Journal Communications Q2 2007 Earnings Call Transcript

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Journal Communications, Inc. (JRN)
Q2 2007 Earnings Call
July 23, 2007 11:00 am ET

Executives

Sara Wilkins - Director of Investor Relations
Steve Smith - Chairman of the Board, Chief Executive Officer
Paul Bonaiuto - Chief Financial Officer, Executive Vice President
Betsy Brenner - Executive Vice President, Chief Operating Officer of Publishing
Douglas Kiel - President

Analysts

Mark Bacurin - Robert W. Baird
Lisa Monaco - Morgan Stanley
Peter Salkowski - Goldman Sachs
Craig Huber - Lehman Brothers
John Kornreich - Sandler Capital

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the 2007 second quarter Journal Communications earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today's conference, Ms. Sara Wilkins, Vice President of Investor Relations and Corporate Communications. Please proceed, ma'am.

Sara Wilkins

Thank you and welcome, everyone. Before we begin, I would like to introduce the Journal Communications senior management team who will participate in this morning's call. Speaking this morning are Steven Smith, Chairman of the Board and Chief Executive Officer, and Paul Bonaiuto, Executive Vice President and Chief Financial Officer. Also with us today are Doug Kiel, President of Journal Communications and CEO of Journal Broadcast Group; and Betsy Brenner, Executive Vice President of Journal Communications and Chief Operating Officer of our publishing businesses.

I would like to remind you that certain statements in this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally include all statements other than statements of historical fact, including statements regarding our future financial position, business strategy, budgets, projected revenues and expenses, expected regulatory actions and plans and objectives of management for future operations.

These statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by those forward-looking statements.

Some such risks include decreases in advertising spending; loss of market share; inability to acquire or successfully manage broadcast properties and acquisitions; failure to retain adequate viewers and listeners; increases in the cost of television programming; broadcast limitations and/or sanctions imposed by the FCC; loss of key personnel; and other uncertainties and other factors which are contained in our periodic filings under the Securities Exchange Act of 1934.

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

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

Steve Smith

Thank you, Sara and good morning, everyone. This morning Journal Communications reported net earnings of $14.2 million for the quarter ended July 1, 2007 which included a gain of $1.4 million related to the sale of our Ohio community publishing and printing operations. Earnings from continuing operations were $12.7 million. Basic and diluted earnings per share from continuing operations were $0.19 for both, compared to $0.18 and $0.17, respectively. Revenue from continuing operations for the second quarter of $147.5 million decreased about 4% compared to $154 million. Note that unless otherwise indicated, all comparisons are to the second quarter ended June 25, 2006.

Allow me to reiterate a few things we said in this morning's press release for those of you who may not have had a chance to see it. We recorded declines in retail advertising and employment and real estate classified advertising in publishing, and posted softer than expected auto advertising across our broadcast markets.

We continue to manage costs carefully in all of our businesses while also investing for growth. We were encouraged by the Milwaukee Journal Sentinel's continued increase in interactive revenue, which was up almost 47% to $3.4 million in the quarter. In the Broadcast Group, interactive revenue also continues its positive growth trajectory, reaching almost $700,000 in the second quarter.

In television, we were pleased with our May sweep results at a number of our stations, especially the gains in news at KGUN-TV in Tucson and KFTX-TV in Fort Myers.

In the radio group, although revenues were essentially flat and operating earnings were down, we did see double-digit increases in both revenue and operating earnings at our Knoxville, Boise and Springfield clusters.

Additionally, the decision to divest our New England, Ohio and Louisiana publishing and printing businesses will allow us to concentrate on growing our community newspaper and shopper business in our Wisconsin and Florida markets.

Journal Broadcast Group had a disappointing quarter as television revenues came in softer than we had anticipated and radio advertising slowed somewhat compared to the first quarter of 2007. Radio revenue on a same-station basis was up about 1.5%. The declines were broad-based across our television markets, with automobile revenues especially weak. In fact, auto advertising was down in every one of our television markets except for Green Bay, where it was flat. We were also hard-hit in our Fort Myers, Florida, television market due to worsening economic conditions there.

Additionally, second quarter 2007 revenues were hurt by the net decline of about $1.2 million from television political issue advertising, while in radio, political and issue advertising revenues for the second quarter 2007 were just slightly below last year's second quarter. Developmental revenue at both our radio and television stations were a bright spot, however, up about 16% in radio and 14% in television for Q2 '07.

Also, broadcast new media revenue grew significantly, as I just mentioned. This reflects our emphasis on improving our new media products, driving traffic to these products, incorporating online selling to our current advertisers and leveraging our new platforms to reach new customers who traditionally have not advertised in broadcast.

In our continuing emphasis on improving our local news programming, the Broadcast Group successfully moved KGUN-TV to its On Your Side position, and we signed a very popular local TV anchor in Las Vegas who will join KTNV on air next year. Also, our new FOX 4, with its In Your Corner position, continues to improve its ratings performance, finishing number one 25-to-54 adults, in the late news.

In publishing, we continue to face persistent weakness in both retail and classified ROP advertising, with real estate remaining particularly challenged. After two years of steep declines, total automobile advertising in the quarter was up more than 6.5%, including gains in both total retail ROP and online.

The Milwaukee Journal Sentinel has won a number of new key accounts to help blunt its ad losses and has seen increased spending from some of our long-time advertisers. The paper continues to focus on programs to boost sales in print and online. Online revenue growth at the daily newspaper continues to be strong, up 47% in the second quarter of '07, following last quarter's gain of 47%, for a total of $6.4 million in the first half of 2007. Online growth in our classified verticals continues to be healthy in the face of declining print classified advertising, as Paul will detail shortly.

In mid-June the Journal Sentinel signed an agreement with Monster, the leading global online careers and recruitment resource and flagship brand of Monster Worldwide, to offer combined online and print recruitment services via the Milwaukee Journal Sentinel. This strategic alliance enables both companies to increase consumer and employer market share and will offer a powerful combination of recruitment and classified advertising. Central to this alliance will be our soon-to-be-launched co-branded recruitment website, which will combine the local audience strength of the Milwaukee Journal Sentinel and JSOnline with Monster's deep product portfolio and brand.

Journal Sentinel's commercial printing and commercial delivery revenues remain vibrant, up 28% and 12%, respectively, for the second quarter. We continue to benefit from the five-year contract signed last October to print the national edition of USA Today for distribution in northern Illinois and eastern Wisconsin. Journal Sentinel remains committed to keeping a tight rein on direct costs and has benefited from ongoing reduction in news print expenses.

At our community newspapers and shopper division, revenue declined 19% and operating earnings were $1.8 million compared to $2.8 million. Excluding various one-time items included in both these numbers, which Paul will discuss shortly, the bulk of the revenue in earnings decline reflects the product changes that we have made to our Milwaukee-area publications. Certain revenue previously reported within the community newspapers and shopper division is now reported under the daily newspaper, and we changed our Milwaukee-area community newspapers to a free distribution model.

We continue to be pleased with the impressive growth in page views at our CommunityNOW websites, which launched in late 2006 and early 2007.As we saw in the first quarter, real estate advertising remained soft across all our community newspaper markets, especially in our Florida locations, and auto advertising is weak. At IPC in the first half of the year, the sales team sold more than 60 new accounts, which are expected to deliver almost $7 million in revenue throughout 2007. We continue to be pleased with IPC's operating earnings performance, which reached $1 million for the third consecutive quarter.

I would like to take a moment to note we recently added a new board member at Journal Communications. Owen Sullivan is CEO of Jefferson Wells, a manpower company delivering professional services in the areas of internal audit, technology risk management, finance and accounting. Also, since 2005, Owen has served as Chief Executive Officer of Right Management, the leading global provider of integrated consulting solutions across the employment life cycle. Going forward, Owen's broad range of experience and expertise in finance, corporate development, strategic planning and marketing will help us sharpen our strategic growth plans.

Now I would like to ask Paul to begin his in-depth financial review.

Paul Bonaiuto

Thank you, Steve. For the second quarter 2007, revenue from continuing operations of $147.5 million decreased 4.3% compared to $154 million last year. Net earnings were $14.2 million compared to $15.2 million in 2006. This included a gain net of tax from discontinued operations of $1.4 million, comprised of a gain on the sale of our Ohio printing and publishing operations of $1.3 million and the impact of second quarter 2007 operating results of $100,000. This compares to a gain of $2.7 million from discontinued operations recorded in the second quarter of 2006.

Earnings from continuing operations were $12.7 million compared to $12.5 million in 2006, an increase of 1.5%. Basic and diluted earnings per share from continuing operations were $0.19 for both, compared to $0.18 and $0.17, respectively. Basic and diluted earnings per share from discontinued operations were $0.03 and $0.02, respectively, compared to $0.04 for both. Basic and diluted net earnings per share were $0.22 and $0.21, respectively, for both the second quarters 2007 and 2006.

Note that in the second quarter 2007, the company's diluted earnings per share from continuing operations were impacted favorably by $0.01 from the gain on the sale of our Hartland, Wisconsin, printing facility and that diluted earnings per share from discontinued operations were impacted favorably by $0.02 from the gain on the sale of our Ohio community publishing and printing operations. Please note that the gain associated with the sales of the Louisiana and New England operations will be recorded in the quarter in which each transaction is closed.

In the second quarter 2006 a number of unusual items, including a litigation settlement, litigation expenses, a pension plan curtailment gain and insurance proceeds, had a pre-tax negative impact of $3 million or $0.02 on diluted earnings per share from continuing operations. Adjusting for those items, second quarter 2007 would have reflected the following: revenue from continuing operations down 7.3%; a decrease of 11.2% in earnings from continuing operations; and net earnings down 17%.

Other expense, which almost entirely consists of interest expense, decreased by nearly half, to $2 million. The decrease is attributable to the application of proceeds from the sale of Norlight to outstanding debt.

In the second quarter 2007, our effective tax rate on continuing operations was 38.8% compared to last year's second quarter tax rate of 40.1%.

Within publishing, revenue from continuing operations decreased about 0.5% to $67.6 million compared to $67.9 million. At the daily newspaper, total revenue of $56.7 million was up 3.9%. In part, this reflected the second quarter 2006 revenue reduction of $5.1 million from the litigation settlement, partially offset by continued weakness in retail and classified ROP. Excluding the litigation-related revenue reductions, total publishing revenue would have been down 7.4% and revenue at the daily newspaper would have decreased 4.9%.

At the daily newspaper, retail advertising revenue of $22.7 million was up 22.7%. Once again, absent the litigation-related revenue reduction in 2006, retail advertising revenue would have fallen by 3.6%, reflecting decreases in ROP, preprints and solo mail, partially offset by increases in the automotive, online and TMC products.

Within ROP, the most meaningful declines were seen in the health services and building, hardware, lawn and garden categories. On a bright note, automobile retail ROP was up 43.1%, and retail online revenues increased by 67.3% to $1.2 million.

Although classified advertising at the daily newspaper of $15.6 million decreased 7.2% for the second quarter, the fall-off was softened by an increase in online classified revenue of 37.3% to $2.1 million. Looking specifically at the print classified verticals, employment was down 7.7%; auto classified was down 2.7%; real estate was down 14.8%, reflecting softness in both home sales and rentals; and the other classified vertical increased 4.9% year over year.

On a combined retail and classified basis, auto advertising was up by approximately $267,000 or 6.6% compared to last year. Note that for the first time in over two years, we recorded increased revenues from combined retail and classified auto advertising. Our national advertising revenue category decreased 28.8% to $1.9 million for the quarter, reflecting weakness in a number of categories in ROP as well as a decline in national preprints.

The direct marketing category at the daily newspaper was down 26.9%, largely due to lost business from Bon-Ton's consolidation of all Boston Store mail programs into a larger corporate-wide program. Although interactive advertising is reflected in the various revenue categories, total online revenue was up almost $1.1 million to $3.4 million for an increase of 46.9%.

Looking now specifically at the online classified advertising verticals, employment increased by 37.7%, auto was up by 55.5%, and real estate rentals increased by 70.1%.

Moving beyond interactive, circulation revenue of $12.8 million for the second quarter was essentially flat. Other revenue at the daily newspaper of $2.6 million was up 12.5% year over year for the quarter, principally reflecting gains in commercial printing due to USA Today, as well as commercial delivery.

Operating earnings from publishing increased 40.3% to $10.2 million compared to $7.2 million last year. The increase in the 2007 quarter included a gain on the sale of the Hartland facility and compares favorably to the second quarter 2006, when publishing operating earnings were negatively impacted by an aggregate $3.6 million from adjustments mentioned previously. Adjusting for these, second quarter 2007 publishing operating earnings would have decreased 6.1%.

At the daily newspaper, operating earnings totaled $8.4 million, up 87.2% compared to $4.5 million last year. Absent the litigation-related items and a pension curtailment gain of almost $760,000 in the second quarter 2006, operating earnings at the daily newspaper would have decreased 18.4% for this year's quarter. The decrease in 2007 operating earnings is largely due to the decline in revenues, partially offset by a reduction in newsprint expense. Second quarter 2007 newsprint costs were down by $1.7 million. This decrease in costs reflected a 10.1% decline in pricing and a 14.3% reduction in consumption.

Turning to our community newspapers and shoppers, revenue from continuing operations of $10.9 million was down 18.7% compared to last year. This reflects declines in all revenue categories except other, which is comprised of commercial printing. Weak automotive advertising affected both the retail and classified categories. In addition, declining real estate advertising affected the classified category, especially in Florida.

Circulation revenue at the community newspapers and shoppers of $243,000 decreased 56.8%, largely reflecting the change to a free distribution model of the community newspapers in the Milwaukee area. The increase in other revenue reflects additional commercial printing sales to outside customers. The division reported operating earnings of $1.8 million, which included a gain of about $850,000 on the sale of the Hartland facility, compared to $2.8 million in the second quarter 2006. Note that in the second quarter 2006, we had one-time benefits of $1.1 million from insurance proceeds and $400,000 in pension curtailment gains. Absent the unusual items that affected both quarters, we experienced a decline in operating earnings of $400,000.

At broadcasting, second quarter revenue decreased 4.1% to $56 million. Political and issue advertising totaled $518,000 in the second quarter of 2007 and $1.7 million in last year's second quarter. Interactive revenue grew to almost $700,000 from only about $113,000 last year. Operating earnings were down 30.1% to $11.3 million, largely reflecting the revenue reduction as well as increased expenses and a $460,000 pension plan curtailment gain in the second quarter of 2006.

Revenue at our television stations for the second quarter of 2007 decreased $2.3 million or 6.4% to $34 million. This in part reflects the reduction of $1.2 million in political and issue advertising, as well as a broad-based decline in national revenue across our television markets, especially in Fort Myers, which experienced significant softness due to the very weak Florida economy. Of note, television developmental revenue was up 14% for the quarter.

Operating earnings from television stations decreased 35.4% to $6 million compared to $9.4 million, in part reflecting the revenue decline, as well as increases in programming costs, payroll associated with additional newscasts, and the impact from last year's favorable adjustment for the pension curtailment gain.

Moving on to radio, for the second quarter of 2007, radio revenue of $22 million was down $106,000 or 0.5%. On a same-station basis, excluding revenue generated by KBBX-FM which was sold in September 2006, and KOMJ-AM which was sold earlier this year, radio revenue increased 1.6%. Political and issue advertising revenue in radio was flat year over year for the quarter, while developmental revenue increased 16%.

Radio operating earnings of $5.3 million decreased 22.7%. On a same-station basis, radio operating earnings decreased 19.8%. The decrease in radio operating earnings was due largely to the favorable adjustment for the pension curtailment gain last year, as well as higher related payroll costs and sales programming costs.

Now turning to printing services, revenues in the second quarter of 2007 decreased 1% to $16.5 million. While IPC is still experiencing the expected declines in revenues from computer-related customers, it recorded $1.9 million in new print business. For the second quarter of 2007, operating earnings from printing services almost doubled to $1 million compared to $530,000 last year, due in part to a more profitable customer mix, improved efficiencies and reductions in waste.

For the second quarter 2007, other revenue of $7.4 million decreased 33%, reflecting softness in the mailing services part of our direct marketing business. Other operating earnings were $200,000 compared to $800,000 last year, primarily due to the adjustment of an incentive compensation accrual in the second quarter of 2006.

Our balance sheet remains sound. At the end of the quarter, debt was at $118.4 million compared to $235 million at year end 2006. This reduction in debt reflects the application of proceeds from the sale of Norlight.

During the second quarter 2007, the company repurchased 533,600 of its Class A shares. Through July 1, 2007, the company had repurchased a total of 8,949,100 Class A shares. We remain committed to our share repurchase program and have authority to repurchase an additional 6.1 million shares through late 2008.

For the third quarter 2007, Journal Communications currently anticipates that its publishing revenues will be down compared to prior year, reflecting continued advertising revenue challenges. We expect radio revenue to be down slightly, overcoming $400,000 of political and issue advertising generated in the third quarter of 2006 and the sale of the two previously mentioned radio stations. We also expect television revenue to be down due to challenging comparables, which include $3.8 million in political and issue advertising generated in the third quarter 2006.

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

Steve Smith

Thank you, Paul. Although we face a challenging second quarter, we are committed to maximizing our opportunities in the second half of 2007. At the core of our corporate strategy is our local market focus and our commitment to growing local audiences in all the markets we serve. This means we will continue to concentrate on the relevance of our traditional media businesses, looking for opportunities to get deeper in our local markets and creating targeted local new media products which leverage our brand-building capabilities. We also remains focused on cost control throughout our businesses.

Driving performance in a challenging environment is a priority in our publishing division. We intend to do it through the business integration of our daily, weeklies and non-traditional revenue sources; diversifying revenues across multiple products; deepening product offerings in our Wisconsin and Florida community markets; using our exceptional journalism and high-utility brands to differentiate our products; selecting the best online partnerships for our particular markets, such as the Monster deal; and pursuing rigorous cost controls and continued efficiencies.

Lifestyle segmentation is offering opportunities in publishing. In southeast Wisconsin, we provide a full suite of print and online products, special publications and unique events to reach audiences with a broad range of interests with money to spend. Digital media lets us pursue new non-traditional revenue streams, including designing and selling custom sites for high-profile events, mobile and wireless applications, and the launch of new blogging and social networking tools.

We remain committed to consistent and rigorous management of expenses. We have nearly completed consolidating our circulation distribution centers and carrier routes and reduced our web width to 48 inches to save newsprint costs. We also consolidated our Wisconsin commercial printing with the shutdown of our Hartland facility. Our two-press scenario at the Burnham production facility has paved the way for our significant USA Today commercial contract, and we expect continued commercial print revenue growth at our recently expanded Waupaca, Wisconsin, print and press facility. Additionally, we have tightened our newspapers to make a more efficient use of space.

As we noted earlier, we made the strategic decision to sell our New England, Ohio and Louisiana publishing and printing businesses to focus on deepening our media offerings in our Wisconsin and Florida markets and we will continue to grow our presence in these markets with solid tuck-in acquisitions that can benefit from our strong sales and management teams.

In broadcasting, we continue to pursue priorities including growth in developmental and interactive revenues, ratings growth in local news programming, and focused cost control. Going forward, we expect another quarter of tough television comparables as we face the loss of $3.8 million in political and issue advertising generated during the 2006 third quarter. We expect to mitigate that, however, with continued growth in developmental and interactive revenue, enhanced local programming such as The Morning Blend, and revenue contributions from newscasts added within this last year in several markets.

As I mentioned last quarter, we will be replicating the format of this successful new local television lifestyle show in the Fort Myers/Naples market later this summer and anticipate developing these locally programmed shows elsewhere in our group to add substantial incremental local revenue.

We look forward to the completion of the new state-of-the-art digital television facility in Las Vegas, which is expected to help the station's growing business transition to a fully digital infrastructure and better support the expansion of its local news organization.

To reiterate, the new digital equipment we are installing in all of our television stations will enable us to create efficiencies in news-gathering and production and to speed up the process of moving stories and pictures to the interactive products. Additionally, our ongoing advances into digital technology provide us with the opportunity for additional revenue streams.

We believe there are opportunities to capture significant television revenues in the next several years, beginning with retransmission fees. Although we do have agreements with satellite and some telecom providers, cable providers are currently not paying us retransmission fees. While it is impossible to know at this point the extent of future retransmission payments or how they will be determined, most of our cable contracts expire late in 2008 and currently, there are about 2.6 million cable subscribers in our markets.

In terms of the potential for strong political revenue in our markets, early primaries and caucuses are scheduled to be held in Nevada, Florida and California. In the 2008 elections, political swing states are expected to include Wisconsin, Nevada, Florida, Michigan, Missouri, and 2008 Senate races will be held in Nebraska, Michigan, Idaho, Kansas, Tennessee and Oklahoma.

On the radio side, we see continued growth in developmental revenue. While we have made significant operating improvements in both revenue and margin growth in radio over the past few years, we believe there are still growth opportunities on a station-by-station basis throughout the radio group. We continue to pursue online radio initiatives such as podcasting, on-demand programming, text alerts, blogs and more. We still believe that our multiple revenue streams should enable us to slightly increase our radio revenue through 2007 as we seek to replace $1.4 million in revenue due to the sale of KBBX and KOMJ.

We are also focused on selling our current online products across the Broadcast Group both through pure Internet advertising or as convergent sales; that is, packaged along with on-air buys. We are driving online revenue growth through a focused pursuit of initiatives to target specific advertising verticals such as healthcare and home improvement categories. In most of these cases, these are advertisers to the broadcast space who are using our online platforms as their introduction to broadcast audiences.

At IPC, we remain optimistic about continued growth in our core printing business as well as in enhanced margin performance.

Our view for the remainder of 2007 is unchanged. We remain focused on driving results in our core media businesses through a combination of expanded additional revenue platforms and online initiatives, with further efficiencies and cost controls. Our balance sheet is solid, with low debt and strong cash flow, which provides financial flexibility to make further investments in our businesses, evaluate potential acquisitions, fund our share repurchase program and continue our dividend policy. As always, our top priority for Journal Communications is delivering meaningful value to our shareholder.

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

Question-and-Answer Session

Operator

Your first question comes from Mark Bacurin - Robert W. Baird.

Mark Bacurin - Robert W. Baird

Good morning everyone. First on the broadcasting side, it looks like obviously your revenues were a little softer there. I am more curious, you talked about the revenue, but on the expense side, on the one hand you're talking about tight expense control, but yet expenses year over year were up. I know you're investing in some news platforms, but can you give us a little more color on some of the year-over-year increase there?

Doug Kiel

I will talk about in radio first, where we had a significant issue in this quarter and then television and then give you some color on the remainder of the year. In radio, we had several buckets of expense; unusual, some one-time, that hit us again here in the second quarter. The costs related to sales platforms, as you know, we are aggressively pushing interactive and developmental programs.

In the second quarter, that was just under $300,000. We had an increase in employee benefits and costs associated with savings in '06 because of a change in pension plan assumptions. That was almost $400,000. Now, we had a few people that were shifted from one place to another that caused us a transfer expense increase of about $100,000 and we had some open positions.

So that happened to us in the quarter. It is not something that we take lying down. As you know, we have really been careful about radio expenses over the years, over several years, and that is something we are dedicated to. As we go towards the back half of this year in radio, for the second half we do have some adjustments, some that are favorable to us like the extra week in the fourth quarter of last year, and we also took the gain on the sale of KBBX as a reduction expense in the last half of the year.

So when you look at that, our cost control project we have in place in radio, which is wide-ranging, in the second half of the year after those adjustments will take us to being nearly flat in expense second half of this year compared to '06.

Television, it was a smaller group of issues, but again, the increase in benefits associated with that pension plan assumption last year was about $300,000 there. We also had -- and Paul and Steve mentioned it -- an increase in syndicated expense. It wasn't that we were going out and signing high-priced syndication, which we aren't doing and won't do, but this really significantly was affected by a writedown we could do last year with the new stations we bought because of the cost of syndicated programming they had where we thought the real value of that was. So that helped us last year.

Going forward in television, clearly we're very cautious there. We did have some expense related, of course, to the additional newscasts that we have talked about that sets us up well going forward. But television, closer under control and we will continue to have similar expense increase in the third quarter.

Fourth quarter there, though, after the adjustment for the extra week, will have a more significant impact on expenses in the fourth quarter, where they will be down in the low single digits. So overall for our broadcast group in the second half of the year, we expect expenses to be, if they are up at all, it will be in the very low single-digits, 1% or so.

Mark Bacurin - Robert W. Baird

Just a clarification, does that include the one-week adjustment or not including?

Doug Kiel

Yes, it does include it.

Mark Bacurin - Robert W. Baird

Switching over to the publishing side, Betsy, you had indicated, I think, last quarter that you were cautiously optimistic that we were bouncing along the bottom, that you saw some trends that maybe gave you comfort that we might start to climb out of this trough toward the back half of the year. How are you feeling now? Does what we saw in this quarter change your sentiment on that at all?

Betsy Brenner

Slightly, Mark. There are some positive signs. As you recall, we mentioned at mid year media we are looking at our automotive advertising trend, and that overall is positive relative to where we had been earlier this year and all of last year. The rest of classified is kind of bumpy. We saw some serial improvement in employment, but real estate is still disappointing. So hard to read into that where we're going for the back end of the year.

I think our retail trend we expect to continue, not get any worse, but maintain the low-single-digit decline from last year. We will cycle in the direct marketing category the loss we took in Boston, which will benefit us for the back end of this year. So all in all, I would say we see some small marginal improvement for the back half, nothing dramatic.

Mark Bacurin - Robert W. Baird

Paul, just on the summary balance sheet you gave here in the press release, I wanted to make sure I understood what was in the cash number at this point from these planned divestitures, if anything, and then what your expectation is for the net cash proceeds that we will see out of those?

Paul Bonaiuto

We haven't really talked about the net proceeds on cash that we would expect from the other sales. But I think if you look at the sale of Ohio, which is the only one we have recorded thus far, I would expect that the cash impact on that would be somewhere on the order of magnitude of about $8 million.

Mark Bacurin - Robert W. Baird

$8 million after tax is for all?

Paul Bonaiuto

That is just Ohio.

Mark Bacurin - Robert W. Baird

That's just Ohio, okay. And you're saying that one is reflected in the current cash balance?

Paul Bonaiuto

Yes, it is.

Mark Bacurin - Robert W. Baird

Great. Actually, Betsy, I should have asked you this one, sorry. On the Google relationship, can you just comment on what maybe you have seen thus far? Are you seeing price points coming out of that channel that are acceptable? Any way to quantify?

Betsy Brenner

Mark, as you know, we participated in the initial beta test with Google and that ran through early May of this year. We saw some slight pickup in advertising activity at prices that were very attractive. Right now, we have fallen out of the beta test and we are reevaluating when and how to go back in, if we want to go back in, with Google later this year.

Mark Bacurin - Robert W. Baird

Is there any way to quantify what you saw in Q2 related to that?

Betsy Brenner

It wouldn't be meaningful enough to quantify, honestly.

Mark Bacurin - Robert W. Baird

Thank you very much.

Operator

Your next question comes from Lisa Monaco - Morgan Stanley.

Lisa Monaco - Morgan Stanley

Two questions. Paul, if you could give us non-newsprint cash cost percent change, excluding some of those items for the publishing segment, and then how we should think about that going forward? If you could just give us a little bit of color on the contract between the auto performance in newspapers versus broadcasting?

Paul Bonaiuto

Sure. I will take the first part of that, and then I think there are others who will step in on the auto side. With respect to non-paper cash costs, if we look at it on an adjusted basis, and here is what we are adjusting for: we are adjusting for Shorewest last year. We are also adjusting for the insurance proceeds to Journal Community Publishing Group that we received for Louisiana last year; so those are the two adjustments in '06.

In '07, all we are really adjusting for is the gain on the sale from our Hartland production facility. So if you look at those adjustments, in publishing we saw a decline in non-paper cash costs for all of publishing of 3.25%.

Steve Smith

Betsy, do you want to take the automobile question for publishing, and then Doug can follow up for broadcasting?

Betsy Brenner

As I mentioned, we did see a gain in all of our total automotive advertising, about 6.6% for the second quarter. That really represents increases in our retail ROP business; about 43%, or $400,000 and a decline in classified. Now in retail ROP, those increases were largely due to two customers, both new customers in our newspaper. One of them is CarMax, which came into the market earlier this year and the other one is the Toyota Dealers Association, which is advertising a new truck line.

So overall for the quarter, we did see gains in automotive, as Paul mentioned. It has been quite a while since we have seen that. Those gains are coming in ROP and they're largely coming from two major customers. Our local dealers in the market, who represent 84% of all our automotive business, were for the most part flat. Our larger dealers were up slightly; a lot of the mid-tier and smaller dealers were down. But since they're such a dominant part of our business, that's really who we look to.

Now, those two accounts I mentioned would be included in that list but overall, local dealers really drive our business. National, regional and our dealer associations only make up about 15% of the total.

Doug Kiel

I wish I had as bright a report on automotive for the Broadcast Group as Betsy has just given. Automotive was really a key issue for us in this quarter. Television automotive was down 16%. But to quantify that, that is $1.5 million in the quarter. Much of that, of course national, but some of that was local as well. National we have a harder time controlling it. So that happened to us. But on the radio side, auto was up about 5%. So on the radio side that continues to be fairly stable.

Betsy Brenner

I just wanted to add, one area where we are seeing a real bright spot in automotive even over the overall gains is online. Our automotive business was up over 55% online in the second quarter. Year to date, we are trending at over 57%. So while we see those shifts in our classified and ROP pages, we continue to see a very bright story on the online side.

Paul Bonaiuto

That is an important element of why we reported that overall, retail and classified auto was up a few moments ago in our prepared comments, Lisa.

Lisa Monaco - Morgan Stanley

Paul, just following up, in terms of your expectation for non-newsprint cash cost performance going forward, how should we think about that for the back half?

Paul Bonaiuto

I think that Betsy has talked in the past about a number of cost reduction initiatives that we have underway, starting with the cut down from 50 to 48 inch for newsprint. We won't cycle through that until really second quarter of next year, because we started this year.

Secondly, there is the continued consolidation of our distribution centers. Betsy, I know, has a couple of other items that she frequently speaks to.

Betsy Brenner

Sure, Paul, let me just jump in. We are continuing to ride hard on headcount and payroll management and we will continue that with some additional emphasis in the back end of this year. Circulation, as Paul mentioned, distribution centers are consolidating. Our fee for delivery conversion, the conversion in the way we pay our carriers, will yield over $1 million this year and we are wrapping that up. We are about two-thirds completed at this point in time.

We have sent some of our TMC distribution down to our neighboring newspaper, the Racine Journal Times. They are putting it in their paper and we are saving $120,000 annualized. The consolidation of our printing in Wisconsin from three plants down to two has continued to help us save on labor. As Paul mentioned, converting from three presses to two in Burnham has also helped us save wages as well.

Lisa Monaco - Morgan Stanley

Is it a safe assumption to assume the same type of cost performance going forward?

Paul Bonaiuto

I think if you look at us over the past couple of years, Lisa, what you would see is that our non-paper cash costs have shown a low single-digit decline fairly consistently. So I don't think it would be necessarily unfair to think of the back half of this year too much differently than the front half, or our past couple of years.

Operator

Your next question comes from Peter Salkowski - Goldman Sachs.

Peter Salkowski - Goldman Sachs

Good morning, everybody. First of all, Steve, on the broadcast television side, there has been a lot of assets that have been out there, available. I haven't heard anything from Journal Communications with that. Does that signal a change in your acquisition strategy on the broadcast side, or just simply not interested in current properties?

Steve Smith

No, it doesn't signal a change and doesn't also signal that we're not interested in current properties. We are continuing to evaluate opportunities where we do see strategic logic for the company. We do want to grow the business. We are currently focused on looking at television, and also radio, community and specialty publications, as we have discussed, and also new media-related businesses. So we are interested in evaluating opportunities that are out there, and we want to grow this business.

Peter Salkowski - Goldman Sachs

Doug, on the broadcast side, if you could just talk a little bit about the local advertising, how that performed in the quarter on a same-store basis, and then also a little bit of information on Vegas; how that market did for you.

Doug Kiel

Let's talk first about the local revenue in the quarter, specifically for television. Our issue, we are basically flat or down a little bit in the quarter on the local revenue side of the television business and our shortfall in the quarter was national, where we were down almost 17%. That is a very high number. So our strategy, really, of controlling what we can control, which is drive developmental, which was up and it continued to add news inventory, which will help us later this year and next year we think still gives us strong potential for the future, both near term and long term.

In terms of our Las Vegas market, our issue there, too, our local revenue was okay. Our national revenue was down. The market is softer. The outlook in that market, however, as you go towards remainder of this year, as Steve mentioned in his early comments, was we're all waiting with bated breath over political, since they've moved their primary up earlier. That is a market, along with some others, where we are getting early requests for avails. So far, the money has been sparse, as we reported. But if there's political that comes in, we think that will be towards the end of this third quarter.

Paul Bonaiuto

Peter, just to put an exclamation point on that, Las Vegas in the second quarter was down low single-digits in revenue.

Peter Salkowski - Goldman Sachs

Thank you. Doug, on the political, any sense of two things: how many dollars you think you might get in the second half of the year from political advertising, and do you think that is just going to flow from being expensed in 2008, or do you think it's just going to be a trade?

Doug Kiel

I'm sorry, I didn't understand the last part of your question.

Peter Salkowski - Goldman Sachs

Do you expect the revenue to come out of 2008 and be spent in 2007?

Doug Kiel

That is hard to really tell. I don't know exactly what the numbers are going to be for us in the last quarter and the last half of this year. We wish we could give you a good number on there. We wish we had a number, because actually, it would make us feel really good, because I think it is going to be a pretty good number. We don't have any idea at this point. But the avails are coming in; that is significant.

As far as moving up from '08 to '07, although we don't know, I don't expect that to be true. The money raised is very high. Our ongoing conversations with the folks, particularly on the national side who are experts on this, talk about the continuing ballooning of the revenue that is being collected by political candidates and the fact that it is going to be a long race. Even if the primaries take place earlier, it is then going to be a long-time national campaign. So we expect that to be good for us in '08. We are excited about it.

As Steve mentioned earlier, we have many other races besides presidential that we have in many of our marketplaces; Senate races and others, but also, both Houses of Congress will be clearly up for contention next year.

Peter Salkowski - Goldman Sachs

Finally, Paul, on the CapEx, can you tell me what CapEx was in the quarter and also expectations for '07? And if you have a sense for '08, that would be great.

Paul Bonaiuto

Year to date through the first half, we had a little over $17 million in capital spending. Our view for the balance of this year hasn't changed. I think we have been very consistent in suggesting that we will spend $45 million to $50 million this year.

With respect to next year, I think the way we have couched it, Peter, and we still feel pretty much the same, is that our maintenance CapEx is about $25 million to $30 million. We are expecting to expend more than that in '08 as a consequence of some of the continuing investments in digital, especially for broadcast, as we equip television to go that next phase beyond simply transmission in digital. So what we have said is that will add a good $10 million for not only '08, but likely '09.

Operator

Your next question comes from Craig Huber - Lehman Brothers.

Craig Huber - Lehman Brothers

Can you just give us some sense of your TV pacings for the next three months, how those look?

Doug Kiel

Once again, hard to get a real read on them. We are coming out of the Fourth of July holiday. We've continued to have late bookings and some ins and outs with cancellations. This time of the year, we're up against a big political number from last year, over $4.2 million, radio and TV together. So our pacing is harder to really gauge. Although it looks like it is shaping up very similarly to quarter 2 for both television and radio, the wild card will be that political towards the end of the quarter.

We do have some things going for us that we think are positives. We have multiple developmental projects in the field, which has, as you know, been helpful to us, and that helps drive some demand in our inventory and reduce supply, at least. Our interactive projects are in the field and they look to be pretty robust and will be helpful again as they have been in the last quarter. We are positioned well, we think, in our marketplaces in many of them in terms of our ratings, which sets us up pretty well. So all those things lead us to still have some really positive view going into these last two quarters of the year.

Craig Huber - Lehman Brothers

Earlier in the conversation you mentioned Fort Myers, the local economy there was tough. I was wondering how your TV stations were performing there in light of that?

Doug Kiel

Clearly, the economy in that part of Florida is soft. That is related, as everybody has been talking about, I think even national press, to the housing downturn in that marketplace. Our revenue performance there is being significantly impacted on the national side and on the local side and we are down in the double digits in revenue, about 17%, from last year.

Craig Huber - Lehman Brothers

If you would just switch over to the newspaper side, can you just give us a little more color on your retail store numbers, down I guess high single-digits, mid to high single-digits on an adjusted basis. Is that continuing here in the month of July? Just give us some more color on why these significant falloffs?

Betsy Brenner

To put it in perspective, as Paul mentioned, our retail advertising revenue total would have been down 3.6% year over year once you factor out the legal settlement last year. Really, over the quarter we looked at two major categories which represented a disproportionate amount of that decline. The first and largest was building supply, hardware stores. I think as Doug mentioned, it's a reflection of the housing slowdown and the real estate slowdown in our market, pretty much evenly divided across the category. So our Home Depots, our Lowe's, our Steins, all of them spending less than they did last year. That was the largest category we saw declines from.

Second would have been health care. I think last year we had some unique one-time campaigns by some of our larger hospital and health care groups. Other than that, just smaller declines across the categories, across all retail categories, no dominant players making a disproportionate effect.

Steve Smith

I would be remiss if I didn't take you back to Fort Meyers for just a second. Doug is not going to toot his own horn on this, but we talked about the fact that we have made some significant moves in news. They're doing an exceptional job down there, that team, in terms of the news. We are excited about the ability to start new local programming there with The Morning Blend, and I know they are fired up about that. So even though Doug described those short-term difficulties, we still feel very good about being in southwestern Florida.

Craig Huber - Lehman Brothers

I appreciate that. How is July shaping up here for your newspapers? Is it similar trends to June? I mean, we're roughly two-thirds of the way through.

Betsy Brenner

It is very, very similar. Some categories are ticking up somewhat. We are encouraged by what we're seeing, again, from automotive; not coming back, but certainly improving on the trend from the first half of the year. So I think July is going to be a reflection of a lot of what we saw in June, maybe a slight improvement.

Operator

Your final question comes from John Kornreich - Sandler Capital.

John Kornreich - Sandler Capital

I have a question on the stock repurchase numbers. The 9 million shares repurchased is over what period of time?

Paul Bonaiuto

Since February of 2005.

John Kornreich - Sandler Capital

There's 6 million to go?

Paul Bonaiuto

Yes.
John Kornreich - Sandler Capital

How many shares have been purchased just over the last 12 months?

Paul Bonaiuto

I don't have that number at my fingertips, but it is a fairly significant number. As you may recall, we announced that we repurchased over 2 million shares just in the first quarter of this year.

John Kornreich - Sandler Capital

Is there any expiration on the 6 million shares to go?

Paul Bonaiuto

Yes, there is. If you look at the authorization that was given in April of 2006, that had an 18-month cycle. If you look at the authorization in May of 2007, that also had an 18-month cycle.

John Kornreich - Sandler Capital

Thank you.

Operator

There are no further questions at this time. I would like to turn the call over to Sara Wilkins for closing comments.

Sara Wilkins

Once again, thank you all for joining us on this morning's conference call. We appreciate your interest in Journal Communications. As a reminder, a replay of the call will be available today through July 25. Please refer to this morning's press release for the dial-in information for the replay of the call. Also, an archive of the webcast will be available today through August 6 at www.journalcommunications.com/investors. Thank you again.

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