think July will be soft, August the trend will improve and too early to call September but based on the level of RSPs and other business activities that we are seeing we're actually feeling pretty good about September.

Gordon Crovitz

And may be just a little bit of color on Q3 as Rich said we are forecasting could ad sales also to be flat. But keep in mind the back half of the year we are up against much easier comparables than in the first half. Q3 2006 was up 23%, Q4 2006 up 5.1%, Q1 2006 was up about 18% and in Q2 up 12%. So we are facing only easy lower comps and we are forecasting growth in the consumer ex-auto category inline with the very large increase we saw in this quarter. We are seeing a good turnaround in the general business category, we are actually seeing a good turnaround in auto, which is and top of it part of this year. Even one of the better quarters that we all have seen again for auto and finances kind of flat up. But the issue is we are going to see continued weakness in technology and classifieds at all wins when revolved into a flat performance.

Rich Zannino

And I'll just pile on to what Gordon is saying. I think you saw in the second quarter that even with a roughly 7% decline in advertising revenue with the U.S. print journal who is still able to post a 31% increase in CMG, Consumer Media Group profitability or profits and a 15% EPS growth, 15% increase in EPS year-over-year in the second quarter. So all of the retooling of our portfolio that we have done over the last year and a half to two years, the heavy focus on expense control and cost reduction, very nice and very profitable growth at our online businesses and very nice and very profitable growth at our Enterprise Media Group businesses. When you put that all altogether we are able to put up very strong revenue and earnings increases even with a choppy advertising market for the U.S. print journal. So I understand the question certainly about the U.S. print journal. It is a big driver of our performance, but it's not the driver today and going forward that it's been in the past and with all of the other initiatives across the portfolio paying dividends, the way they are paying dividends, we feel good about our ability to continue posting very solid growth numbers even if the U.S. print ad market for the journal and its peers remained choppy and challenging.

Sylvia Jasaroska - Bear Stearns

Great thank you

Rich Zannino

Thank you

Operator

Our next question comes from Paul Ginocchio with Deutsche Bank. Please state your question.

Paul Ginocchio - Deutsche Bank

Thank you. I know as you mentioned about the additional $55 million in cost savings, but you didn’t talk about your existing full year or some of your guidance. Is the additional cost savings allow you just meet your guidance or is better than half of the sort of to offset maybe weaker than expected revenue guidance?

Rich Zannino

Now we are definitely seeing ad revenue to be weaker than expected. So the aim here will be to put as much opportunity in our plan as possible by way of expense reduction to offset whatever ad revenue shortfall there might be and that those cost reductions together with above planned performance at EMG and at other parts of our business we have not changed our guidance for the year is the best way to put it.

Paul Ginocchio - Deutsche Bank

Great thanks very much

Operator

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

Peter Appert -Goldman Sachs

Hi thank you, just as a follow on to that to what Paul was asking about. Rich is the implication then I guess in the context of the incremental $55 million you talked about is the rate of cost declines potentially that accelerates in the second half, is that fair?

Rich Zannino

Well, call it $15 million to $20 million of that $55 million will be realized this year and in the balance of this year. So, we did have a somewhat of a build on our expenses over the course of the year, so I am not sure you'll see an acceleration in the rate of decline.

Peter Appert -Goldman Sachs

Okay.

Rich Zannino

Or probably a stabilization in the rate of decline now.

Peter Appert -Goldman Sachs

Okay, enough, and then Rich may be for you or for Gordon. How much is something like if you are able to share with us some thoughts on your assessment of what's happening in the technology advertising marketplace broadly. We've seen weakness in the trend for a while in this category now the most recent periods softer in the online. Do you have any series in terms of what's happening and whether or not perhaps if you just should be assuming that the tax category is going to a be decline in category as a percent of revenue for the foreseeable future?

Gordon Crovitz

I think, print tech has been pretty volatile for us in print. We've been up and down depending on the quarter. Remember we include (inaudible) It was exacerbated for us a bit in the quarter, we lost our category leader, the person who is running our tech advertising category moved back to London basically. So we lost that person. So it’s a little tougher for us and maybe it also has been as a result of loss of that talent. And then as Gordon addressed some of what’s going on online, I think the other bit of what you might have seeing as far as online display advertising with tech [hoard] is a bit more of a shift and more performance based online advertising in the tech category. So no [pilferage], regeneration, things like that where we were seeing more and more cap dollars.

So, now having said that Gordon felt that for the online for the balance of the year, for technology is much more positive than the second quarter. And we did get hit in the second quarter by a number of things they had booked and didn’t run and that was really different between a pretty good cap in the quarter and a [lousy] online in the quarter.

Peter Appert -Goldman Sachs

And then in the print side Rich like the online side, is it that just a couple of advertisers that were really moving the needle for you?

Rich Zannino

In our last third quarter particularly there were several large launches in the technology category that won’t be as they were in the second. It’s not all bleak, we got a number of technology advertisers and these campaigns which were extending into the third quarter and beyond, retailers like Dell, which had the display rights, as well as things like in the last couple of years, [CGW], hardware companies like Intel and HP, software companies like [S&P].

So we don’t want to paint too bleak of a picture, because I think that we are seeing and try to expand in printer technology, advertising, moving increasingly the Dow online, our online despite the hiccup this quarter. It’s got a very large share of that technology in advertising.

And a big part of our rationale for integrating all of our advertising groups under a Chief Revenue Officer is to leverage all of our assets, printers, online and our whole 19 million audiences. So that advertisers, prudent technology advertisers look at more value across our channel and across our brands. So we should be optimistic that we will be able to maintain market share in terms of our core field group in print and continue to increase our technology spend online as the more normal base print still continues.

But Peter on your observation is a good one that there are some large tech advertisers that make the difference between being up in the quarter and being down in the quarter in technology advertising, you know what, what IBM, Dell, the cell phones companies do really has a big impact on our tech.

Peter Appert - Goldman Sachs

All right.

Rich Zannino

So they buy the account and depending on what they do can push us into positive or negative territory in the quarter.

Peter Appert - Goldman Sachs

Right okay and Rich, one last thing, I know this is a very sensitive topic, but I am obliged to ask. Is it possible for you to give an assessment of how you think the [Bancorp] family is thinking about the offers at this point?

Rich Zannino

Now they are carefully considering it and this far as I will go.

Peter Appert - Goldman Sachs

Okay, very well. Thank you.

Operator

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

Lisa Monaco - Morgan Stanley

Good morning. A couple of questions, I was wondering if you could comment on what do you think is kind of the normalized EBIDTA margin that the Consumer Media Group is now given that that your taking another round of cost saves and same question on the Enterprise Media side.

Bill Plummer

Are you talking about this year Lisa or are your talking of a target or…?

Lisa Monaco - Morgan Stanley

The target longer-term.

Bill Plummer

I think on CMG EBITDA margin were closer to the mid-teens, in the mid-teen, I just gave coordinates from it planned target. Because then we've put in there, in the low teens, were in the low double digit from an operating income basis and we’ll have to push it to mid teens on an EBITDA basis. And that’s fully loaded with corporate overheads with the CMG share of our total corporate overheads and in the case of the EMG business you are looking at mid-20 EBITDA margin.

Lisa Monaco - Morgan Stanley

And that’s your goal?

Bill Plummer

Well, I think at EMG we will be approaching that range at CMG. We are still working it.

Lisa Monaco - Morgan Stanley

Okay, great. Thank you.

Operator

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

Craig Huber - Lehman Brothers

Yes, good morning, Rich could you just touch on your non-newsprint cash cost. You saw in media it was a percent change was there. And out of the four can you just elaborate a little further on this new 55 million of cost saves which you announced, when exactly would that become ounce in some buckets, please? Thanks.

Rich Zannino

Bill takes the second part of the question which is the 55 million, in terms of there were some of the big items thereon and then we'll come back to the first half of your question.

Bill Plummer

The 55 million, I mentioned structuring charge in the value reflected, we see that and we see about that $30 million run rate when it is all done. That’s the result of this current restructuring. There was also restructuring that we announced back in the fourth quarter that would play out the remainder of this year and in the next. That’s going to contribute another $10 million of run rate saves when we apply it. And on top of that we got corporate expense project that I mentioned, that’s probably another, roughly ten as part of that $55 and then a host of other initiatives primarily with the CMG that touch on circulation marketing, touch on production and delivery initiatives that totals up to something like another 12 million or so as the key component and just in that across the corporation to add to the remainder of the 55.

Rich Zannino

For CMG the total was just down by less than percent excluding just to call out one item which is I think very important to focus on, that is circulation marketing expenses are down very significantly in part due to our ability to sell it online, together they had a significant impact in this quarter as to-date and will continue to be a contributor to us in terms of getting to that 50s operating margin targets in the shortest possible way.

Craig Huber - Lehman Brothers

Okay. I'll just come back to that for a minute for Lisa's question. I probably underestimated the EMG number, look like the EMG would be little in the mid 20s in term of EBITDA margin this year. And so we would expect to get some improvement in that over the next couple of the year, so to move up from there. And CMG actually would be in the low double-digit range this year for its EBITDA margin. So the mid teens is a very worth goal and achievable goal for CMG over the next couple of year.

Rich Zannino

And Craig just to make sure [that's work properly], we are up less than 1% in terms of the total expense and down less than 1%.

Craig Huber - Lehman Brothers

And I would just like to as Dow Jones, Newswires you obviously lost a major account earlier this year. Can you just elaborate, was that a product wind up call it may be 2%, 3% in the second quarter?

Clare Hart

Can you elaborate a little bit more on major account? This is Clare.

Craig Huber - Lehman Brothers

Give me you lose a major account late last year, early year for Dow Jones, Newswires just impacting the revenues this year?

Clare Hart

It was, yes, in the distribution agreement that we had remits the [Hillary Bridge] Reuter transaction.

Rich Zannino

So, we are offsetting that with international growth in the algorithmic trading product which is going very, very well in Newswires.

Craig Huber - Lehman Brothers

So the Newswires is up modest in the Street.

Clare Hart

Yes. Low single than as we budged Craig.

Craig Huber - Lehman Brothers

Great, thanks a lot.

Clare Hart

Okay

Rich Zannino

Okay. I think Diego that seems like it wraps it up.

Operator

There are no further questions at this time, sir.

Rich Zannino

Okay. Well, thank you all very much.

Operator

Thank you. This concludes today's conferences. All parties, you may disconnect now.

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