Welcome to today’s Univision Third Quarter Earnings call. Today’s call is being recorded.
Some of the information discussed today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties, including those relating to Univision’s future success and growth. Actual results may differ materially due to risks and uncertainties described in Univision’s filings with the Securities and Exchange Commission. Univision assumes no obligation to update forward-looking information discussed on today’s call.
On today’s call we have Ray Rodriguez, President and Chief Operating Officer; Andy Hobson, Chief Financial Officer and Chief Strategic Officer; and Diana Vesga, Vice President.
I will now turn the call over to Ray Rodriguez. Please go ahead.
Thank you, operator. Good afternoon, everyone, and thank you for joining us today. We’re pleased that our third quarter performance exceeded our expectations. More importantly, we see improving results in the fourth quarter and have great momentum into 2006 with a strong Upfront and record revenues for the World Cup. We ended our Upfront with impressive growth in the mid 20s percent range over the previous year, and as Andy will tell you in a few minutes, we expect to start feeling the positive impact of our strong season in fourth quarter of this year.
In the third quarter, our television and radio businesses turned in improving financial and operational performances, and continued to prove to the marketplace the unmatched reach of our properties to U.S. Hispanics. In a quarter that included the start of the fall season, the Univision Network grew its audiences more than ABC, CBS, NBC or FOX to reach record highs, and our radio group saw growth in key markets as well as at our new Reggaeton-formatted stations.
Earlier today we announced that Univision has obtained the exclusive Spanish-language broadcast rights to the 2010 and 2014 FIFA World Cup tournaments, in addition to 26 other popular FIFA soccer events through 2014, for $325 million. As you know, the World Cup tournaments bring tremendous ratings and revenues to our Company. In fact, our sales of the 2006 World Cup have already reached $180 million, and we still have inventory left to sell.
The sport of soccer is experiencing tremendous growth and popularity in the United States, and we’re thrilled to be part of it. Thirty-five million people watched our World Cup broadcast in 2002, despite the fact that because the games were live from Korea, most of the broadcasts were in the middle of the night. In 2006, we’re expecting more than 50 million fans to tune in. We have been the exclusive U.S. Spanish-language broadcaster of the World Cup since 1978 and we’re pleased to be able to continue our exclusive coverage into the next decade.
Before I provide you with additional third quarter highlights from each of our businesses, I’d like to briefly discuss the actions we are implementing to enhance our financial performance going forward.
As most of you know, our Company has gone through a period of very significant growth in recent years. Since 2000 we have added significant depth and breadth to our brand, growing Univision Communications into the multifaceted media company it is today. Just five years ago Univision Communications owned one broadcast television network, one cable network, and 19 television stations. Today, we own two broadcast television networks, one cable network, 62 television stations, a radio company with 71 radio stations, an AM radio network, a music business with three record labels, a music publishing division, and an Internet destination, all of which are leaders in their segments.
In the wake of this tremendous growth, we see many ways to benefit from increasing synergies among our businesses and enhancing efficiencies, while at the same time driving sales and marketing efforts. To realize cost synergies, we are increasing efficiencies in our administrative and production functions and we’ll reduce our current headcount by approximately 5.9%, while at the same time reinforcing our sales and marketing structure and ensuring no negative effect on our ratings and production quality.
We view this headcount reduction as a difficult but necessary step in the continued growth and development of our Company. By refocusing resources to our sales team, we are confident that we will further improve our financial performance, continue to grow our businesses and reduce our overall cost structure, thereby providing a solid foundation for financial performance. Andy will provide additional detail on the financial impact of these actions as well as our financial results for the third quarter shortly. In the meantime, I will now give you a brief overview of the third quarter performances of each of our divisions.
The Univision Network maintained its impressive trajectory in audience growth in the third quarter, attracting record primetime audience levels and ranking as the #2 network in the country in primetime among all Adults 18-34 years old, Hispanic or non-Hispanic.
Here are the details: while we have been out-delivering at least one of the traditional ‘Big 4 for several quarters now, securing the #2 spot was a terrific first for us. Said another way, for the entire quarter among all 18-34 year-old viewers in the U.S. – not just Hispanics – FOX was #1, Univision was #2, CBS was #3, ABC was #4, and NBC was #5. Who would have ever believed that the #2 network in the U.S. would be a Spanish-language TV network? It says a great deal about the strength and size of this very important demographic group. Now, of course, we have our sights set on #1, and we’re making progress. Out of the 91 nights of the third quarter, we ranked as the #1 network in the country on 25 nights in primetime. In total, we beat at least one of the Big 4 on 71 out of 91 nights, or 3 out of every 4 nights.
Now, switching to Adults 18-49, we turned in another quarter of unmatched audience growth. In fact, in the third quarter, Univision was the fastest growing network in the country. We increased viewership by 19% compared to the same quarter last year, while the Big 4 English-language networks’ average audience decreased 17%.
Locally, during the July Sweeps, Univision was the #1 station in primetime and had the #1 ranked local newscast, out-delivering the local ABC, NBC, CBS and FOX affiliates among all Adults 18-34 in 10 out of the 19 major markets in which we own and operate stations.
As for our second broadcast network, TeleFutura continued to beat Telemundo and maintain its rank as the #2 Spanish-language broadcast network in the third quarter, behind only Univision, in early morning, weekday daytime and weekend daytime among Hispanic Adults 18-49 and 18-34. While TeleFutura experienced audience declines consistent with those of Telemundo in total day in the third quarter, the bigger picture looks very good. In the recently ended 2004-2005 season, TeleFutura either maintained or grew its total day audiences, while Telemundo’s audiences decreased, compared to the previous season. TeleFutura’s total day audience was up 3% among Hispanic Adults 18-34 and remained constant among Hispanic Adults 18-49. Telemundo was down 13% among 18-34 year-olds and 16% among 18-49 year-olds.
Looking at the new ’05-’06 season and the fourth quarter, TeleFutura is showing some promising progress in primetime with our new, first-of-its-kind, live weeknight primetime news and information program, “En Vivo y Directo.” After only 2 weeks on the air, our Adults 18-49 audience has increased 46%, compared to the previous 4 weeks, and we are confident that as the only primetime news program of its kind on Spanish-language television, “En Vivo y Directo” will continue to grow and bring momentum to TeleFutura’s lineup. Turning now to Galavision – our cable network had a truly phenomenal quarter. In primetime, our 18-49 Hispanic audience grew 53% compared to the third quarter last year, once again making Galavision the #1 cable network in primetime with more Hispanic viewers than all other 34 Spanish-language cable networks, in addition to all English-language cable networks.
Now moving on to our radio business. Univision Radio maintained its momentum into the third quarter, growing ratings across the country in Arbitron’s Summer 2005 book. Out of the 17 markets in which we operate, Univision Radio has the #1 Spanish- language station in 11 markets. In Los Angeles, Univision Radio increased its Adult 25-54 audience share by 9.5% in the Summer book, compared to last year. We continue to hold the #1 spot among all Spanish-language stations, and the #2 and #4 positions among all radio stations in Los Angeles. Our recently converted La Kalle Reggaeton-formatted stations performed extremely well during the quarter in their target Adult 18-34 demo, increasing audience share by 84% in New York, 141% in Chicago, and 46% in Las Vegas, compared to the Summer 2004 book. We’re excited about the results of La Kalle and expect continued long-term growth in our other markets.
Our Music Group, the Latin music leader, also had a very good quarter, with albums by artists under our three record labels – Univision Records, Fonovisa and Disa – accounting for an average of 20 of the Top 50 Latin albums sold, according to Nielsen Soundscan. We’re looking forward to tomorrow night’s Latin Grammy Awards, where UMG artists have 12 nominations.
As for our Online division, Univision.com increased page impressions by 45% and unique visits by 34% in the third quarter, compared to the same quarter last year. Also, during the third quarter Univision.com announced that it has acquired the exclusive Spanish-language Internet and mobile telephony video rights for the 2006 FIFA World Cup.
Let me now turn the call over to Andy Hobson for our financial overview – Andy.
Thank you, Ray. Univision delivered third quarter net revenue growth of 4% to $497.5 million, exceeding our guidance. Operating income before depreciation and amortization increased by 7% to $180.5 million, also exceeding our guidance. Net income increased 8% to $79.2 million and diluted earnings per share increased to $0.23, exceeding our guidance of $0.21 to $0.22 per share. Television net revenues grew 5% in the third quarter and operating income before depreciation and amortization increased 4%. Our Television Network business grew revenues by 5%, and our TV Station business grew revenues by 5%. Univision Radio generated strong net revenue growth of 8%, while the radio industry grew by 1% in the third quarter as reported by the Radio Advertising Bureau.
Univision Radio delivered strong operating leverage by growing operating income before depreciation and amortization by 19 %. Our Music business revenue decreased by 7% and operating income before depreciation and amortization for the quarter decreased by 1% versus last year.
During the third quarter, Univision Online continued to be profitable, increasing revenues by 43% and delivering operating income before depreciation and amortization of $0.1 million. Income tax expense for the quarter was $54.1 million, of which $12.9 million represented deferred tax expense. Cash taxes were $41.2 million. Capital expenditures for the quarter totaled $26.3 million, of which $3.9 million was related to facilities expansion and upgrades, $14.1 million was related to construction projects, and the remaining $8.3 million represented normal maintenance expenditures. For the year, we are lowering our capex guidance to approximately $105 million.
At September 30, 2005, outstanding indebtedness, including capitalized leases, totaled $1.46 billion. Excluding $29.1 million of cash from our VIE, our cash position totaled $56.7 million.
Univision is taking actions to drive improvements in financial performance. We are focusing resources on our sales and marketing efforts while increasing our efficiencies in our administrative and production functions. As a result, in the fourth quarter we will be reducing our headcount by approximately 5.9%, primarily in our television business, and will record a pre-tax charge of approximately $25 million. As a result of these actions, we are reducing Univision’s overall cost structure without negatively affecting our sales and ratings, and we expect to achieve annual savings in excess of $50 million.
In compliance with regulation FD of the Securities and Exchange Commission, we provide guidance on our conference call such as this one. The fourth quarter guidance excludes the charge related to the cost reduction plan.
We estimate that consolidated net revenues for the fourth quarter will grow in the high single digit percentages, and operating income before depreciation and amortization will grow in a range from low double digit to low teen percentages. EPS is expected to range from $0.23 to $0.24 per share, compared to $0.19 in last year’s fourth quarter. Our guidance reflects the improved trends of our business due to the success of our recently closed Upfront and our continued ratings growth. These factors, coupled with our cost reduction initiatives, will drive an improved financial performance into 2006 and beyond.
As you know, in February we announced a plan to repurchase up to $500 million of our outstanding Class A Common Stock during 2005. The share repurchase plan ended on October 24th as we completed repurchasing 19,096,600 shares at an aggregate price of $500 million. During the three months ended September 30th, we repurchased 6,686,400 shares at an aggregate price of $176.5 million.
Today we announced that our Board of Directors has approved another share repurchase plan of $500 million, which will expire on December 31, 2006. The Board of Directors’ authorization to repurchase shares reflects the confidence in our future and our prospects for continued growth, and the belief that, at current market prices, our shares represent an attractive investment for the Company. Our strong balance sheet position combined with the expected future cash flows allow us to continue to repurchase our common stock while pursuing acquisition opportunities, and maintain credit ratios deserving of BBB or Baa2 credit ratings.
With that, we’d be happy to take any questions. Operator, will you please instruct the callers how to ask questions?
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