Gannett Q1 2008 Earnings Call Transcript

Apr.21.08 | About: Gannett Co., (GCI)

Gannett Co., Inc. (NYSE:GCI)

Q1 2008 Earnings Call

April 21, 2008 10:00 am ET

Executives

Gracia C. Martore - Chief Financial Officer, Executive Vice President

Craig A. Dubow - Chairman of the Board, President, Chief Executive Officer

Analysts

Ed Atorino - Benchmark Co.

Paul Ginocchio - Deutsche Bank

Michael Kupinski - Noble Financial Group

Craig Huber - Lehman Brothers

Barton Crockett - J.P. Morgan

Peter Appert - Goldman Sachs

John Janedis - Wachovia

Analyst for Alexia Quadrani - Bear, Stearns & Co.

Karl Choi - Merrill Lynch

Thomas Russo - Gardner Russo & Gardner

John Kornreich - Sandler Capital

Operator

Good day, everyone and welcome to Gannett's first quarter 2008 earnings conference call. (Operator Instructions) Our speakers today will be Mr. Craig Dubow, Chairman, President, and CEO; and Gracia Martore, Executive Vice President and CFO. At this time, I would like to turn the call over to Gracia Martore. Please go ahead, Madam.

Gracia C. Martore

Thanks and good morning again. Welcome to our conference call and webcast to review Gannett's first quarter 2008 results. We hope that you have had the opportunity to review our press releases this morning but they can also be found at www.gannett.com. Again, with me today are Craig Dubow, Chairman, President, and CEO; and Jeff Heinz, Director of Investor Relations.

At our presentation at the MEANY Luncheon in mid-March, we summarized the progress we have made with our transformation. Chris Saradakis, Senior VP and Chief Digital Officer, discussed a critical component of that transformation, our digital strategy. Today, Craig will bring you up to date on developments since we presented and he will provide an overview of results for the quarter. Then I will follow with some additional details. Craig.

Craig A. Dubow

Thanks, Gracia and good morning, everyone. Let me begin by talking about the dynamics surrounding Gannett and our industry at the moment. Gannett is in the midst of a deep transformation to meet head on the fundamental changes in the way people consume news and information. We are changing our culture and focusing on customers in ways we never have before. These changes are taking hold and we are making real progress in developing a world-class digital business, while enhancing our core products.

But overlaying all this hard work is a struggling economy. As we’ve outlined for you for the past couple of quarters real estate is very challenged, particularly in some key Gannett states, and that is now dragging other segments down. That drag has spread and the turmoil in the markets continues. This has added a degree of difficulty to our transformation while impacting our results, which I’ll discuss in a few minutes. But we don’t think it should completely color our efforts.

There are solid reasons for being enthusiastic about the future of Gannett. This is a truth that we have embraced -- advertisers need to successfully connect with consumers no matter where they are. It is up to us to help them make that connection and we will do it through our rich array of content.

We have a strong portfolio of traditional media assets, our core. We are improving our publishing properties and TV stations every day, both in the way we gather and manage content as well as other ways that we distribute it. We are extending our reach in local markets through a variety of products and platforms, digitally and in print. In short, these properties are great local franchises tied deeply to their communities.

On the digital front, our strategy is to begin with the customer, the advertiser. Find out what they want and need and find a way to deliver it. Gannett's content is relevant and valuable to them and we reach an impressive number of consumers monthly -- multiple millions through our local publishing and TV franchises and their websites, the USA Today brand, and mobile. The goal for digital is to continue to evolve that content, develop the audience, and then segment it based on who they are and where they are.

At the same time, we are creating better ways to deliver advertising to our consumers.

We announced the creation of quadrantONE in the first quarter. This partnership with Tribune, Hearst, and The New York Times Company is a national digital ad distribution network with dedicated inventory to sell. Since our March presentation, we announced the newspaper consortium had joined quadrantONE as affiliates, adding 138 websites to quadrantONE’s reach. This means quadrantONE now has access to more than 250 newspaper and broadcast websites and more than 70 million unique monthly visitors.

The goal -- one call and buy ease for our advertisers. You may recall the newspaper consortium represents 26 newspaper companies that had formed a partnership with Yahoo!.

Within Gannett, we are working on the one call, one buy solution for advertisers through an initiative we call One Gannett. That effort focuses on two areas -- a strategy for multipurpose use for our content and a strategy for advertising that allows one advertiser to place ads across all Gannett properties and platforms. It not only provides the broad reach across all Gannett, it also enables advertisers to connect to communities that they are targeting.

Behind the scenes, we have been putting the infrastructure in place to offer a host of solutions to advertisers. Work has started on the development of an ad serving platform that will help us keep close tabs on our ad inventory and ad campaign scheduling. The ad serving platform is a crucial component of the infrastructure, along with Point Roll’s ad portal, Planet Discover, and our affiliations on the video side as well.

So we see a wealth of opportunities as we continue our transformation and build our ability to offer solutions to advertisers both locally and nationally through a variety of platforms. Meanwhile, in the midst of the transformation and the economy, we are continuing to manage the company in a way that you have come to expect from us. We are finding new ways to achieve efficiency and change our cost structure, in some cases through centralization and outsourcing.

Over it all sits the economy and our results that reflect that. The actions the fed has taken hopefully will lead to economic stability. As Chairman Bernanke noted in his testimony at the beginning of the month, the uncertainty is quite high and risks remain to the down side. We will manage what we can and are doing our utmost to navigate the uncertain economic environment.

Now turning to the quarter. Earnings per share from continuing operations were $0.84. Results for the quarter include a $25.5 million pretax gain on the sale of excess land adjacent to our headquarter business here in McLean. Our earnings are within the range that we provided in our March presentation.

Total operating revenues were $1.7 billion for the quarter. Our continuing efforts to control cost and create efficiencies resulted in year-over-year reduction in total operating expenses of over $100 million, which was a decline of almost 7%. Operating cash flow was just over $395 million.

As noted, it appears the economy has slowed more in the back half of March, putting additional pressure on an already soft advertising environment. The switch of Easter from April last year to March this year also impacted results.

Our total operating revenues were down over 8% for the first quarter as newspaper advertising revenues were approximately 10% lower. Retail advertising was almost 8% lower, national advertising was unchanged, and classified finished down in the mid-teens.

For U.S. community publishing, classified advertising continues to be hindered by the real estate slowdown, the real estate and employment impacted the most in the quarter. The divergence between the results for our properties in Arizona, California, Florida, and Nevada and those in other parts of the country continued as classified categories were again roughly two to three times worse in those states. Auto was soft in the quarter but to a much lesser extent overall.

Results from our operations in the U.K. were stronger relative to U.S. community publishing, as their operating revenues were down in the mid-single-digits. However, the economic slowdown in the latter half of March tempered results of Newsquest as well, particularly the real estate and employment categories.

A bright spot was the positive revenue growth at USA Today and USA Weekend. USA Today’s advertising revenues were over 2% higher for the quarter as the top advertising categories -- entertainment, travel, and financial -- were all up significantly.

As expected, our broadcasting segment revenues were 7% lower. This included about $5.5 million in politically related advertising but that was not enough to overcome the absence of the Super Bowl related ad revenue that benefited our CBS affiliates in 2007, and softness in other categories, particularly auto.

Looking ahead, there is considerable upside potential later this year. We are well-positioned for what appears to be an unprecedented level of advertising associated with the elections in the fourth quarter and the Summer Olympics in Beijing will boost results in third quarter.

At this point, pacings for the second quarter of 2008 are lagging the second quarter of 2007 in the mid- to high-single-digits. But as we have indicated in the past, pacings will be volatile, particularly in an election year. We will keep you updated through our monthly reports.

Digital revenues company-wide contributed to results this quarter. Despite the economic conditions, online revenues were up 6.5% overall. Our domestic online revenues increased 3%. Online results in the U.S. were tempered by a decline in employment advertising that masked the strong growth that we were seeing in auto as well as retail and national advertising.

Online revenue at Newsquest was up over 32% in pounds and broadcasting was 11.2% higher. In March, our domestic websites had 24.8 million unique users and reached 15.1% of the Internet audience. In the U.K., Newsquest’s online audience totaled 6.6 million unique visitors, with over 94 million page impressions.

At CareerBuilder, growth in revenue and traffic continued in the quarter. North American network revenue was up about 3% for the quarter compared to the first quarter of 2007. Traffic for the network averaged 23.7 million unique visitors for the first quarter, a 9% increase compared to last year. They are continuing their international expansion as well.

Together with Classified Ventures, these partnerships continued to deliver for us and remain a key building block of our digital strategy.

Now, to dive a little deeper on the results and some factors affecting them, let me turn the call over to Gracia.

Gracia C. Martore

Thanks, Craig. Before we go into detail on our quarterly results, I need to remind you as always that our conference call and webcast today may include forward-looking statements and our actual results may differ. Factors that might cause them to differ are outlined in excruciating detail in our SEC filings.

This presentation also includes certain non-GAAP financial measures and we have provided a reconciliation of those measures to the most directly comparable GAAP measures in the press release and on the investor relations portion of our website.

Now that I have that out of the way, let me start today with our publishing segment. Advertising revenues, as Craig indicated, overall for the segment were down 10.2% for the quarter. In the U.S., total ad revenues were about 11% lower. Our operations in the U.K. faired better, although they did not escape the softening economy, particularly in real estate. Ad revenues at Newsquest in pounds were down about 7%.

Breaking this down, let me begin with retail which declined about 8% in the quarter. Once again our U.S. community publishing properties were more unfavorably impacted relative to the U.K. Categories like furniture and home improvement in the U.S. were impacted by the real estate slowdown, but financial and telecom also were softer. Department stores, our largest retail category, were down in the mid-single-digits.

Classified advertising continued to soften due to the economic slowdown, particularly for those properties in real estate driven markets. For U.S. community publishing, real estate advertising was over 30% lower for the quarter, employment was down about 26%, and auto declined over 11%.

Properties in the four states Craig noted -- Arizona, California, Florida, and Nevada -- comprise roughly 25% of advertising revenues for U.S. community publishing, yet they drove about 40% of the ad revenue decline.

Classified advertising at Newsquest was trending the right way through most of the quarter but it slipped in March and was down about 9% for the full quarter, indicating the U.K. is beginning to experience the same real estate issues we have in the U.S. Just last week, one of the major house price indices in the U.K. reported a 2.5% decline, the biggest monthly fall since September of 1992.

Now let me turn to expenses for a few minutes; as Craig mentioned, total operating expenses were about 7% lower for the quarter, reflecting a continuing concerted effort to control costs as well as a commitment to a more efficient cost structure in light of the revenue picture.

Operating expenses in the publishing segment declined 6.6% due primarily to a significantly lower newsprint cost and other cost containment efforts. On a constant currency cash basis, segment expenses were down 6.9%.

Reported newsprint expense was 19.3% lower as usage prices were down almost 6% and volume was over 14% lower.

One comment on newsprint before we move to some non-operating items in the balance sheet -- market newsprint prices moved higher in the first quarter while the outcome of increases announced for the second quarter remain uncertain. In response to these conditions, we continue to adjust consumption by reducing press web widths and converting to lighter basis weights which will act to mitigate market pressures. Producers should anticipate that rising prices will encourage greater conservation measures by publishers.

Now turning to the broadcasting segment, operating expenses there were also lower for the quarter, about 5.5% due to strong cost controls and in part to lower stock-based compensation.

Finally, corporate expense was down significantly in the quarter, about 32%. The decline was due in part to lower stock-based compensation, continued cost control efforts, and some operating asset sales.

Our stock option expense and stock options that are granted to our senior executives are done in the first quarter and they are allocated across our segments, as well as corporate. We will not see this level of benefit from stock-based compensation in the second and third quarters as we have seen in the first quarter, both in our corporate expense as well as in broadcasting.

Some other non-operating items to note; as we discussed at year-end, we changed the presentation on the income statement and included a new line item in the non-operating section called equity income or losses in unconsolidated investees, into which we reclassified our equity share in the operating results of our newspaper partnerships. These are Texas, New Mexico, and the California newspapers partnership, in which we hold minority investments, and the Tucson JOA. In the past, these were reported in other operating revenue.

We also reclassified our portion of the equity earnings of our online and new business investments, including CareerBuilder, Classified Ventures, and Metro Mix, to that same line item from other non-operating income. So that line item now includes our share in those partnerships and the equity earnings and losses from our online and new technology businesses.

For the first quarter, the increase in losses for unconsolidated investees was due to a variety of factors. These include weaker results for the newspaper partnerships, particularly in the west, and the addition of new digital investments that we are ramping up this year, such as Metro Mix, and in that case we are investing, obviously, in those initial stages.

Another factor was the timing of promotions and other expenses for certain digital partnerships. These marketing efforts are critical and are more timing related. We anticipate they will smooth out over the course of the year.

The $25.5 million pretax gain on the sale of land Craig noted is included in other non-operating items. After tax, the gain was about $15.8 million, or $0.07 per share. As you have noted, interest expense for the quarter totaled $48.5 million, a decline of over 33% from almost $73 million in the first quarter of ’07, which was due to lower average debt balances, as well as lower interest rates.

Touching briefly on some of our balance sheet items, total debt at quarter end stood at $4 billion and cash was $166 million. At this point, our all-in cost of debt is approximately 4.2% with commercial paper at about 3%. For the quarter, capital expenditures totaled approximately $28 million.

With respect to shares outstanding, shares at the end of the quarter were 228.5 million and the basic quarterly average was 229.2 million. We repurchased about 1.5 million shares in the quarter.

Now I’ll stop and Craig and I will be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll go first to Ed Atorino at Benchmark.

Ed Atorino - Benchmark Co.

I’m never first.

Gracia C. Martore

Congratulations.

Ed Atorino - Benchmark Co.

I’ve got to play the lottery today. I have a question on the interest expense going forward. If I do a quick math on 4% of $4 billion, it’s $166 million, roughly, which is about $40 million a quarter versus the $48 million. What am I missing?

Gracia C. Martore

Well, there’s a couple of factors, Ed. Number one, we have a couple of pieces of debt -- $500 million of notes, fixed rate notes coming due on June 15th that we will refinance and we may in the short-term refinance those in commercial paper but we will also be opportunistically looking at refinancing them in a longer term fashion over the course of the year as the credit markets permit. The other piece is that we have $1 billion of convertible notes that as you’ll recall we did last June. Those are price at LIBOR minus 23 basis points, which has been a fantastic trade for us.

At the time that we issued those, we indicated that we thought that they would be put to us at their one-year anniversary point, which is in mid-July. We are assuming that’s going to happen and so we would refinance those again on the short-term probably in commercial paper, which would be a higher rate than we have right now.

So there are a variety of factors obviously that are going to impact interest expense going forward. As well, it will depend on our activity in the share repurchase market as well as other investment opportunities that we find.

So I think as you look at modeling for the rest of the year, in the second quarter a number slightly lower than what we achieved in the first quarter absent additional share repurchases or other investments is probably in the ballpark.

Ed Atorino - Benchmark Co.

Okay. Thanks a lot.

Operator

We’ll move next to Paul Ginocchio at Deutsche Bank.

Paul Ginocchio - Deutsche Bank

Thanks. I think you said Chris was on the line, so Chris, just a question about quadrantONE -- I guess 10% of the entire registries, online inventory is still relatively small and I think even Yahoo! with their number one U.S. market position is looking to add affiliates. So I’m just wondering how you see your, how you position your sort of much smaller ad network versus all of the other ad networks that are already existing. Thanks.

Craig A. Dubow

Paul, Chris we said was not on the call. We were just making reference in the beginning to the March presentation that he had made. But with respect to the percentages and where we are, we are as I mentioned in my comments evolving this very rapidly and certainly with the quadrantONE, as well as our own internal network that we are looking at from a One Gannett standpoint, we are looking at seeing a larger percentage obviously growth over the course of this year as Chris had noted in New York. And he’s looking at that at a fairly fast expansion as we move forward, because all the site standards, the inventory, all that is in place and now it is time that that infrastructure begin to start working for us, as he had mentioned.

Paul Ginocchio - Deutsche Bank

Okay, if I can just sneak another one in real quick on USA Today, it looks like March was relatively weak. Is that just anything to do with the Easter shift or has it just been weakening since the relatively good result in February and March? Thanks.

Gracia C. Martore

Paul, I think there is some of the Easter Sunday switch that impacts it but as I think Craig Moon pointed out back in mid-March, things are very volatile on the national advertising side and ads are being placed very close to publication date. April has started out not dissimilar to March but we’ll just have to see how the month and quarter progress. We’ll keep you updated in our monthly rev and stat reports.

Craig A. Dubow

Obviously we are very excited with the results from first quarter but as we look forward, it is a bit softer as Gracia just comment.

Paul Ginocchio - Deutsche Bank

Thank you very much.

Operator

We’ll move next to Michael Kupinski at Noble Financial.

Michael Kupinski - Noble Financial Group

Thank you for taking the question. I was just wondering, can you bring us up to date on the large number of alternative papers that you launched over the past five years -- how they are faring in this environment and what have you done with the number of titles, are they profitable, that sort of thing.

Gracia C. Martore

Sure, Mike. As you know, we’ve launched a number of titles as you mentioned over the last several years. Right now we are at around 900 domestically and what we’ve done frankly over the last couple of years as we had a tremendous amount of launches is we’ve stepped back, taken a look at each of the titles, determined if some of them just at this point don’t make good business sense. We’ve pared back some of those titles. Others we have focused on and done some things to improve their performance. However, a number of the titles are in the broader classified arena so they are in fact suffering some of the same pains that we are suffering on the daily newspaper side.

So we are very pleased with the portfolio as it exists now. We are looking at continuing to launch a number of new products as we continue to be very locally focused in the communities we served, but there is a constant process of revisiting those titles to make sure that they are doing the job that they were originally intended to do.

Over in the U.K., same sort of thing. The lion’s share as you know of their results come from a very wide array of non-daily titles and they go through the same process that we go through here, which is constantly reevaluating titles, shutting some down where it makes sense, or launching them where it makes good sense to do so, so it’s going to be an evolving process.

Craig A. Dubow

And just to take that a step further, Michael, when you take a look at Indianapolis and our Moms project with respect to online, we have also launched a non-daily product along with that, so there are going to be opportunistic times when we look at where we can find real advantage and how we can serve that local community but the key again is how do we better create a broader reach within local. But you’ll be seeing that as we move forward here as well.

Michael Kupinski - Noble Financial Group

And you had mentioned in the past that the margins of those alternative papers were in the range of 25%. Can you just give us an idea of where those margins are now? And would any movement in the titles or number of titles account for any of the differential in the revenue components or expense components in the quarter?

Gracia C. Martore

I think in the past, Mike, that we’ve indicated margins on the non-dailies were in the high-teens to low-20s and they are probably in that range right now. Certainly in the last few quarters we’ve taken a particularly hard look at things and so you may see some impact from the fact that we have pruned some of the titles in some of the numbers but hopefully we’ll be doing some cycling of that. I know that’s the case in Indianapolis and a few other places where we will be cycling some of that over the next couple of quarters. But a lot will obviously depend on how the economy fares as well as we go through ’08.

Michael Kupinski - Noble Financial Group

Well, printing of those haven’t accounted for like -- let’s say 1% of revenues or 1% of expenses or anything like that. Are they significant enough to move the needle in the quarter?

Gracia C. Martore

They are significant enough that they can move it a little bit but I am not sure that we would attribute a huge amount of the shortfall to that.

Michael Kupinski - Noble Financial Group

Okay, and just one final question -- pacings in broadcasting in the second quarter, can you break out that between national and local?

Craig A. Dubow

As far as pacings, obviously the local is faring a bit better earlier in the quarter. It is still negative, as I had indicated earlier. National, due to the fact at this point of the slower political coming in, is a little further down and that’s in the high single digits, as I had mentioned earlier.

Michael Kupinski - Noble Financial Group

And one final question -- can you talk about headcount, what FTEs were in the quarter and how far they were down?

Gracia C. Martore

I think overall we probably saw another mid-single-digit decline in FTEs year over year, quarter one to quarter one.

Michael Kupinski - Noble Financial Group

Okay, great. Thank you very much.

Operator

We’ll move next to Craig Huber at Lehman Brothers.

Craig Huber - Lehman Brothers

Good morning. Thank you. Unless I missed it, can you just give us the non-newsprint cash cost percent change in the quarter for newspapers?

Gracia C. Martore

Non-newsprint cash cost for newspapers -- we’re digging that out for you as we speak. On a constant-currency cash basis, excluding newsprint I think it was a little less than 5%.

Craig Huber - Lehman Brothers

Okay, great and then concerning the Easter effect this year, are you able to give us an estimate of how much the impact was year over year? Was it roughly two to three percentage points?

Gracia C. Martore

You know, Craig, that’s almost impossible to try to really hone in on. That’s why we always recommend that you combine March and April together and look at them in totality to give you -- to sort of neutralize that Easter impact.

Craig Huber - Lehman Brothers

Okay, but again, you’re confirming -- you’re saying that April so far is tracking down 12.5% to 13%, give or take --

Gracia C. Martore

No, I don’t think I confirmed that. I just simply am suggesting that you combine the two. We haven’t really indicated --

Craig Huber - Lehman Brothers

I thought your comments before on April was tracking similar to March, unless I misunderstood you?

Gracia C. Martore

I simply said that with regard to USA Today, that they were --

Craig Huber - Lehman Brothers

What about the rest of your papers, please? Do you have a sense there?

Gracia C. Martore

It’s varying by category and it’s very, very early in the quarter for us to really have a good sense of that. We’ll obviously report on that in our monthly rev and stat reports.

Craig Huber - Lehman Brothers

Okay, and then lastly, were there any other one-time items in the quarter that you haven’t mentioned, besides the gain on the asset sale?

Gracia C. Martore

You know, as I mentioned on stock-based compensation in the first quarter, we issue stock options to our senior executives so that would have a more meaningful impact in the first quarter, particularly on corporate expense, as well as some in broadcast because of the lower expense base that they have. There are some assets, operating asset sales that we do. We did some in the first quarter of last year. We had done some in the first quarter of this year. You know, modestly different amounts and then obviously the land sale in Tyson’s corner.

Craig Huber - Lehman Brothers

And then lastly, if I could, you’ve given the $1 billion convert that will probably be put to you and the $500 million bond maturity compare in a few months, you just mentioned using commercial paper, short-term gap. Given what’s going on with the credit markets, is it possible you guys would actually tap into your bank revolver here?

Gracia C. Martore

You know, given where the credit markets are these days, one should never rule anything out but as we sit here at this moment, we feel very good about how our commercial paper is being received in the marketplace. We have had extensive conversations with our dealers and feel very good that we will be able to place that commercial paper in the commercial paper market.

But as you know, last year in August there was a week there where the credit markets melted down and virtually no one could get anything more than overnight commercial paper done. So assuming that the market continues to be as it is today, we anticipate we will successfully roll over our commercial paper.

Craig Huber - Lehman Brothers

And just to be clear here, as you’ve told me in the past, I believe, your bank revolver, you renegotiated that about a year, year-and-a-half ago so you’ve got several more years to go on that, right?

Gracia C. Martore

No, no, no -- we renegotiated it early last year and it was a five-year revolving credit agreement, so it expires in ‘012 and it’s a little over $3.9 billion.

Craig Huber - Lehman Brothers

Thank you, Gracia.

Operator

We’ll move next to Barton Crockett at J.P. Morgan.

Barton Crockett - J.P. Morgan

Okay, great. Thanks for taking the question. I just wanted to drill down a little bit into the equity and affiliated companies line, the number that you reported there of the negative $12 million in the quarter. Can you parse out a little bit what the contribution there was from the newspaper partnerships versus Internet and what -- you know, I know there was some unusual investment in Internet here because of ramp-up, how that kind of trends going forward through the balance of the year. Thank you.

Gracia C. Martore

What I can tell you, Barton, is that with regard to the newspaper portion of it, the California newspaper partnership obviously is suffering the same kinds of difficulties that you’ve heard from other companies and as well as ourselves that have a concentration of California properties and that’s a very difficult impact. You know, continuing obviously to make money but at a -- overall, the newspapers are continuing to make money but at a diminished rate as you are seeing across all newspaper companies.

On the digital side, as we mentioned last year, Metro Mix is new in the first quarter. We are in a ramp-up mode there, so that’s a few million dollars of investment spending there. CareerBuilder as always does a significant amount of promotion spending in the first quarter. As you know, they are doing international expansion as well, so the promotional expenses there would have hit us a little bit more than they did last year, but as I said earlier, we expect that that will even out over the course of the year. And then the same with Classified Ventures, where we are doing some additional things where expenses were higher in the first quarter but we would anticipate that those will smooth out over the rest of the year. And then obviously we have the addition of quadrantONE, a small piece of the pie.

Barton Crockett - J.P. Morgan

Okay, great. Thank you.

Operator

Our next question comes from Peter Appert at Goldman Sachs.

Peter Appert - Goldman Sachs

Gracia, just expanding on that last one, can you give any expectations in terms of what that equity line might look like on a full-year basis?

Gracia C. Martore

Where we are today, and assuming no additional investments, which may or may not in fact be the case, I think that -- and it will depend on how newspaper numbers roll out for the rest of the year but I would think that the dramatic change that you saw in the first quarter should mitigate over the rest of the year and be closer to last year because we would expect that CareerBuilder and Classified Ventures, unless there’s some additional investment in Classified Ventures, would look a bit better. Metro Mix will continue to have investment losses, so I think that those numbers will get closer as the year progresses year over year.

Peter Appert - Goldman Sachs

Okay, and keeping with the tradition of avoiding your or ignoring your request, just several more.

Gracia C. Martore

Quite a tradition.

Peter Appert - Goldman Sachs

Yes. So the March weakening, or the weaker transition on the second half of March, do you have any color in terms of were there specific categories? Was it all classified related? Was it more broad-based?

Gracia C. Martore

On the newspaper side, and Craig, you may want to comment on the broadcast side but on the newspaper side, I think it was clearly on the classified side and you would expect on Easter Sunday that classified is the area that is obviously the hardest hit and people aren’t out looking at new cars or doing real estate transactions and the like, so clearly the impact on the classified side.

Other areas don’t jump right out at me.

Peter Appert - Goldman Sachs

What was noteworthy I thought was that the retail was just a little but weaker in March than you had seen year-to-date, and I had assumed that theoretically the Easter effect would be a positive on the retail side.

Gracia C. Martore

You know, I’m not sure anymore, frankly, as to really what the impact is on the retail side, other than probably in the food category. You know, anecdotally if one went to church, there aren’t a lot of people donning their new Easter bonnets these days and so I think that that kind of department store spending and the like seems to be mitigated, and so it is really more down to the grocery category. But I can’t think much of anything more than that.

Craig A. Dubow

On the television side, Peter, I think the key areas of concern for the quarter had been automotive, as we had discussed. The retail and home furnishings was difficult. Telecommunications and really when you look in some of the movies and home video area as well, we saw some decline there. But those were the key areas that would have had impact.

Peter Appert - Goldman Sachs

And then, should we expect that the out quarter share repurchase activity similar to what you did in the first quarter?

Gracia C. Martore

Again, we’ll be opportunistic on that, Peter. One quarter’s activity doesn’t necessarily mean that’s what the remaining quarters will look like. We’ll just look at it each quarter and it depends obviously on what else is on the plate in a particular quarter, whether there are other investment or acquisition opportunities or, for instance, there is some debt that we are going to be repaying. We may want to forestall a few share repurchases as we get that all lined up.

Peter Appert - Goldman Sachs

Got it. Great, thanks, guys.

Operator

We’ll move next to John Janedis at Wachovia.

John Janedis - Wachovia

Thank you. Craig, I realize they are volatile but given the 2Q pacings, can you expand a bit on political? I think you did something like $9.5 million and $14 million over the prior two election year cycles during 2Q. So when do you expect it to really start to hit up more this year? And have the traditional categories pulled back much more than you would have expected at this point? Thanks.

Craig A. Dubow

Sure. John, just to put it a little bit in perspective, really when you look at the spending right now, specifically on the democratic side, I think the delayed nomination has really pushed back some of the spending when you look at it from a 527 and a pack spending perspective. And likely that will continue until the nomination is decided.

And I would even go further that in the event that this would carry on to the convention, I think those dollars would continue to get pushed back. But having said that, what we are clearly understanding is that the dollars exist and will likely be spent as anticipated. It’s just going to be a latter spending pattern than what we would normally have seen.

And to say that that at this point has got any relation with auto, retail, or any of the other categories that I have just mentioned, I think there is just some softness in these categories going on at this time but frankly, as we move through the year -- and we’ll just come back to the political for a second. As you know with the portfolio that Gannett has in our stations, I think you are going to see some really great activity coming out of Cleveland, Tampa, Jacksonville, Denver, Grand Rapids.

I mean, we are ideally positioned so we are feeling still very solid. It’s just more of a timing issue, if that is responsive to your question.

John Janedis - Wachovia

Yes, thanks. And along those lines, are you still expecting double-digit increases for the Olympics this year or is it too soon to know?

Craig A. Dubow

You know, I would say at this point it’s still a little early for what we are doing on the spot side and certainly on the local side. But I know that the team is working very hard on it and certainly I think that the key advantage that we are doing to see is because of what NBC has done with Primetime and those key events, so I think there will be significant and added interest due to that as we go forward, but it’s a little early yet to tell.

John Janedis - Wachovia

Okay, thanks.

Operator

We’ll move next to Alexia Quadrani at Bear Stearns & Co.

Analyst for Alexia Quadrani - Bear, Stearns & Co.

Actually this is Sylvie [Josroskin] for Alexia. I just had a couple of quick questions. The first I just want to I guess get a clarification -- was political spending this quarter $4.2 million or $5.5 million?

Craig A. Dubow

Political was 5.5 net, yes.

Analyst for Alexia Quadrani - Bear, Stearns & Co.

Okay and then how much in Super Bowl ad dollars was there in Q107?

Gracia C. Martore

I think it was in the $3 million to $4 million range, as I’m recalling.

Craig A. Dubow

That’s right, yeah.

Analyst for Alexia Quadrani - Bear, Stearns & Co.

Okay, and then if you guys can talk about the slowdown in digital advertising growth, especially on the newspaper side to kind of the low to mid-single-digit range. How much of that is actually related to the classifieds weakness?

Gracia C. Martore

A substantial portion actually is related to classified weakness. When we look and dissect the numbers, obviously on the classified side, particularly in employment, there are just fewer print ads that are available to be up-sold. So on the classified side, we are under pressure but when we look at other categories like retail, those numbers were up very nice double-digit increases in retail and in national and in other in the U.S. community publishing side, the U.S. side. So clearly the weakness is on the classified side and the classified side still represents 50% to 55% of our digital revenues, but obviously that’s a diminishing percentage as we continue to increase the retail and national and other sides of the equation.

Analyst for Alexia Quadrani - Bear, Stearns & Co.

If I could just throw one more inside -- was Newsquest profitable this quarter? And if it wasn’t, was it --

Gracia C. Martore

Absolutely profitable.

Analyst for Alexia Quadrani - Bear, Stearns & Co.

It was profitable?

Gracia C. Martore

Absolutely profitable.

Analyst for Alexia Quadrani - Bear, Stearns & Co.

Okay, great. Thank you very much.

Operator

Our next question comes from Karl Choi at Merrill Lynch.

Karl Choi - Merrill Lynch

Good morning. A couple of questions here; one is Gracia, was there any unusual comparison as far as severance in the quarter? And related to that, assuming the top line is going to continue to be difficult but you will be coming up against difficult cost comparisons in the second half, should we expect FTE decline to start to lessen as we get into the second half? And how do you balance it against the investments? Thanks.

Gracia C. Martore

On the severance side, when I look at new severance in the quarter I think that it’s roughly comparable to what we did in the first quarter of last year. As to FTEs and the second half of the year, we’re just going to have to see where business conditions are. The one thing you can be certain of is that we are very focused on spending the dollars and investing dollars where we see that there are good opportunities in the medium to long-term, Metro Mix being a very good example of that and all the things that we are doing on the digital side that Chris articulated at our meeting in mid-March, really ramping up ad serving and a number of pieces, the Mom sites, et cetera. So investment really occurring where we see great opportunities to achieve revenue growth.

As well as on our traditional side, investing in sales resources and sales training to make sure that we are going after every available revenue dollar in the markets that we serve. So we’ll just have to see how the economy and revenues play out and we’ll make decisions accordingly.

Karl Choi - Merrill Lynch

As far as newsprint is concerned, I know you are on a FIFO accounting, so presumably whatever the second quarter increase goes through it should have relatively limited impact on your pricing performance in the second quarter -- is that the right assumption to make?

Gracia C. Martore

Well, price increases in the first quarter obviously will play into the second quarter. As you recall last year when we were in the second quarter, we had prices declining. So even though we are on FIFO, there will be the impact of increasing prices in the first quarter that we’ll have to deal with. So those comparisons will be more difficult in the second quarter.

Karl Choi - Merrill Lynch

Thank you.

Gracia C. Martore

But on the usage side, as I said earlier, more focus on lightweight, more focus on web width reductions and other conservation measures will help to mitigate some of that.

Karl Choi - Merrill Lynch

Thanks.

Operator

Next we’ll move to Thomas Russo at Gardner Russo Gardner

Thomas Russo - Gardner Russo & Gardner

Gracia, I’m wondering if you can talk a bit about Captivate and what’s going on there, how you are continuing to sell that inventory, maybe what links you might have with other activities in the outdoor advertising section in the sector in general. What’s going on with Captivate?

Craig A. Dubow

Captivate at this point, as far as 2Q is concerned, is pacing nicely. We did see some slowdown going through in 1Q, as we had noted. However, I would suggest with the out-of-home area, we are still very enthusiastic. We continue the expansion that we have had from an elevator perspective and as we go forward, we are going to see we hope even more opportunity through what we calling the One Gannett sales efforts, to be able to combine the one call, one buy prospect that will give us I hope some even greater opportunities as we go forward.

But as we see it right now, frankly Thomas, it’s a good situation and as I said, pace was increasing and improving nicely for Q2.

Thomas Russo - Gardner Russo & Gardner

Great, and on the one call, one buy, do you have overlapping customers or is the audience for Captivate a more national sort of brand marketing versus what you typically call on? How do the target markets line up?

Craig A. Dubow

Well, the way that can work, of course not everyone will but I think the key element here is we will have the ability from a national perspective, we’ll have a regional perspective, and a local perspective and any combination thereof. And that’s really what we’re trying to do, so that we can match up what the impressions, if you will, from an advertiser need would be and be able to product those across varying product lines and/or platforms that would match up to give the greatest opportunity. And the initial efforts in this, we’re very excited by it and certainly with the pressure on the advertisers and everyone else at this point in time, this concept seems to make an awful lot of sense and we are going to push it forward very rapidly.

Thomas Russo - Gardner Russo & Gardner

And then assumingly, as you said, selling the network, as you complete the network you have -- add more value I suspect over time, so the more you spend --

Craig A. Dubow

Absolutely and just as we have had significant luck with the consortium of 26 newspaper companies coming in just since our March meeting, you know, with 70 million uniques from that perspective, we have a formidable network and there will be a significant amount of opportunity from a choice perspective to really leverage that local opportunity as we go forward. So we are quite excited by what these opportunities are bringing and certainly the participation that we have right now.

Thomas Russo - Gardner Russo & Gardner

Thank you. And then the other one is just as you try to sell your TV ad time, how do you deal with this C3 measurement issue that’s creeping up as you are trying to track the DVR follow-through to viewership? Does it affect you and how has it increased or changed your ratings and audience?

Craig A. Dubow

You know, we are moving forward on each front as the different technologies come forward but thus far the impact from that perspective has been negligible. We are obviously working in the LPM markets, which continue to be rolled out. And we are very, very pleased with the results that Dave and the broadcast group have been able to achieve despite some of the situations with our NBC stations at this point, our dominance and goal of one or two and certainly our news products will continue. And the stations understand how absolutely important this is and despite whatever the technological methodology will be, they will be there to serve those local communities in every way possible.

Gracia C. Martore

I think we just have time for one more question. We will be more diligent in enforcing the one-question per person rule next quarter, but one more question.

Operator

And we’ll take that question from John Kornreich of Sandler Capital.

John Kornreich - Sandler Capital

Two things -- where does the publishing headcount stand now versus 12, 15 months ago, in terms of percent down?

Gracia C. Martore

It’s probably -- over the last 12 months, it’s down in the 8% range.

John Kornreich - Sandler Capital

Wow. And you still have voluntary plans out there for people to leave if they want to?

Gracia C. Martore

We have a couple of situations where that’s the case.

John Kornreich - Sandler Capital

Okay. Secondly, I want to congratulate you on being the only newspaper company with two digits to the stock price. As a matter of fact, I did an exercise. If you total up all the other newspaper stock prices, it doesn’t quite get to yours. Anyway, lastly, Craig, how you feeling?

Craig A. Dubow

I’m feeling good. As we look at things, I think obviously we need some help from this economy but at the end of the day, I have to tell you with what Chris and the whole team is doing is really moving forward, as I said in the prepared comments. You know, from a cultural perspective, we are moving forward. People understand the necessity from our information centers and certainly from the One Gannett perspective and we are very excited about where we are going overall and feeling good about it.

John Kornreich - Sandler Capital

Great. And your back is getting better?

Craig A. Dubow

My back is doing fine, yeah. Day by day, it does get better and I am feeling quite good about it.

John Kornreich - Sandler Capital

Glad to hear it. Thanks.

Operator

And that does conclude the Q&A session. I’ll turn it back to management for closing remarks.

Gracia C. Martore

Thanks very much for joining us this morning. If you have any additional questions, please feel free to call Jeff Heinz at 703-854-6917, or me. Thanks and have a great day.

Operator

That does conclude today’s conference. Again, thank you for your participation.

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