Executives
Mark Donahue - Director IR
Rich Zannino - CEO
Chris Vieth - CFO
Gordon Crovitz - EVP, President Enterprise Media Group
John Wilcox - SVP, President Community Media Group
Analysts
John Janedis - Banc of America Securities
Fred Searby - JP Morgan
Lauren Fine - Merrill Lynch
Peter Appert - Goldman Sachs
Deborah Schwartz - Credit Suisse
Craig Huber - Lehman Brothers
Lisa Monaco - Morgan Stanley
Christa Quarles - Thomas Weisel Partners
Brian Shipman - UBS
Edward Atorino - Benchmark Capital
Dow Jones & Company Inc (DJ) 1Q 2006 Earnings Conference Call April 18, 2006 11:00 AM ET
Operator
Greetings, ladies and gentlemen. Welcome to the Dow Jones & Co. first quarter 2006 earnings conference call. (Operator Instructions). It is now my pleasure to introduce your host, Mr. Mark Donahue, Director of Investor Relations for Dow Jones & Co. Mr. Donahue, you may begin.
Mark Donahue
Thanks, Dan. Good morning. Welcome to our first quarter 2006 earnings conference call and webcast at www.DowJones.com. On this morning's call we have with us Rich Zannino, our Chief Executive Officer; Chris Vieth, our Chief Financial Officer; Gordon Crovitz, Executive Vice President of Dow Jones, President, Enterprise Media and Publisher of The Wall Street Journal; and John Wilcox, Senior Vice President of Dow Jones and President of the Community Media Group. All will be available to take any questions you may have.
The transcript of today's prepared remarks will be on our website shortly after the call. Also this call will be available by replay from 12:00 PM today to 11:59 PM on April 25 by dialing 877-660-6853 and entering account number 286 and confirmation number 194956.
Finally, should you have any questions after the call, please feel free to telephone Investor Relations at 609-520-5660. Our discussion today will include certain forward-looking statements, and actual results may differ from those presented here. Factors that could cause such a difference are outlined in our SEC filings and on our website. A reconciliation to non-GAAP financial measures disclosed today are available in our earnings release which is available on the Investor Relations page of our website at www.DowJones.com. With that, it is my pleasure to turn the call over to Rich Zannino.
Rich Zannino
Thanks, Mark. Good morning all and thanks for joining us. I will start by taking us through some operating highlights and Chris will follow up with some supplemental information and our second quarter outlook. Then Chris and Gordon Crovitz, who is President of our Consumer Media Group; and John Wilcox, who is President of our Community Media Group; and I will be available to answer your questions.
We're off to a solid start in 2006, with solid improvements in first quarter revenue and profits as we bucked a difficult print advertising environment and began to see a payback on many of our initiatives. First quarter 2006 revenue was up 10%. We posted a 14% increase in advertising revenue, and revenue gains at each of our business segments. Earnings before special items increased 27% to $0.14 per share versus $0.11 per share last year. I can't help but note that excluding $0.06 of expected dilution from our investment in Weekend Edition, EPS would have been $0.20 per share, up 82% over last year.
At Consumer Media, our revenue increased 13% in the first quarter. Ad revenue was up 18%, driven by strong growth at the print Wall Street Journal, Dow Jones Online and Barron's. Circulation revenue was up 6%, driven by online subscriber growth at WSJ.com, and the fourth consecutive quarter of circulation revenue gains at the print Journal, which is being driven by price increases and a higher number of paying print subscribers as we continue our drive to improve the profitability of our print circulation.
Consumer media had an operating loss of $2.4 million in the quarter, due to expected losses related to our investment in Weekend Edition. Even so, this loss was an improvement over the $6.9 million loss in the first quarter of 2005. We will continue to identify and implement revenue and expense initiatives to regain profitability and margins in this critically important segment.
At the print Journal we have been facing a difficult ad environment, though we have always believed that our differentiated content and audiences would set us apart from traditional competitors and enable us to succeed in any business environment. Our journalists are committed to maintaining the quality, differentiation and indispensable appeal of our content. This content in turn attracts the uniquely affluent and influential audience that is hard to reach, and therefore very attractive to advertisers.
We have made numerous changes to our ad sales efforts over the last couple of years to better serve our advertisers by enabling them to more efficiently reach this audience. We are seeing a strong payback on these efforts. Our linage was up 17.2% in March. This marks the seventh consecutive month of linage gains at the Journal. For the first quarter we increased linage by 14.9%, marking the third consecutive quarter of linage gains.
As importantly, over this timeframe we have been taking meaningful market share from our primary print competitors in both B2B and consumer ad categories in what has been a very challenging print ad environment.
Looking further at our first quarter advertising results at the Journal, we saw broad-based revenue gains across all major categories, with particular strength in classified. We have made a number of changes in our ad categories to better align our reporting with the way our advertising clients buy, and our new category focused ad sales organization structure. I will use these new categories in the following discussion, and you can find restated historical results on our Investor Relations website.
In our financial category, we have added insurance advertising, reclassifying it from general B2B. Finance linage at the Journal was up 12.2% in the first quarter, driven by strong tombstone and insurance linage. While wholesale and retail financial advertising linage was lower, revenue in these categories was higher due to better mix. We expect this positive trend of financial linage and revenues to continue into the second quarter.
In technology, we have added Technology Professional Services, moving it from general B2B; and reclassed Consumer Technology out of Technology into the General Consumer category. Technology linage was up 0.009% in the first quarter, as strong gains in communications and technology professional services advertising were partially offset by declines in software, hardware and personal computer ads. We are expecting tech linage and revenues to be up again in the second quarter.
In the Journal's general advertising category, which includes both B2B and consumer advertising, linage was up 10.6% in the first quarter. We posted a 39% increase in general B2B advertising due to increased corporate and public utility advertising, modestly offset by weak professional services advertising. We expect general B2B advertising to be positive again in the second quarter of 2006 as well.
The Journal's consumer ad linage was up a bit less than 1% in the first quarter due to increases in luxury goods, auto, and beverages advertising, partially offset by declines in pharma, travel and media advertising. We expect to post a stronger gain in consumer advertising in the second quarter on gains in luxury and travel advertising revenue. Classified linage in the quarter was up 31.4%, driven by continued strong increases in real estate classified advertising.
During the quarter, color ad pages were up 22% and color premium revenue increased 33%. This helped drive the 2.6% increase in average ad rates at the Journal, even with a heavier mix of lower yield in classified lines.
Weekend Edition continues to be a success, pleasing readers and advertisers. Reader reaction continues to be overwhelmingly positive and thus it is no surprise that advertisers are being attracted to Weekend Edition in increasing numbers.
More than 615 advertisers have supported Weekend Edition since its launch in September 2005, with about 60% of them new to the Journal. About 65% of the ad revenue in Weekend is from consumer ads, and only about 35% of it is shifting from Weekday Edition to the Journal.
For the second quarter, similar to the first quarter, we expect dilution from our investment in Weekend Edition to be about $0.06 per share.
At Dow Jones Online, which includes the Online Journal, its vertical websites, Barron's Online and Market Watch, full revenue grew 26% with ad revenue up 26%, and circulation revenue up 29% in the first quarter. Paid subs to The Wall Street Journal Online grew to 761,000, up 4% over the first quarter 2005. We have also added 69,000 Barron's Online paid subscribers since we set up the separately paid site, proving that online users will pay for valuable content, giving us yet another online revenue stream and enabling us to further modify our valuable Barron's brand.
Elsewhere in Consumer Media, internationally the repositioning of the Journal Editions in Europe and Asia continues to generate positive top and bottom line results. Advertising linage was up in the Asian and European edition; however, ad revenues declined by 3.6% in the quarter, mainly due to a higher number of advertisers running global ad programs which, while they contribute more to overall revenues, result in lower revenues to the international pubs themselves.
At Barron's, total ad pages increased 7% in the quarter, while ad revenue increased 19%, driven by strong color advertising and gains in corporate and technology advertising.
Moving on now to Enterprise Media. We had a strong first quarter. Total revenue increased 6.6% to $97 million. Operating income climbed 10% to $23.5 million, and operating margins increased 80 basis points to 24.3%. These gains were driven by organic revenue and profit growth at both newswires and our indexes ventures business.
Newswires revenue was up 5% to $66 million in the quarter on gains in international and domestic operations and at Dow Jones Financial Information Services. Our indexes ventures business again posted a solid revenue gain in the first quarter of 12% to $18 million, driven by continued strong growth in assets underlining many of our indexes and double-digit growth at our reprint business. Finally, Dow Jones Licensing Service revenue grew almost 9% due to the acquisition of Market Watch in January 2005.
Our Community Media Group's first quarter performance reflected industry-wide challenges. First quarter revenue was up 1.9% to $80 million, driven by a 2.5% increase in ad revenue. Higher preprint revenues, ad rate increases and a 39% increase in Internet ad revenues more than offset a 5% linage decline in the quarter, as a big decline in auto classifieds and non-daily advertising were only partially offset by a strong gain in real estate advertising.
Operating expenses increased 6.9%, with the majority of this increase due to unavoidable increases for 15% higher newsprint prices, higher pension expenses due to changed actuarial assumptions and increased fuel costs.
As a result, operating income at Community Media declined 22.5% to $10 million, and margins declined 410 basis points to 13%. Please note that the first quarter is a seasonally low profit quarter for Community Media, which exacerbates the impact of these cost increases on percentage profit declines in our operating margins.
In February of this year we set a new organization structure, leadership team and management processes. This new structure is a significant first step in transforming Dow Jones from what it has been -- a channel-focused publishing Company -- into what we need to be in the future -- a franchised market and customer-focused media and content Company.
As such, this new structure it is better aligned with the pursuit of our strategic vision, which is to be everywhere our customers want us to be, with high-quality differentiated, indispensable and conveniently accessible news, information and insight; whether in print, online, mobile, or any other media channel, thereby maximizing the value of each of our brand franchises and generating above market total shareholder returns.
Before, we were organized around channels of distribution: print, electronic and community newspapers. Today we are organized around market and customers: Consumer Media, Enterprise Media and Community Media.
By integrating channels and organizing around markets and customers we can enhance our journalistic excellence and increase the value we provide to all customers. We can also better respond to rapidly changing markets and customer needs to exploit opportunities in the consumer, enterprise and local media markets.
Our new structure has also reduced management layers, streamlined management processes, and decentralized and eliminated a number of corporate functions, which is allowing us to execute and make decisions faster, and is increasing our accountability for results.
We have made substantial progress in this reorganization, and in fact, have already identified a secondary round of cost efficiencies, which will bring total annual savings from the reorg to nearly $15 million, as Chris will elaborate.
With the early returns on this reorganization, with our strong start to the year in the first quarter, with our ad revenue growth at the print Journal, our online operations, and all across our portfolio, with the many other innovative initiatives currently underway from Weekend Edition, to online projects to international print positioning, and next the impending redesign of the print Journal, and with the development of our new long-range plans, we hope to add a slate of even bolder strategies and initiatives. We're highly confident in our future and in our ability to achieve our vision and goals, and to create significant value for our customers and shareholders. With that, I will turn it over to Chris.
Chris Vieth
Thanks, Rich. Good morning, everyone. This morning I will provide some additional background on our first quarter financial results. As Rich noted, first quarter EPS before special items grew 27% to $0.14 per share versus $0.11 last year, driven by improved results at our Consumer Media and Enterprise Media segments. EPS was in line with our first quarter EPS guidance and $0.01 below the First Call mean estimate of $0.15 per share.
Before I move on, let me provide some additional background on our ad linage performance versus our guidance in the quarter. Our original guidance contemplated a mid single-digit increase in ad volume, which along with an increased mix of higher yielding display advertising and a 2.5% increase in average rate, was expected to yield a low teens increase in advertising revenue for the quarter.
While we significantly exceeded our mid single-digit linage guidance with a 14.9% increase in ad linage, we only modestly exceeded our low teens ad revenue estimate with a 17.9% increase in ad revenue.
In other words, while we significantly over-delivered on our ad linage guidance, the mix was much more weighted to low rate real estate classified advertising, which sells at about one-third the rate of display advertising. As such, the over delivery on linage didn't translate to a commensurate over delivery on ad revenue. The resulting increase in ad revenue was partially offset by increased newsprint usage and costs, lower profits at Community Media due to weak automotive advertising revenue, and lower than expected equity income associated with investment in a new financial magazine at Vedomosti.
During the quarter, we recorded two special items netting to a gain of $0.60 per share, with a special gain of approximately $63 million, or $0.75 per share, representing a reversal of the contract guarantee reserve in excess of the settlement with Cantor and MDC, offset by a charge of approximately $21 million, or $0.15 per share, for restructuring in connection with the reorganization of the Company's business segments.
As we previously announced in March of this year, we reached a settlement agreement to conclude all litigation with Cantor and MDC relating to Dow Jones' obligation under a guarantee we issued back in 1995. In connection with the settlement, Dow Jones agreed to pay an aggregate of $202 million to Cantor and MDC. The settlement agreement resolved claims in excess of $340 million against Dow Jones, and is well below the amount we would have paid under the original terms of the guarantee.
At the end of the first quarter we paid and financed the settlement with commercial paper. We are currently evaluating a number of alternatives to refinance these amounts on a long-term basis. And we expect to incur approximately $7.5 million, or roughly $0.055 per share of additional interest expense in 2006.
During the first quarter, we recorded a restructuring charge of $21 million to cover the elimination of roughly 65 positions. This includes the 20 net positions announced in the February reorganization, plus the elimination of another 45 positions as the new management team took over their operations and quickly identified their own individual reorganizations.
This restructuring eliminated many management positions and layers. In this regard it was top-heavy, and the resulting charge included severance for a number of highly-paid senior executives. Excluding the 10 highest level positions, the average severance for the remaining 55 positions averages about $100,000 per employee. All in, we're expecting these reductions to save us about $14.5 million on an annual basis, and $11 million in 2006, with about $2 million in the second quarter, and the remainder in the second half of the year.
We would also like to note that we have begun this month to disclose changes in ad revenue in addition to volume for the Journal and our other major publications.
Turning to our operating results total Company revenue was up 10% in the quarter to $452 million including a 14% increase in advertising revenue with solid gains across most businesses units.
First quarter operating expenses before special items increased about 9% to $430 million. Weekend Edition accounted for about 4% of the increase; a full quarter of Market Watch expenses represented roughly 1%, with 2% for increased newsprint costs and stock option expensing, leaving all other expenses up about 2% over last year. The impact of stock option expensing was about $0.02 per share in the first quarter and will total about $0.04 per share for the year.
First quarter operating income before special items increased $5 million to $22 million, and operating margin was 4.9%, up from 4.1% last year. For the quarter, pre-tax equity income was $3 million versus about $700,000 last year, driven by the elimination of international television losses, as well as improvement at SmartMoney, which more than offset reduced equity earnings of Vedomosti, Stoxx and Factiva.
Net interest expense increased $2 million in the first quarter on a full quarter of debt for the Market Watch acquisition and increased commercial paper market rates. Before special items, our effective tax rate was 40% in the quarter versus last year's rate of 38.2%. The prior year first quarter benefited from small investment gains that were largely shielded from taxes by our capital loss carryforwards. We continue to plan a tax rate of 39% for the full year of 2006.
Looking at some other key figures, our first quarter ending head count totaled about 7,400 and was about flat with last year's first quarter, excluding employees associated with our acquisitions.
Total newsprint costs in the quarter were up roughly 25%, with consumption up 8% and average cost per ton up about 15%, and in line with what we expected. For the remainder of 2006 we're expecting that the $40 February price increase sticks between $25 and $30 by May. This is essentially the last successful increase of the year.
Capital expenditures totaled $10 million in the quarter compared to $11 million last year. Depreciation and amortization totaled $25 million for the quarter, down about $2 million from the prior year period as a result of overall lower capital expenditures over the last several years.
Our balance sheet and cash flow remains strong. We closed the quarter with a cash balance of $15 million and debt of $714 million versus a debt level of $472 million at the end of last quarter. The $242 million increase in debt in the first quarter is due to our $202 million settlement payment and first quarter timing of annual pension and executive compensation payments.
Switching to forward outlook, looking at the second quarter of 2006, the global print ad environment remains uncertain, though our outlook for print publications remains quite positive. We are estimating that Journal advertising linage will increase from the low to mid-teens percentage range, with gains across all ad categories and continued strong classified real estate advertising that delivers advertising revenue gains up slightly more than linage.
Together with a 2.5% increase in average ad rates, continued double-digit growth at Dow Jones Online, and modest growth at Community Media and Enterprise Media, this implies an mid to upper single-digit percentage increase in total revenue in the second quarter of 2006.
Total operating expenses will be up about 8%. However, this includes 3.5% for planned expenses for Weekend Edition, and 2% for a 12% increase in newsprint prices, web-width expenses and stock option expensing, leaving remaining costs up only 2% over last year. Rolling in $2 million in equity income, increased interest cost due to a higher debt level and higher interest rates, results in second quarter 2006 EPS in the low to mid $0.30 per share range before special items, versus $0.34 per share last year.
Weekend Edition losses are expected to total $0.06 per share versus $0.02 in last year's second quarter. If we were to adjust for the $0.04 of incremental Weekend Edition losses, $0.02 per share for interest expense on the contract guarantee settlements, $0.01 per share for stock option expensing, and $0.01 per share for web-width expenses, EPS before special items would be in the high $0.30 to low $0.40 per share range versus last year's $0.34. With that, we will turn it back to Dan to open the phone lines for questions.
Question-and-Answer Session
Operator
(Operator Instructions). Our first question comes from John Janedis of Banc of America Securities.
John Janedis - Banc of America Securities
Can you give a broader outlook on the Weekend Journal? Through the first half of the year, I think you guys were expecting something like $0.12 of losses, which really isn't too far from the full year expectations. Are you seeing that ramp you expected or has the full year number changed?
Rich Zannino
Our original guidance was that Weekend Edition would be dilutive by about $0.15 per share for the year. We were $0.06 dilutive in the first quarter. We're projecting or estimating to be $0.06 dilutive in the second quarter. That leaves us about $0.03 worth of dilution for the balance of the year.
We're not changing our annual guidance for Weekend Edition at this time. We do have lots of initiatives in the pipeline to drive Weekend Edition growth starting here in the second quarter and continuing on throughout the year. I will ask Gordon to elaborate on what those initiatives are.
Gordon Crovitz
I think we did achieve our profit plan last year, also for the first quarter of this year. We expect Weekend Edition will continue to build its momentum as the year progresses. I think we will have a very strong fourth quarter, in line with the calendar patterns of more consumer-oriented publications.
Rich mentioned some recent initiatives. I highlight the hiring of a new Luxury Category Director from Conde Nast. We have a new agency relations outreach program. We're about to re-launch a marketing campaign specifically for Weekend Edition.
As Rich also mentioned, we've had 615 new advertisers to Weekend Edition so far in 2006. We booked more than 330 advertisers into Weekend Edition, about half of them new to the Journal.
We are getting a little bit more granular. We do forecast a strong April for Weekend Edition. We think we're going to see some improvements in travel, luxury, beverage, some of the other consumer categories. We also think that we are seeing some nice momentum building up in classified segments, which as you know have been a big driver of Weekend Journal.
One way you might think about Weekend Edition is The Weekend Journal this past quarter grew ad revenues by some 30%. That is a sign to us of potential power of reaching Journal readers in a somewhat different context. It took a little while for Weekend Journal to build up, and I think it will take a little while for Weekend Edition to build up, and we're very pleased with so far.
John Janedis - Banc of America Securities
Gordon, just on the new advertisers, can you give us an idea of how many of those in the Weekend had been repeat customers, if you will? Then if any of those have moved into the weekday Journal?
Gordon Crovitz
I think we said that about one-third of the advertisers in Weekend Edition may have moved from the weekdays, so that is two-thirds.
John Janedis - Banc of America Securities
I mean actually the reverse.
Rich Zannino
I think anecdotally, John -- and we can get you a better answer in terms of how many -- but Home Depot started as a Weekend Edition advertiser and now they're in Monday to Friday. Harry Winston is now in Monday to Friday. One of my favorites, Steel Chainsaws, started in Weekend Edition and is now in Monday to Friday as well.
There are a number of examples of advertisers who started on weekends who are now also buying Monday through Friday in the Journal as well. We can get you a better answer in terms of exactly how many started in Weekend and are buying in Monday to Friday.
John Janedis - Banc of America Securities
Okay, thanks. I think historically at one point or another you talked about your expense management, and that at some point as business recovers, you could see $0.80 of incremental revenue flow to EBITDA. Do you still really have that view? If you do, under what conditions should we expect to actually start to see some of that flow through?
Rich Zannino
Yes, we definitely have that view. Unfortunately when newsprint prices are going up by 15% that flow through doesn't hold, as newsprint prices did go up by 15% in the first quarter. We saw probably a 60% to 65% flow through at the Journal in the quarter, even with those higher newsprint prices.
Once we get past the dilution of Weekend Edition, we will start reporting again like we did in the past exactly what those flow throughs are, so we will be able to demonstrate it.
John Janedis - Banc of America Securities
Thanks so much.
Operator
Our next question comes from Fred Searby of JP Morgan.
Fred Searby - JP Morgan
Thank you. A couple of questions. One, we saw a pickup in pro forma organic it looks like on the online with Market Watch at 15%, but it is still growing below peers. I just wondered what you thought the outlook is? Beyond broker consolidation, and given the fact that also we have seen unique users down somewhat year-on-year, where you see that heading, and if you could start to track ahead of peers?
Secondly to understand, following up on John's question, the higher dilution we are seeing in the first half from Weekend Edition is really cost coming in higher than expected? Or is it really that you're not quite seeing the flow through on the revenue side?
Chris Vieth
I will try to take them in order, and then Gordon can chime in as well. But as far as online ad revenue growth at Market Watch, where we are pleased in the first quarter with the results we got on the initiatives we talked to you about at the end of the third quarter and the fourth quarter.
On a pro forma basis Market Watch online ad revenues were up double digits. They were up well over 20% in January and March. February was a tough month for both the online Journal and Market Watch in online ad revenues. Our understanding is it was a pretty tough month for most in the online ad revenue business. Two out of three very strong months in the first quarter, double-digit pro forma growth for Market Watch in the first quarter, and we're feeling good about the second quarter there as well.
As far as traffic goes, traffic is down. Unique visitors are down year-over-year. We have talked about that in the past. That is basically the loss of a large portal deal that was kicking off lots of unique visitors last year that we've just only now restarted again this year. So while year-over-year traffic is down, if you look on a month-to-month basis March traffic is better than it was in February. So that is positive sign as we build the traffic back up there.
Page views are way up year-over-year, and are up sequentially in March over February. That is really what generates our inventory. We've got plenty of inventory at Market Watch to sell and we're also seeing positive momentum in traffic there on a month over month basis. Again, we're very, very pleased with the Market Watch acquisition and the way it is progressing and proceeding and the numbers that it is throwing off. We believe that will only get better as this year progresses.
As far as the Weekend Edition dilution, it is not costing in excess of our estimates. It is revenue being slightly softer in the second quarter than we originally anticipated, but not alarmingly so. As Gordon noted, the back half of the year is very large for consumer advertisers. As you can imagine, the fourth quarter is huge for consumer advertisers. We're not at all changing our guidance or changing any of that.
We are, as Gordon said, kicking in a bunch of initiatives, not the least of which is a very heavy marketing and PR campaign to drive additional business into Weekend Edition. Stay tuned on that as well.
Fred Searby - JP Morgan
Thank you.
Operator
Our next question comes from Lauren Fine of Merrill Lynch.
Lauren Fine - Merrill Lynch
A couple of quick ones. Since you're able to identify the costs with the Weekend Edition, I'm wondering if you could share what the revenue looks like at this point, so we also have a sense of what the underlying Journal is actually doing?
On the Enterprise Media segment, when you had done the restructuring call, you had indicated that you thought margins for the year would be in the 22% range. In the first quarter the margins were closer to 24%. Do you still think 22% for the year is the right number, and so we should expect to see some compression? If so, why? Or are we going to probably hang in at the 24% range?
Rich Zannino
On Weekend Edition, I don't think we're going to disclose the total revenue there because there is ad revenue and circulation revenue, etc. What we can say is in the fourth quarter about 4% to 5% of our total linage increase came from Weekend Edition. In the first quarter it is in the 3% range. In the second quarter, as business ramps up in the spring for consumer advertising, it will be up in the 5% range.
If you took our total ad linage or ad revenue comps and you backed off those numbers, you would get a flavor for how we're doing Monday to Friday, excluding the business which we felt shift over to Weekend -- in other words accounting for that. It is a different way of getting at your question, Lauren. Monday to Friday is very healthy in the fourth quarter of last year and first quarter of this year, and certainly expected to be in the second quarter of next.
As far as the EMG goes, it is probably too early to call in terms of what additional upside there may be there for the balance of year. EMG had a very strong first quarter ahead of plan, which drove its margin ahead of where we originally expected it to be. Claire Hart, the President of Enterprise Media Group, it is certainly her intention to keep that momentum going over the course of the year, but we're not going to change our operating margin assumption at this time.
Lauren Fine - Merrill Lynch
On the U.S. Wall Street Journal and Weekend Edition combined, can you identify what the volume growth would have been, excluding real estate from both periods, with everything else?
Rich Zannino
For Monday through Saturday our display linage was up in the 9%. We will confirm this in a minute, but my recollection is it was up 9% or so.
Chris Vieth
8% or 9%.
Rich Zannino
But we will come back. If the number is different than 9%, we will come back to it.
Lauren Fine - Merrill Lynch
Great, thank you.
Operator
Our next question comes from Peter Appert of Goldman Sachs.
Peter Appert - Goldman Sachs
Rich, two questions on pricing. One, I actually knew that real estate pricing was lower. I didn't realize the differential was quite as large as it is. Given how strong those volume numbers are, might it make sense to have some sort of mid-year pricing adjustments, specifically in the real estate category?
I wonder what your thoughts are in terms of ad pricing in '07 in the context of the web-width reduction. Do you think that is going to weigh on your ability to get pricing next year?
Rich Zannino
I think on the second part of your question, many newspaper publishers have reduced their web-width and have not found it necessary to reduce pricing, we are operating certainly under that strong, strong assumption that we will not have to make adjustments to ad rates.
Peter Appert - Goldman Sachs
I wasn't thinking so much of reductions, but rather maybe more modest increases perhaps?
Rich Zannino
We will cross that bridge when we come to it. We usually start looking at ad pricing in mid-summer, in time to have a new rate card down by September or so. We will look at web-width reduction. We will also look at market share. We will look at what the competition is doing. We will look at our readership trends. We will look at the elasticity of certain categories in terms of where we think we have leverage.
For example, the real estate classified is still very strong. We would have leverage there. Tombstone has been very strong. We have leverage there. So we go category by category and take many factors into account. The web-width reduction will be one. We're going to offer many, many new ad positions as part of the redesign.
Part of our focus groups and our research on the redesign is not only speaking with readers, but it is also speaking with advertisers and seeing what they feel we can do by way of improving adjacencies and giving them new and different ad positions. So we will factor all that in as we develop our rate card for next year.
Peter Appert - Goldman Sachs
How about real estate pricing specifically? Do think you are under-priced in that category?
Gordon Crovitz
This is Gordon. It is certainly nice for a newspaper publisher to hear a question about pricing leverage in classifieds. I think we did have an unusually strong first quarter. We do expect continued momentum, but at a somewhat lesser pace in Q2. We are probably still below double digits. Do keep in mind that with Easter moving to April from March, April will be so much lower than normal.
Having said all that, I do think that our real estate category is very strong, our distinctive properties franchise is unique. As we look at pricing opportunities that certainly will be one that we will be focused on. That is of course in the context of most other publishers not looking at pricing as an opportunity for classified readers online.
Rich Zannino
We deliver a lot of value to those advertisers and we have been able to raise prices -- I don't want to use the word aggressively -- but we have been able, over the last couple of years, to put through some double-digit price increases on real estate classified advertising, as we have matched supply and demand and the value of our audience with what advertisers want to pay to reach that audience.
I don't think we would do something mid-year, to your original question. We have, as we have seen the strength over the last two to three years, been pretty forward in raising rates there, much higher than we have raised rates elsewhere on the rate card.
Peter Appert - Goldman Sachs
Any thoughts or comments on what you are seeing in terms of pricing on the online ad market currently?
Gordon Crovitz
I think as we have said, our yield continues to increase. The online dynamics are of course much different than they are in print. Our yield increases across online are really driven increased targeting of our advertising through techniques like interest-based targeting, and we think that will continue.
We are seeing some of the lower CPM sites in our segment finally increase price somewhat and we think that will also benefit us. That is to Rich's earlier answer on profit. That does help explain how heavy our finger is on the lever of page views and monthly uniques. We are, as we said before, very focused on efficiently monetizing the traffic that we have.
Peter Appert - Goldman Sachs
Thank you.
Operator
Our next question comes from Deborah Schwartz of Credit Suisse.
Deborah Schwartz - Credit Suisse
I have another question about profit leverage in the Consumer Media division. You spoke about dilution from the Weekend Edition and newsprint pricing, but again there is probably a little bit less leverage than we would have thought given the strong top line. I was wondering can you just us a breakdown of all the cost in Consumer Media division specifically?
Rich Zannino
What you mean by a breakdown of all the costs?
Deborah Schwartz - Credit Suisse
Just what else is driving costs up besides the Weekend Edition and newsprint? What were costs at the Weekend Edition and newsprint in the Consumer Media division?
Chris Vieth
For Consumer Media in the quarter total costs were up roughly 11%. But that included Weekend Edition, newsprint, some incremental stock-based compensation, etc. On a comparable basis, costs were only up about 2.5% in the quarter. Newsprint expenses ran a little bit higher than we expected for the quarter.
The biggest piece of our newsprint increase over last year was attributable solely to Weekend. We had about $1.2 million of additional newsprint expense associated with the higher advertising that we had in the paper. Then in the quarter we had somewhat higher news and circulation order than we originally planned, and we will peel that back a little bit. We will peel it back for sure in the second quarter and forward. That probably cost us close to $2 million. Those are the biggest drivers.
Deborah Schwartz - Credit Suisse
That is helpful. As for the second question, can you just comment on what you are seeing in auto advertising across your properties? What you're seeing at the Journal? Also can you quantify how much auto classifieds was down at the community newspapers?
Rich Zannino
At the print Journal auto advertising was up very nicely. Auto advertising lineage was up low to mid single digits, and auto advertising revenue was up double digits as we got some good mix benefits there. It was being driven by domestic, although foreign was up as well. So a pretty healthy trend at the Journal, although we expect it may fall back to a slight negative in the second quarter.
We will let John Wilcox talk to the auto classified at Ottaway. We won't give the exact number, except to say that it was down double digits in the quarter.
John Wilcox
We were disappointed along with the rest of the community newspaper industry on automotive. We're making a massive outreach right now to auto dealers across our Company. The publishers have been visiting them and to see what exactly they are looking for.
We're gratified to find that they see newspapers as a very valuable tool for reaching customers who maybe have not yet decided to buy, or don't even know they want to buy a car yet. They also see value with the Internet for people who have definitely decided and now are just looking how to find the best car and the best value.
We are rolling out combination buys of print and Internet across our sites. We have added cars.com and autofinder.com to our sites incrementally. Furthermore, we believe that by further outreach and additional enhancements to our websites we will be competitive and get back in line.
Deborah Schwartz - Credit Suisse
Thank you.
Operator
Our next question comes from Craig Huber of Lehman Brothers.
Craig Huber - Lehman Brothers
Given that your Company has been in a turnaround here for the last six years or so -- and some might argue for much longer -- the hardest thing with turnarounds typically are, and you know this better than I do, is just getting the top line. The churn is looking much better at The Wall Street Journal.
My question though is on the cost side. After six years of significant cost cuts, you mentioned comparable costs up 2%. Can you give investors a flavor what they should expect the next three quarters on total costs for the Company, how much they should be up?
Rich Zannino
I think they will be up in the 2% range on a comparable basis. Maybe, depending on how the top line looks and what other levers we have, maybe we can have them be up in the 1% range. But we are working on certain initiatives, and we will talk more about those as we get further into the year. If you are modeling, I would be modeling 2%.
Craig Huber - Lehman Brothers
What about total costs, just so we are all on the same page there as well?
Chris Vieth
In the range of about 5%.
Craig Huber - Lehman Brothers
I assume you mean scaling down as the year goes on, once we annualize the dilution from Weekend Edition, etc.? That 5% is an average for the next three quarters?
Chris Vieth
That is 5% for the full year, including the first quarter. But you are right; it will average down. As we get into the fourth quarter, we should actually have comparable costs decline slightly.
Craig Huber - Lehman Brothers
Jumping over to [Canadian] newspapers specifically the first half of year I think cash costs there were up in the 7% range. Yet all these major Internet initiatives you're going through there, this year they are up about 6.5% to cash costs. You mentioned a few of the items, but what should investors specifically expect there are on the cost side? Because your revenues are looking better than your peers on that front -- not a great number, but what about cost there specifically for the rest of the year?
Chris Vieth
For the full year we're probably looking at a total cost increase in the 4% to 5% range, and that includes the increased prices for newsprint. Excluding newsprint, comp costs ought to be in the 3% to 4% range in the newspapers.
Craig Huber - Lehman Brothers
Thank you.
Operator
Our next question comes from Lisa Monaco of Morgan Stanley.
Lisa Monaco - Morgan Stanley
Could you please elaborate on April trends at The Wall Street Journal? And just a little bit more color on the Consumer category. I think you cited better trends in travel and luxury goods. What is the confidence there?
Gordon Crovitz
Maybe one way to address that issue, Lisa, is to highlight a couple of general points on Q1 performance at the Journal and what that may portend going forward. One point I think I would make is that according to CMR the Journal through February ranked number one per dollar revenue growth for any of the publications that CMR tracks. That is about 250 publications, both magazines and newspapers. So the Journal is a real standout for the first quarter. As we indicated, we think that we will continue to see improvement next quarter.
Another statement along those lines is we do think we have taken significant market share from our competitive set of about 2.6%. Of course we have B2C advertising which has increased about 3% in our core field group year-to-date. That is, as you indicated, in large part due to additional consumer, especially luxury expertise that has been built within the Journal sales team. So we really are confident that we're going to see continued strength in those consumer categories, which is a reflection of the reorganization that is flowing as of this quarter.
Lisa Monaco - Morgan Stanley
Can you just remind us how much consumers is as a percentage of total ad revenue?
Gordon Crovitz
It is roughly about one-quarter.
Lisa Monaco - Morgan Stanley
Thank you.
Operator
Our next question comes from Christa Quarles of Thomas Weisel Partners.
Christa Quarles - Thomas Weisel Partners
Double-checking the 6% growth in circulation in the U.S., I think I heard that right, could you highlight just what the actual circulation volumes were in the quarter roughly in terms of what they would be up?
In terms of some of the ad trends on the online side, with the Market Watch page you have 5%, versus the Journal page you said 27%. If I think about that 15%, should I sort of spread it out accordingly?
Rich Zannino
Your first question was on circulation revenue?
Christa Quarles - Thomas Weisel Partners
I think I heard it was up 6%, and then I was just asking more on the volume side though.
Rich Zannino
The underlying circ numbers, you mean?
Christa Quarles - Thomas Weisel Partners
Right.
Gordon Crovitz
Maybe one way to get it that is --.
Christa Quarles - Thomas Weisel Partners
Not the revenue numbers, the actual circulation.
Gordon Crovitz
I think the March ABC report will be out soon. I can give you a little preview of that which may help address the question.
Christa Quarles - Thomas Weisel Partners
Yes.
Gordon Crovitz
We think trends will be down about 2% in line with industry trends. The online subscriptions that are counted by ABC will be up about 1%. ABC, Journal circ will be down about 1% versus prior year. We are seeing a much healthier mix. We just saw our fourth quarter in a row of increased circulation revenue at the print Journal. Individually paid circ are up about 6% versus September, about 5% versus March. So we are we think doing well in terms of volume, in terms of circulation efficiency.
Rich Zannino
Maybe if I can bottom line that. Total circ in the next ABC for print will be down in the 2% range, but individually paid is going to be higher within that total circ. and that is what is driving the higher revenue. We feel that is healthier in terms of circulation revenue and circulation profitability, and it is also healthier for advertisers, given it is an even higher quality audience when it is a paid audience. We are feeling good about our circ now at the Journal.
Gordon Crovitz
In terms of Online, I don't think I quite do the proportions the way you are suggesting in terms of relative movement in page views. As we said, we had a total online advertising increase of about 26%. Pro forma it was probably closer to about 15%, and that is reflecting double-digit growth across all the major properties, the Online Journal, Market Watch, and Barron's.
Christa Quarles - Thomas Weisel Partners
Thank you.
Operator
Our next question comes from Brian Shipman of UBS.
Brian Shipman - UBS
Just a quick follow-up. If you could mention how Barron's circulation volume is performing?
Also, Barrons.com paid subscriptions started off pretty nicely at 59,000 at the end of the first quarter. Can you indicate where you see that number trending through the remainder of 2006?
While certainly not high, your debt level is as high as I remember it for the Company. If you maybe could talk about uses of free cash flow going forward?
Gordon Crovitz
First on Barron's print circulation, average page circ is up about 2.4% versus the prior year to 313,000. You asked about Barron's Online, and let me try to put that in a little bit of context, because as Rich mentioned, we did change our strategy between the Online Journal and Barron's Online in January. We now record subscriptions to both the Online Journal and Barron's Online. The total for those subscriptions is 820,000. That is 89,000, or 12%, greater than the year ago number at 731,000, which of course only included Online Journal subscribers.
We separated Barron's Online in January because we knew it would justify its own separate price point, its own value proposition. Part of the process of the Barron's Online separation was that existing Online Journal subscribers who primarily used Barron's were given the opportunity to convert their online total subscription to a Barron's Online subscription, and then will be classed as Barron's Online subscribers. So the upshot of that was that even with those Online Journal subscribers being transferred to Barron's, the Online Journal grew about 4% from last year.
Barron's Online circulation in its first three months went to 59,000 paid subscribers. We did focus primarily on migrating or upselling existing Online Journal subscribers. We do have a number of subscribers who have come in since then, who have paid $79 or $39 for Barron's paid subscribers. So I think it is fair to say we were pleasantly surprised by the volume number on Barron's Online in such a short period of time. We think it will continue to grow nicely, and it will help contribute to the circulation revenue for our online properties, which was up 29% in the first quarter on that volume increase of roughly 4%.
Chris Vieth
Taking your debt question, our debt at the end of the first quarter was $714 million. That is a peak for us for the year. The first quarter is cash use quarter for us, and then we will improve upon that as we move throughout the year. That includes the $202 million Cantor settlement, as I mentioned. We're now evaluating a number of alternatives to turn that out over the long term.
Our objective really with our debt and our balance sheet is to protect our investment grade commercial paper credit ratings, and maintain financial flexibility, and get financing at competitive rates. Our cash usage over the balance of this year, as we stated earlier this year, we're going to have about $100 million in capital. That remains unchanged. $36 million of that is associated with the web-width reduction.
We expect our dividend to remain unchanged at $1. We will pay that -- it will be about $83.5 million, $84 million this year. Then at least throughout the balance of this year, from where we sit today, we expect to use the excess cash flow that we generate to reduce our debt levels, and over time of course get those in line with what we expect to be the right objective for maintaining those investment grade commercial credit -- commercial paper credit ratings.
Brian Shipman - UBS
Thank you.
Operator
Due to time constraints we only have time for one more question, which will be coming from Edward Atorino. He is from Benchmark Capital.
Edward Atorino - Benchmark Capital
I have two questions. One, Rich, could you repeat the new advertiser data you gave earlier on the call? I think you gave numbers of 615 and 330 and I was a little confused on what is what. Did you give the number of subscriber levels at WSJ.com at the end of the quarter?
Rich Zannino
Yes. The 615 were new advertisers to Weekend Edition launched in September 2005.
Edward Atorino - Benchmark Capital
What was the 330?
Rich Zannino
New advertisers this year.
Gordon Crovitz
We added 761 for the Online Journal for this quarter. If you're looking at the sequential number, that would be down just a little bit. That is a reflection, as I was saying earlier, of the number of Online Journal subscribers who will be classed as Barron's Online subscribers, or who elected Barron's Online.
Edward Atorino - Benchmark Capital
I know Market Watch is sort of buried in the group, but could you talk about its performance year-over-year -- or so far this year, if you can look at it that way?
Gordon Crovitz
What we said is we had in terms of Dow Jones online advertising up 26% or about 15% on a pro forma basis. Double-digit revenue across all the major properties; that would be the Online Journal and its verticals, Market Watch and Barron's Online.
Edward Atorino - Benchmark Capital
Thank you.
Mark Donahue
Thanks Dan and thanks everybody for joining us this morning.
Operator
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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