Journal Communications Q4 2007 Earnings Call Transcript

Feb.13.08 | About: Journal Communications, (JRN)

Journal Communications (NYSE:JRN)

Q4 2007 Earnings Call

February 13, 2008 11:00 am ET

Executives

Sara Wilkins - Vice President of Investor Relations and Corporate Communications

Steven J. Smith - Chairman and Chief Executive Officer

Paul M. Bonaiuto - Executive Vice President and Chief Financial Officer

Douglas Kiel - President of Journal Communications and CEO of Journal Broadcast Group

Betsy Brenner - Executive Vice President of Journal Communications and Chief Operating Officer, Publishing

Analysts

Mark Bacurin - Robert Baird & Company

Craig Huber - Lehman Brothers

Peter Salkowski - Goldman Sachs

Operator

Welcome to the fourth quarter 2007 Journal Communications, Incorporated earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ms Sara Wilkins, Vice President of Investor Relations and Corporate Communications. Please proceed.

Sara Wilkins

Thank you, Eric 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.

Steven J. Smith

Thank you, Sara and good morning, everyone. This morning Journal Communications reported net earnings of $9.5 million for the quarter ended December 30, 2007. Earnings from continuing operations were $10.2 million. Basic and diluted earnings per share from continuing operations were $0.17 and $0.16 respectively and basic and diluted net earnings per share were $0.15 for both. Included in these results are a number of unusual items which had a negative net impact of $0.03 per fully diluted share and Paul will discuss these items in more detail.

In the fourth quarter, revenue from continuing operations of $147.6 million decreased almost 16%. For the full year ended December 30, net earnings were $110.1 million and earnings from continuing operations were $43 million. Basic and diluted earnings per share from continuing operations for the full year 2007 were $0.66 and $0.65 respectively and basic and diluted net earnings per share were $1.74 and $1.65 respectively. A number of unusual items were included in these results as well, which Paul will address.

Allow me to reiterate a few things I said in this morning’s press release for those of you who may have not yet had the opportunity to see it. We did face a number of challenges in 2007. We saw the adverse effects of the off cycle year for political and issue advertising and reduced spending by the domestic auto industry. A broad downturn in real estate advertising and the shift of certain ad spending to the Internet negatively affected our operating results as well. Within this difficult environment we concentrated on expense control and efficiency throughout our operations while pursuing digital and new media initiatives.

We also continued our strategic focus on local markets by divesting non-core assets including the sale of Norlight Telecommunications and selected Journal community publishing clusters.

At Journal Broadcast Group, developmental revenue continued to grow, increasing 17% for the year. Local spot revenue in television was up 3% excluding the 2006 extra week, political and issue advertising revenue and the addition of KPSE-TV in our Palm Springs market.

Journal Sentinel focused on tight cost controls underscored by a 6% reduction in the workforce late in 2007 and a decrease in annual expenses. Additionally, Journal Interactive revenue grew 41% during the year to $13.4 million and commercial print revenue was up 53% to $6 million. Across all of our businesses, Interactive revenues remain strong, up 61% in 2007.

Also IPC, our printing services business, had a particularly successful year, posting solid growth in operating earnings. Two weeks ago, Journal Broadcast Group completed the purchase of KPSE-TV Channel 50 in Palm Springs. Channel 50 is the MyNetwork affiliated television station serving the Palm Springs market carried on cable channel 13. The purchase price was $4.7 million. We had been operating KPSE under an LMA since early October 2007. Journal Broadcast Group also owns KMIR TV, the NBC affiliate in Palm Springs and we are pleased to now own a television duopoly in this important California market.

We are also pleased to report that our new state-of-the-art digital television facility at KTNV-TV in Las Vegas was completed in December 2007. KTNV-TV is our first all high definition station and we saw good demographic performance in the November Nielsen ratings in the key 25 to 54 adult demographic in a number of our late local news programs. Milwaukee, Tucson and Palm Springs all finished first in their markets. KTNV-TV in Las Vegas grew its late news 64% in the demo compared to November 2006 and our Omaha station saw a 74% increase year over year at 10 pm. Strength in local news is particularly valuable during the political years.

In radio the fourth quarter 2007, despite facing comparisons which included the extra week our Knoxville cluster posted revenue growth of almost 9%. For the full year 2007, our radio clusters in Boise, Knoxville, and Springfield grew revenue approximately 17%, 15% and 12% respectively. These clusters also each recorded double-digit operating earnings growth for the full year 2007.

Broadcast developmental or non-transactional advertising revenue was a significant contributor in 2007 and is expected to continue to play a large role in our future growth. In 2007, it reached $15 million in television and $12.8 million in radio. Broadcast Interactive revenue reached $2.9 million in 2007, up from about $600,000 in 2006.

In publishing, Journal Sentinel continued to face significant declines in advertising revenue which worsened later in the year as the fall out from the mortgage difficulties and deteriorating consumer sentiment pressured classified advertising, particularly the real estate and employment verticals. Automobile advertising showed some recovery down $600,000 or 3.7% following a decline of 29% in 2006. We have been able to somewhat mitigate the impact of the revenue declines on operating earnings by ongoing reductions in payroll expense and generally keeping tight control on other expenses.

Journal Interactive continues to post strong growth for the full year 2007, accounted for more than 8% of the advertising revenue at our daily newspaper, up from 5% in 2006. Online growth in our classified verticals remained robust despite declining print classified advertising. We remain encouraged by the early results from one of our top initiatives, JobNoggin.com, our co-branded employment site with Monster Worldwide. Launched in September of 2007, JobNoggin.com combines the service, convenience and local audience promotion of Journal Communications’ core media platforms with the powerful technology and deep content of Monster to create a best-of-breed resource. We also continue to be pleased with the impressive growth in page views at our hyper local community site websites and our MilwaukeeMoms.com platform.

In 2007, non-traditional revenue comprised more than 20% of Journal Sentinel’s business. Journal Sentinel’s commercial printing and commercial delivery revenues remained vibrant, up 52% and 9% respectively for 2007. The Milwaukee Journal Sentinel’s number one ranking in Sunday household penetration, a 70% penetration rate as reported by Scarborough Research in the September 2007 survey was the eighth consecutive year our newspaper ranked either first or second position. By adding in Journal Sentinel’s online and local niche products the combined reach rises to 85% of the metro Milwaukee market adults each week.

At our community newspapers and shopper division, revenue and operating earnings from continuing operations were down significantly. The bulk of these declines reflect the product and distribution changes that we made to our Milwaukee area publications in early 2007. Certain revenue previously reported under 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 also experienced weak automotive advertising and real estate, particularly in Florida. Our operating earnings were negatively impacted by the revenue declines and other items which Paul will detail shortly.

In the fall of 2007 and early 2008, Journal Community Publishing Group purchased three small weekly newspapers in North Central Wisconsin. These acquisitions allowed JCPG to deepen its media offerings, extend its reach and take advantage of the efficiencies created by our printing facility in nearby Waupaca. JCPG also acquired a small local weekly newspaper in Clay County, Florida in late 2007.

As I mentioned earlier, IPC posted strong results in 2007 reflecting increased revenues, production efficiencies and a change in business mix. The division sales team sold greater than 80 new accounts which delivered more than $7.5 million in revenue in 2007.

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

Paul M. Bonaiuto

Thanks, Steve. As you’ve heard, Steve provided an overview of both our fourth quarter and full year 2007 results which are detailed in this morning’s press release. While I will share a few additional numbers for the full year 2007, my focus will be a more in-depth review of the fourth quarter. This should provide you with a better understanding of our platform as we move forward into 2008.

For the fourth quarter, revenue from continuing operations of $147.6 million decreased almost 16%. A number of items impacted the revenue comparison which I will detail. The 2006 extra week generated $10.4 million; political and issue advertising totaled $10 million in 2006 and $500,000 in 2007. On a purely comparative basis for the fourth quarter, adjusting for these items, revenue decreased 5% as we continue to experience ongoing weakness in advertising revenues, especially the classified category within publishing.

Net earnings for the 2007 fourth quarter decreased about 60% and earnings from continuing operations were down approximately 49%. We estimate the impact of the additional week on 2006 operating earnings to be $1.4 million.

In the fourth quarter of 2007, the company recorded a workforce reduction at Journal Sentinel and goodwill impairment at PrimeNet, our direct marketing company, partially offset by favorable litigation-related adjustments. The unfavorable after-tax impact of these items was $1.9 million or $0.03 per fully diluted share.

Note that in addition to the extra week in 2006, Journal Communications recorded the following unusual items that impacted fourth quarter 2006 continuing operations. Gains from the sale of KBBX-FM and the garage property; a reduction in litigation-related charges; and a curtailment gain related to a retiree medical plan amendment. The favorable aggregate after-tax impact of these items was $3.5 million or $0.05 per fully diluted share.

For the full year, revenue from continuing operations of $582.7 million decreased about 7%. Once again a number of items impacted the revenue comparison which I will detail. Political and issue advertising was $16.5 million in 2006 and $2.1 million in 2007. Litigation-related advertising credits totaled $4 million in 2006, partially offset by $600,000 of unused credits in 2007 and we recorded $3.3 million from the 2006 Winter Olympics.

On a purely comparative basis for the full year 2007, adjusting for these items and the extra week, revenue from continuing operations decreased 3.7% as we experienced ongoing weakness in advertising revenues in both publishing and broadcasting.

For the full year 2007, net earnings increased 71% due in large part to the gain on the sale of Norlight. Earnings from continuing operations decreased 20%. For the full year 2007, the company recorded the items previously noted as well as a gain on the sale of the assets. The unfavorable aggregate after-tax impact of these items was $700,000 or $0.01 per fully diluted share.

For the full year 2006, in addition to the extra week and the items noted above, the company recorded a curtailment gain related to a pension plan and hurricane insurance proceeds, partially offset by a reserve for litigation-related advertising credits as well as litigation-related expenses. The favorable aggregate after-tax impact of these items was $1 million or $0.01 per fully diluted share.

Included within this continued operations net of tax are the operating results and gain/loss on sales of our former New England, Ohio and Louisiana community publishing and printing clusters, Norlight and the NorthStar Print Group. For the fourth quarter 2007, the loss from discontinued operations of $800,000 which included a reserve of $600,000 for potential environmental fees related to NorthStar. For the full year 2007, the gain from discontinued operations was $67.1 million including a $62 million gain on the sale of Norlight.

For the fourth quarter and full year 2007, other expense, which primarily consists of interest, decreased to $2.3 million and $9.1 million respectively. These decreases are attributable in large part to a decrease in debt outstanding due to the aforementioned divestitures, partially offset by share repurchases. For the year 2007, our effective tax rate was 38.2% compared to 39.6% last year.

Turning now to our segment performance, publishing revenue declined nearly 14% in the fourth quarter 2007 largely due to continued weakness in retail and classified advertising, as well as the negative comparisons with 2006 of $4.9 million generated in the 2006 extra week and $1.1 million from a favorable litigation-related adjustment. Excluding the extra week and the litigation adjustment, publishing revenue in the fourth quarter decreased about 7%.

At the daily newspaper, total revenue of $57.3 million was down approximately 13%. As just mentioned, weakness in retail and classified advertising as well as the 2006 extra week and the litigation-related revenue adjustment were factors in this decline. Excluding these two unusual items, total revenue decreased about 6%.

Advertising revenue of $41.3 million decreased almost 16%. Excluding the extra week and the revenue credit, advertising revenue decreased about 8%. Retail revenue of $25.2 million was down approximately 14%, reflecting decreases in ROP, shared mail and preprints due in part to the 2006 extra week and the litigation-related settlement. Retail preprints were down about 4% year over year for the quarter. Classified advertising at the daily newspaper of $12.1 million, which includes both print and online, decreased about 18% for the fourth quarter of 2007, reflecting the extra week and the adverse financial impact of the sub-prime mortgage crisis.

Looking specifically at the classified verticals, the employment vertical was down approximately 20%; auto was flat; real estate was down about 31%, reflecting ongoing softness in both home sales and rentals; and the other classified vertical decreased about 8% year over year.

On a combined retail and classified basis for all products of the daily newspaper, auto advertising was down in the fourth quarter by about $320,000 or nearly 8% compared to last year. For the full year, combined auto advertising was down $600,000 or 3.7%. Our national advertising revenue category decreased approximately 24% to $2.5 million for the quarter. This reflects decreases in all categories except for manufacturers.

The direct marketing category of the daily newspaper was down 15.5%. This decline primarily represents decreases in both solo mailing and postage billed to customers. Although interactive advertising is reflected in the various revenue categories, total online revenue increased roughly 38% to $3.7 million for the fourth quarter. For the full year, online revenue increased 41% to $13.4 million representing over 8% of total advertising. That’s up from nearly 6% of total advertising revenue in 2006.

Interactive classified revenue of $2.2 million increased 31%. Looking specifically at the fourth quarter 2007 online classified advertising verticals, employment increased about 8% to $1.1 million. Auto, the fastest growing category, was up almost $500,000 to $820,000. However, real estate decreased by roughly 23%.

Moving beyond the advertising revenue, circulation revenue of $12.8 million for the fourth quarter was down 7.4%, primarily due to the extra week. Excluding that extra week circulation revenue was essentially flat. Other revenue at the daily newspaper of $3.2 million was down roughly 1% year over year for the quarter, principally reflecting gains in commercial printing, offset by a decrease in corporate printing. For the full year 2007, commercial print revenue was $6 million reflecting the new USA Today and Chicago Reader contracts.

For the quarter, operating earnings from publishing decreased approximately 46% to $6.1 million, including a charge of $3.1 million related to a workforce reduction. Excluding the charge for the workforce reduction, as well as the extra week and litigation-related reserve adjustment from 2006, operating earnings decreased about 4%.

At the daily newspaper, operating earnings totaled $6.7 million down roughly 43%. The decrease was most attributable to the cost of the workforce reduction, the extra week and the reserve adjustment. Absent these items, operating earnings were down 4%.

Operating margin was 11.8%, down from 17.8% reported last year. However, once again, when you adjust for the unusual items, operating margin in the fourth quarter of 2007 was 16.3%.

Total expenses for 2007 at the daily newspaper were $195.3 million, down about 5% compared to last year. Full year newsprint costs were down by $6.8 million, reflecting an 11.5% decrease in pricing and an approximate 13% reduction in consumption.

Turning to our community newspapers and shoppers, revenue from continuing operations for the fourth quarter of $9.7 million was down about 18% compared to last year. Excluding the extra week, revenue decreased roughly 13% reflecting declines in all revenue categories. Weak automotive advertising continued to affect both retail and classified and very soft real estate advertising adversely affected our Florida market in particular.

Circulation revenue at the community newspapers and shoppers of $262,000 reflected the change to a free distribution model of the community newspapers in the Milwaukee area. Other revenue decreased approximately 19%.

The division recorded an operating loss of $700,000 for the fourth quarter versus $600,000 in earnings last year. The decline in revenues, coupled with a significant workers’ compensation claim reserve and expenses associated with the litigation settlement all combined to result in the loss.

For the fourth quarter, broadcasting revenue decreased about 19% to $56.7 million in part reflecting $10 million in 2006 political and issue advertising and $3.6 million from the 2006 extra week. Excluding the extra week and political and issue advertising revenue, the decrease in overall revenue was less than 1%.

Broadcast operating earnings of $10.3 million were down 55% in the fourth quarter 2007. The dynamic at play here is that the $9.5 million net decline in political and issue advertising revenue does not represent the reduction in sell out, but rather reflects a reduction in selling price because demand on inventory is so much lower in non-political years.

Therefore, the decline in political and issue advertising revenue essentially has a dollar per dollar negative impact on earnings. Additionally, the 2006 gain on the sale of KBBX-FM contributed to the decreased operating earnings comparison in the fourth quarter 2007.

For the fourth quarter, revenue from television stations decreased about $10 million or 22% to $35.3 million. Excluding revenue from the 2006 extra week of $2.4 million and the decline in political and issue advertising revenue of $8.7 million, revenue increased $1 million. Operating earnings from television stations decreased nearly 65% to $4.9 million, largely reflecting the political influence I just described.

Moving on to radio, for the fourth quarter 2007 revenue decreased $3.4 million or almost 14% to $21.4 million. Excluding revenue from the extra week of $1.2 million and the decline in political and issue advertising revenue of $800,000, revenue decreased $1.4 million. Operating earnings from radio stations of $5.4 million decreased almost 41%. Excluding the gain on the sale of KBBX in 2006, operating earnings decreased about 18%.

In printing services for the fourth quarter, revenue decreased almost 5% to $17.6 million, largely due to the 2006 extra week. Excluding the extra week, revenue increased approximately 3% which in part reflected a temporary increase in business from Dell. Operating earnings from printing services increased 30.5% to $1.5 million due to production efficiencies and a change in business mix. Excluding the extra week, operating earnings increased almost 58%.

For the fourth quarter 2007, revenue from other of $6.3 million decreased approximately 28% due to softness in the mailing services part of our direct marketing business. Other operating earnings were $57,000. Results from the 2006 quarter included gains from a curtailment and the sale of assets, partially offset by an impairment of goodwill in 2007.

Our balance sheet remains sound. For the 2007 year, operating cash flow was $66.6 million. At year end, debt was $178.9 million, reflecting our divestitures of Norlight and several clusters within Journal Community Publishing, partially offset by share repurchases. Shareholders’ equity stood at $487.6 million. Our capital expenditures from continuing operations in 2007 were $35.9 million compared to $21.7 million last year.

We remain committed to returning value to our shareholders. During the fourth quarter, the company repurchased 2.5811 million of its Class A shares. For the full year 2007, the company repurchased a total of 9.6123 million shares of its common stock, of which 6.4123 million were Class A shares. From 2005 through February 8, 2008, the company had repurchased a total of 17.3242 million shares of its common stock of which 14.1242 million were Class A shares. Approximately 2.7 million shares remain available for purchase under our fourth 5 million share buyback authorization.

For the first quarter of 2008, Journal Communications currently anticipates that its publishing revenues will be down compared to the prior year, reflecting continued challenges in classified advertising partially offset by continued strength in online, commercial printing and commercial distribution. Both radio and television revenues are expected to be down slightly.

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

Steven J. Smith

Thank you, Paul. Our publication and broadcast programming remain highly relevant in each of our local markets and we are increasingly digital, interactive and mobile. As advertising revenue remains challenged in the near term, we will continue to look at every avenue available to us to drive revenue and market share, growing our non-traditional revenue streams in both publishing and broadcasting, tightening our cost platforms and looking to deepen and expand our presence in specific local markets.

We continue to develop new products, growing our online brands and assemble talent with experience in and a passion for the online space. Our product mix now includes online companion sites to our core news and entertainment media, as well as an expanding group of enterprise sites intended to target key local revenue verticals.

As we move through 2008 we expect our Broadcast Group to benefit from the bi-annual effect of political races and the Olympics. A number of our television and radio stations are located in key battleground states including Wisconsin, Nevada, Florida, Michigan and Missouri which should drive significant political and issue advertising.

We anticipate that Senate races in six of our broadcast markets in 2008 should also impact political ad spending. We carry the Olympics on our NBC stations in Milwaukee, Green Bay and Palm Springs and historically have been strong sellers of the Olympics in our markets.

In publishing, we continue to integrate our daily newspaper, weeklies and non-traditional revenue sources, diversify revenues across multiple products and deepen our product offerings. We expect that Journal Interactive will continue to excel at increasing audience and selling advertising on our wide range of websites. The advertising climate in our Milwaukee market is still challenging. However, the reduced cost structure at The Journal Sentinel as well as continued growth in our non-traditional revenues should help as we focus on our operating margins.

Our solid balance sheet and strong cash flow provide us with financial flexibility to make further investments in our businesses, evaluate potential acquisitions to fund our share repurchase program and continue our dividend policy.

Yesterday, our board of directors increased the company’s quarterly dividend on its class A and B shares by 6.7% from $0.075 to $0.08 per share, reflecting our strong cash flow and financial position. This follows the 15% dividend increase approved by the board in February ‘07.

We believe local content and local advertising continue to offer opportunities, despite ongoing changes in traditional media and the current economic challenges.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Mark Bacurin - Robert Baird & Company.

Mark Bacurin - Robert Baird & Company

Paul, I know there’s a lot of obviously pro forma adjustments that need to be made this quarter. I was hoping that specifically on the charges that you identified, that $0.03 worth per share, could you break out for us what the pre-tax actual dollar amounts were and where those items fell within the segment and the consolidated P&L?

Paul M. Bonaiuto

Sure, no problem, Mark. If you look at it, first item for the quarter was $3.1 million pre-tax from the Journal Sentinel workforce reduction. The second item that affected 2007 and it also had an impact in 2006 -- so you have to kind of look at the combined impact -- is we had the advertiser credit adjustments from Shore West; in 2006 that was a favorable adjustment of $1.1 million and in 2007 it was a favorable adjustment of $500,000.

Mark Bacurin - Robert Baird & Company

Just for clarification, those are not Q4 items, though? I was looking for specifically the Q4 charges.

Paul M. Bonaiuto

Well the Q4 impact was $500,000 for 2007. The Q4 impact for 2006 was $1.1 million, We had another litigation item that needed to be addressed. That had an impact of a positive 576 in the 2007 fourth quarter.

Moving on, if we look at 2006 we had a gain on a garage sale or a gain on a property sale of $1.5 million. In ‘07 we had gains from asset sales of $1.1 million.

In 2006 fourth quarter we had the gain on the sale of KBBX, which was the station in Omaha which generated a $2.5 million gain and then we had a goodwill impairment in our other segment at our direct marketing business in the fourth quarter of 2007 of $400,000.

So when you add up the full pre-tax impact of that for the fourth quarter of 2007, it was $2.9 million and for the fourth quarter of 2006, it was $5.8 million. Now the $5.8 million was a positive impact in ‘06. The $2.9 million was a negative impact in ‘07.

Mark Bacurin - Robert Baird & Company

On the political ad spending that you expect for this year, just looking back to what you did in ‘06 and trying to think about ‘08 versus ‘06, given that this is a presidential election year, do you think it’s reasonable to assume that you might actually see more political and issue-related advertising in ‘08 versus the ‘06 results?

Douglas Kiel

We’ve been saying in the past that we think because of the fact that we have fewer governor races going on in many of our states as we had in 2006 that we were put in political, most of which as you know is going to be in the back two quarters of the year, as slightly less than we had in 2006. Of course, it is open to debate what that’s going to be because it is so hard to see that far out, and of course there are two segments to a political initiative. So that is how we are looking at it at this point.

Mark Bacurin - Robert Baird & Company

Could you give us an update on ongoing discussions about retransmission fees and whether or not we will see any of that in the back half of ’08?

Douglas Kiel

No, we don’t expect to see anything substantially changed here in 2008. Most of our agreements run out at the end of this year/early next year. We are in ongoing discussions now. What we do see is that we expect as everybody does, that there will be money for us and that that will start to show up in 2009.

Mark Bacurin - Robert Baird & Company

Betsy on the publishing side, obviously, economic situation causing a weak start to ‘08, but as we get into the back half of ‘08 with hopefully the Fed rate cuts starting to take effect on the economy and the easier comparisons, do you think it is too optimistic to assume that you might actually see positive year-over-year trends in the advertising revenue within the publishing segment specifically?

Betsy Brenner

Across the publishing segment, Mark, on the retail side we are looking across at a pretty broad slab of categories that are impacted by that mortgage turndown. For us it’s not only financial, obviously, but it’s furniture, it’s building services, and it’s a lot of retail businesses. They are all interconnected. Love to see a positive turn-up by the second half of the year, we are not counting on it. We think the market still has transition to work through and as we look at our first quarter trends, they are about level with what we saw in the fourth quarter. No worse, but certainly not better.

Operator

Your next question comes from the line of Craig Huber - Lehman Brothers.

Craig Huber - Lehman Brothers

Yes, good morning. Can you describe for us your January trends at your newspapers. They’re down similar to your adjusted number in the month of December, I guess, down 10.7%. Is January fairly similar to that?

Betsy Brenner

What we saw in January was really a bit of an uptick compared to certainly December, which was the result of a disappointing Christmas spending season. You will recall here in Wisconsin we had a great boost from the Green Bay Packers run at the playoffs, and here in Milwaukee, in particular, that really boosted our retail spending and brought that up, kind of a one-time event, and we were grateful for it because we saw a nice gain in primarily retail spending, some preprint business across the board. So, January looked good, it looked better. We’re seeing things soften a bit in February and so we think overall the first quarter will be level with the fourth quarter, but no worsening of the trend.

Craig Huber - Lehman Brothers

While we’re with the newspapers, I’m curious -- I ask this every quarter -- your non-newsprint cash costs, adjusted for all these one-time items in your publishing division, what was that percent change, please, non-newsprint costs?

Paul M. Bonaiuto

If we look at it overall for the publishing division in the quarter, net of the adjustments, we show a decrease in non-paper cash costs of about 7%, and if you look at it overall for the year, adjusted for all the items, you’d see a decline of about 4.3%.

Craig Huber - Lehman Brothers

Obviously as you think forward here into 2008, do you think there’s enough fat, if you will, in the system for this new year that you can actually get that number down, 4% or 5% for full year ‘08 or it just depends how the top line comes together?

Betsy Brenner

Craig, I don’t know that I’d call it fat, but looking forward to ‘08, we do have some efficiencies on the horizon that we’re looking forward to. First of all is the payroll savings from our staff reductions announced fourth quarter of last year. We expect that to be the $4.1 million that we announced when we announced that program in November. Across the board, we are now delivering a single TMC to our readers and non-readers in the market. That’s going to be a full year savings of $900,000, of which we’ll realize about $550,000 this year. We have a favorable pension condition versus ‘07, which should be a reduction, or change of $2.4 million and then as we work through the full-year impact of two major changes in our circulation operations last year you may recall we changed to a fee for delivery conversion process, and that will result in savings this year of $750,000 as we annualize all of those transitions.

Finally, the annualized impact of our distribution center consolidations, which ran through last year will return another $170,000 in savings. So all of those are expected for ‘08.

Craig Huber - Lehman Brothers

That’s a nice run through. If we just switch to the small direct marketing operation, it has been struggling for quite some time here; I mean, you guys have not been hesitant in the past to divest various properties that have not met your expectations, did this one sort of fit in that realm?

Steven J. Smith

As you know, we have not been hesitant to sell businesses. With this PrimeNet operation we’ve been focused and are focused on improving this operation. We and as a matter of fact Mark Keefe, our President has reported that he’s seeing a bit of uptick, especially in the Florida market, as he begins the year. So indeed, we look at those things on an ongoing basis, but we are really focused with that small operation on increasing the earnings in ‘08.

Craig Huber - Lehman Brothers

Your newspaper advertising rates for this new year, what was the percent change blended for your flagship paper, please?

Betsy Brenner

The yield we expect, Mark, is about 1.5 % on the retail side and 1% on the classified side. We announced increases of everywhere from 3% on Sunday to an actual rate decrease of 1% for our early week daily newspaper.

Operator

Your next question comes form the line of Peter Salkowski - Goldman Sachs.

Peter Salkowski - Goldman Sachs

Steve, I guess in the context of a difficult operating environment, current valuation levels of the stock, what are your thoughts with regard to Journal Communications being a public company?

Steven J. Smith

Pete, the board of directors does consistently discuss all strategic issues. Their charge to us as late as this week is that we need to concentrate on growing value for our shareholders and the public market allows us to have the tools to do just that. So we certainly, as is reflected in our action by repurchasing shares, et cetera, we do believe that we are not happy about the undervaluation of the stock in our view. On the other hand, our daily focus is our operations right now and we do like the fact that we are in the public market and have the opportunity to grow the business.

Peter Salkowski - Goldman Sachs

Doug, on the broadcasting side, I know, the expectations in your guidance was for slight declines in both radio and television in the first quarter. I was wondering if you could address expenses in the first quarter? What are you thinking there with regard to the first quarter of expenses with the revenues being down?

Also, could you talk a little bit about Vegas and what you are seeing there? I know that’s been a market that’s been extremely hard hit by the housing; I’m just wondering what you are seeing from a revenue perspective there as well?

Douglas Kiel

Let’s talk about Las Vegas first, because you’re right. That market last year was down in double-digits, housing. I’m talking about the overall television market, we were able to raise our share and that’s what we’re focused on doing. As we go in here in the first quarter, we see some of that softness continuing, not to the extent that it was in the fourth quarter of last year but we’ll see.

We see that in television, just to adjust the question just a little bit. We’re very happy, as everybody is in the television business, that the writers’ strike now has been concluded and the networks are focused on getting new shows out into the system, particularly for May because not just in Las Vegas, Pete, but in all of our television markets towards the end of last year after the strike hit and certainly this year the networks moving around television shows to save first run shows for later and doing that relatively late which they had to do to make their schedule work, very difficult on local TV in terms of pricing, because we sell time based on a particular program and when the show gets moved late, then we have to resell that time or do make-goods and it can impact us.

You mentioned Las Vegas, when a Grey’s Anatomy moves out of the time period late it costs us about $25,000 in lost revenue. So that’s kind of what we’ve seen in the fourth quarter and we’re seeing a little bit of that here in the first quarter in our markets and that’s something we have to overcome.

In terms of cost controls generally, by the way, our revenue in our first quarter, we started out slowly, Betsy kind of mentioned that, and we saw ourselves picking up a little bit as we went through the first period in terms of comparison to last year, but we’re still looking at the revenue numbers we mentioned which were down slightly, radio and TV. So our costs are well under control. We have delayed projects where we can and we continue to look for efficiencies in our staffing throughout our group.

Peter Salkowski - Goldman Sachs

Betsy, a quick question on department stores. I know there’s been a lot going on with Macy’s, Marshall Field’s and such. I am wondering what you’re seeing in the Milwaukee markets?

Then a question for Paul. The selling, administrative expenses was pretty high in the fourth quarter, up certainly from the second and third quarter. I’m wondering why and what the run rate’s going to be for 2008?

Also the tax rate came in quite low, at least for my numbers on the fourth quarter. I’m wondering what the expectation is there for 2008 as well?

Betsy Brenner

Pete, I’ll start off and talk a little bit about department stores in our market. As you know, we’re somewhat insulated by big shifts from Macy’s because we have one Macy’s store in our market, not a fairly significant presence here. So while our department store segment was one of the major spenders that were down in the fourth quarter, that’s really because across the board -- Macy’s, Boston Store, Sears, Kmart, everyone -- had a disappointing holiday season and that was reflected in the advertising dollars they sent our way.

You know overall between Boston Store, which is making a major investment in this region and continuing to grow here and Macy’s with their single location we have a pretty stable presence as far as our department store advertisers go and looking around the country, we’re very grateful for that.

Paul M. Bonaiuto

From your first question with respect to the expense increase in the fourth quarter, as we mentioned earlier, we did record the workforce reduction of $3.1 million in the fourth quarter so that had a direct impact on expenses.

Then with respect to this tax rate, what we’re expecting for ‘08 is somewhere between 38% and 39% and if you look at the fourth quarter, we had some issues with respect to state taxes where we were truing up some issues and with that that had a modest influence in terms of the fourth quarter tax rate.

Peter Salkowski - Goldman Sachs

Just to clarify, Paul, the selling and administrative expenses in the fourth quarter included the $3.1 million charge for the workforce reduction?

Paul M. Bonaiuto

Yes, it did.

Peter Salkowski - Goldman Sachs

It wasn’t in the Publishing Group?

Paul M. Bonaiuto

The Publishing Group is incorporated within that number, Pete. Remember that’s the total for the corporate entity. As you look at that statement, it’s not allocated in expenses to the individual segments.

Operator

We’re currently showing no more audio questions in queue. I would like to turn the call over to Sara Wilkins for closing remarks.

Sara Wilkins

Thank you, Eric. Once again, thank you all for joining us on this morning’s call.

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