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Meredith Corp. (NYSE:MDP)

F1Q2013 Results Earnings Call

October 26, 2012 11:00 AM ET

Executives

Steve Lacy - Chief Executive Officer

Joe Ceryanec - Chief Financial Officer

Paul Karpowicz - President, Local Media Group

Tom Harty - President, National Media Group

Mike Lovell - Investor Relations

Analysts

John Crowther - Piper Jaffray

Richard Ingrassia - Roth Capital Partners

Jason Bazinet - Citi

Matt Chesler - Deutsche Bank

Barry Lucas - Gabelli & Co.

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Meredith Corp. Fiscal 2013 First Quarter Earnings Release Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time.

(Operator Instructions)

Also as a reminder today's teleconference is being recorded. At this time we'll turn the conference call over to your host Director of Investor Relations, Mr. Mike Lovell. Please go ahead.

Mike Lovell

Good morning, and thanks, everyone for joining us. We'll start the call this morning with comments from Chairman and Chief Executive Officer, Steve Lacy, and Chief Financial Officer, Joe Ceryanec, then we'll turn the call over to questions. Also on the line this morning are Paul Karpowicz, President of our Local Media Group and Tom Harty, President of our National Media Group. An archive of today's discussion will be available later this afternoon on our IR website and a transcript will follow that.

Our remarks today include forward-looking statements and actual results may differ from forecasts. Some of the reasons why are described at the end of our news release issued earlier today and in some of our SEC filings and with that Steve will begin.

Steve Lacy

Good morning everyone. I hope you had a chance to see our new release issued earlier today detailing our fiscal 2013 first quarter results. I'm pleased to report a strong first quarter and start to our new fiscal 2013. Let me take a moment and share some of our business highlights.

We delivered increased earnings per share of 15% when compared to the prior year period. Total company revenues grew by 8% and total advertising revenues were up a very strong 12%. Our results were led by record first quarter revenue and profit performance by our Local Media Group. We delivered year-over-year growth in non-political revenues for the 12th straight quarter. We also generated a record $12 million in political advertising revenue in the quarter.

The Local Media Group's EBITDA margin was 39% also a record high for our first fiscal quarter. National Media Group revenues increased 3% including 7% growth in advertising revenue and 13% growth in circulation revenue. We're successfully integrating Allrecipes.com, EveryDay with Rachael Ray and the FamilyFun brands into the Meredith portfolio and their results are exceeding our original financial expectations.

We also faced challenges including comparable magazine advertising as well as Meredith accelerated marketing performance. And I'll cover those in a moment in more detail during the operating group discussion.

And finally I'm pleased to report the digital advertising revenues for the entire company nearly doubled also reaching a record high for the fiscal first quarter. Total company digital advertising revenues accounted for nearly 10% of our total ad revenues in the first quarter and that's almost double where we were two years ago at this time.

Stepping back for a moment to look at the current media and marketing environment, we see several encouraging trends. First, we anticipated a strong television political advertising season and it's certainly meeting our expectation. In addition to the heavy Presidential Election spending in battleground states such as Nevada, we're benefitting from hotly contested statewide races in Connecticut, Arizona and Nevada as well. We're also seeing record spending from special interest groups.

Second, non-political television advertising at our stations continues to grow. We're seeing strong demand even if political advertising is tightening the available inventory. Local television continues to prove its unique ability to drive consumers into retail establishments. That's a selling point that we will again emphasize for the upcoming holiday shopping season immediately after the election.

Third, our national media brands continue to demonstrate their relevance with consumers and new digital media platforms are enhancing the brand vibrancy. Readership of our magazine stands at an all-time high of 116 million.

Meanwhile traffic to our 30 million national media - I'm sorry. Meanwhile, traffic to our 30 national media websites is up more than a 100% for the fiscal first quarter compared with the prior year. We're seeing continued growth in our tablet audience as well as strong engagement across social media and our mobile apps.

Fourth, our recent acquisitions are performing ahead of our original financial expectations. We're very focused on maximizing the value of these businesses, particularly allrecipes.com as demand for food-related advertising will reach its annual peak during the approaching holiday season.

And finally, our diverse multi-platform business model continues to generate strong and sustainable cash flow. We generated approximately $190 million in cash flow during the trailing 12-month period. Our total shareholder return strategy announced exactly one year ago today is predicated on that strong cash flow. Since announcing our TSR strategy, Meredith stock price has increased nearly 40% and our dividend has yielded 6% equaling our return to shareholders of nearly 45% for the prior 12 months period.

As we pointed out on prior calls, our goal is to consistently deliver above medium to top quartile total shareholder returns. To that end, we're aggressively positioning Meredith for growth in shareholder value over time through multi-platform consumer and client engagement strategies that extend across all of our businesses through initiatives that possess significant digital components and through activities that capitalize on our broad content creation and marketing capabilities.

So, now let's review our progress in more detail starting with our Local Media business. As I mentioned a few moments ago, our local media group continued its strong performance in the first quarter of fiscal 2013. Non-political advertising revenues rose 5% again marking the 12th straight quarter of year-over-year growth. From a market standpoint performance was strongest at our stations in Las Vegas, Nashville, Atlanta, Portland and Kansas City.

Automotive our largest ad category grew 12%. And professional services our number two ad category increased by 6%. Political advertising was strong due to the very competitive raises in several of our markets that I mentioned a few moments ago. We've made special efforts to educate media buyers in campaign about our powerful local news presence resulting in increased political dollars.

With the elections just 12 days away we expect to deliver total net political advertising revenues at or slightly above our previous estimate of $25 million to $30 million for this entire election cycle accounting both our first and second quarters of fiscal 2013.

Local Media digital advertising grew 17% in our fiscal first quarter. I'll tell you more about how we're maximizing our digital opportunities in just a few moments. Other revenues increased 35% due to growth in retransmission fees and our operation of Turner's Peachtree television station in the Atlanta marketplace. As a result of these accomplishments the Local Media Group delivered record operating profit of $28 million in the first quarter and that's a 150% increase over the year ago time period. While we often discussed our national media's digital initiative, I'd like to take a few moments and expand on what we're doing in digital at the local level.

First we're very focused on enhancing the consumer experience through the launch of mobile apps across the entire group. These apps are great for brand building and are now contributing 10 million more page views per month on average than in the prior year. Second, we're doing a good job monetizing this added traffic by bundling advertising packages across the desktop, mobile and of course on-air platforms. And third, we're adding more sophisticated advertising services for clients in the form of behavioral and geo-targeting. These new capabilities allow us to offer premium forms of reach.

A recent report by [Bravo] Associates confirmed our digital initiatives are driving results. It ranks Meredith local media group number seven nationally of the fastest growing entities selling digital marketing products to local advertisers. In fact, we're the top ranking media company on the list which includes well known internet brands such as Angie's List, Yelp and Pandora. Once again we're pleased with our local media group's continued excellent performance and we're looking forward to a strong finish to this year's political election cycle.

Now let's turn to our national media group and start our conversation with a look at advertising results for the first quarter of fiscal 2013. Total advertising revenues grew 7% driven by the recent acquisitions of Allrecipes.com, EveryDay with Rachael Ray and the FamilyFun brands. We saw gains from the retail, media and entertainment and pets categories, but these gains were offset by continued weakness in prescription drug related advertising. This was expected due to the limited number of new prescription drugs coming to market and certain popular medications coming off patent. Food our largest advertising category was up slightly.

Our total share of magazine industry advertising revenues grew to 10.9% and our average net revenues per magazine page increased about 5%. Total digital advertising revenues were up nearly 115%. Digital growth was particularly strong in the food, retail and financial services category. But as we mentioned earlier the National Media Group continues to operate in a difficult overall advertising marketplace. And comparable advertising revenues declined 9% in the first quarter of fiscal 2013.

We're addressing the core magazine advertising issue head on. First we're adding scale through acquisition and continued operational excellence. We now offer our advertising and marketing clients access to 100 million unduplicated American women a reach that is unmatched in the industry.

We are the number one digital and print advertising company in the food category and also the clear leader in parenthood and the

In parenthood and the home categories. Second we're developing new tools to measure the effectiveness of print advertising. Our Meredith Sales Guarantee today has 13 participants including brands from Johnson & Johnson, Kimberly-Clark and Tyson Foods. We recently expanded the program to include pharmaceutical company brands directly addressing industry weakness in that category.

Third we're pursuing expansion of advertising categories that outperform the industry as a whole. And these include Beauty, Retail and Financial Services. Together these categories posted growth of 5% in our fiscal first quarter and represented approximately 30% of our total magazine advertising, that from 20% of our total magazine advertising revenue just two years ago, so strong progress in our category diversification initiative.

And fourth we're continuing to enhance the creative side of our business. This strengthens our consumer connection and helps advance the advertising category diversification initiatives that I just mentioned. In the fiscal first quarter we launched fresh new designs for the Fitness brand and FamilyFun and a new look for Parents.com. These come on the heels of recent updates to Parents, Ladies' Home Journal, Traditional Home, Midwest Living and EatingWell.

We've been very pleased with the reception we're receiving from consumers to our creative enhancements as witnessed by record high readership across our magazine portfolio. As an example of this increased engagements, we'll grow the rate base for EatingWell to 750,000 in January of 2013. It was 350,000 when we purchased it just 16 months ago. I'm sure many of you saw the story in The New York Times on Monday of this week regarding EatingWell's growth and success under Meredith's ownership.

In addition, last week Traditional Home was named the Advertising Age's 2012 magazine A-List. Ad Age cited Traditional Home's success in finding younger and more affluent readers while also growing the magazine's advertising. Traditional Home's ad pages were up 10% in the first quarter of fiscal 2013.

As I mentioned, we're delivering record high traffic to our digital properties. Social media is a big part of this growing digital connection. Betterhomesandgardens.com continues to be the leading publishing site for downstream traffic from (indiscernible) with Allrecipes close behind.

Parents is building strong social engagements, be a contest that harness Instagram and Facebook. And our food sites regularly host online cooking chats and sessions with our creative leaders. We're also continuing to expand our tablet and mobile presence. Our national brands now have more than 350,000 tablet consumers approximately half of whom our digital only customers other 20 of our brand that are now available across the six major digital newsstand including Next Issue Media which one fifth innovative digital newsstands for iPad in July of this year. Our goal is to have tablet issues comprised 2% of our guaranteed rate base by the end of the current year fiscal 2013.

We are using our growing digital audience for e-commerce opportunities as well most notably we are using our digital channel to generate subscription orders for our magazine. We generated 1 million orders online during the first quarter of fiscal 2013 up more than 40% from what we delivered a year ago at this time. As I'm sure you recall this lowers our subscription acquisition cost. But more importantly increasing our opportunities to up sell and cross sell other properties at digital checkout taken together these factors help us realize an incremental $5 in operating profit per digital order over the average life of the subscription.

Equally as exciting response rates to our recent direct mail offering and other consumer marketing efforts increased in the first quarter of fiscal 2013. When compared to prior year results the strength of our consumer connection can also be seen at retail to continued growth with our licensing program of Better Homes and Gardens branded products at Wal-Mart stores across the country.

We currently have more than 3000 SKUs available and we are working with Wal-Mart to execute a plan further expanding the scope of the Better Homes and Gardens brand in Wal-Mart stores. These new products are hitting the stores now and we're confident that they will receive strong consumer reception as we move to the all important fourth calendar quarter and beyond. I'll close our National Media Group discussion this morning with an update on Meredith accelerated marketing. As I'm sure you recall we first experienced weakness at MXM in early calendar 2012 at certain of our major clients grew more cautious in spending and reduced the scale of some of their programs.

The good news is that RFP activity has picked up significantly and we recently landed some great new clients including Hallmark and the Health Alliance. I haven't seen the pipeline for new business at MXM stronger over the last 10 years that we have worked aggressively to build this business. Depending upon how successful we are in closing new business in that pipeline we expect to deliver growth in the first half of calendar 2013 that will be driven by new wins along with recent program expansions from existing clients that we have already under our belt including Kraft and the National Educational Association.

We remain highly confident that Meredith accelerated marketing can grow revenues in the double digit rates annually over the longer term as it has delivered for Meredith over the last decade.

Now I'll turn the discussion over to Joe Ceryanec, our Chief Financial Officer for some additional financial information and our outlook.

Joe Ceryanec

Thanks, Steve and good morning everybody. And as Steve mentioned today is significant as it marks to one year anniversary that we announced our total shareholder returns strategy. And remind everyone key elements of our TSR program are and current annual dividend with $1.53 per share a $100 million share repurchase program. And ongoing strategic investments to help us scale our business and increased shareholder value overtime.

Consistent with our TSR strategy we repurchased 530,000 shares of company's stock in the first quarter of fiscal 2013 at September 30 we had about $70 million remaining under our current repurchase authorization. Since we announced our TSR strategy one year ago our stock price has increased almost 40% and our dividend has yielded an average of 6% which equals of return of almost 45% to our shareholders over the past year.

As of September 30 our debt to EBITDA ratio continues at a conservative 1.6 to 1 we recently completed extension of our two revolving credit facilities. The first is $150 million unsecured revolver which we extended for a new five year term and the second is our $100 million asset backed revolving bank facility. Which we extended for a new two year term both of these facilities were renewed at lower rates that our pervious facilities were carrying so we are well financed in a plenty of capacity for future acquisitions which we continue to pursue on a very strategic basis.

We have a strong commitment to our shareholders a history of prudent capital management and a long track record of returning a meaningful portion of our free cash flow to investors in the form of both dividends and share repurchases.

Now, turning to our outlook for the second quarter and the full fiscal year. We expect fiscal 2013's second quarter earnings to range from $0.80 to $0.85. As we look more closely at the second quarter of fiscal 2013 compared to the year ago period we expect total company ad revenues to increase in the high teens.

Local Media Group ad revenues are expected to be up more than 20% and that includes political ad revenues between $18 million and $20 million which would put us at between $30 million and $32 million with its first two fiscal quarters which as Steve mentioned is slightly above the range for political ad revenue that we forecasted in July.

Non-political ad revenues are expected to be flat to down slightly reflecting the strong political ad revenues which were crowding out non-political ad inventory. National Media Group ad revenues are expected to be up in the mid-teens which includes the recent acquisitions and down in the mid single digits excluding recent acquisitions.

Now one item that I'd like to further address relates to our second quarter guidance of the range of $0.80 to $0.85 and while we have a fairly large range of Q2 estimates due in large part to the volatility of political revenue in the second quarter, there is one analyst who has an incorrect share count assumption in their model. And if you removed that estimate that would put our consensus under $0.84 would be well within the range of our guidance for Q2. But actually more importantly and consistent with what we've said in July we continue to expect our fiscal 2013 earnings per share range from $2.60 to $2.95 per share.

So with that now we'd be happy to open up the call for question.

Question-and-Answer Session

Operator

Thank you very much. (Operator Instructions.). There first question in queue will come from Mark Zgutowicz with Piper Jaffray. Please go ahead.

John Crowther - Piper Jaffray

Yes this is John Crowther on for Mark. First question if we just dive into a couple of the sectors within your national media group in terms of advertising dollars, how is CPG trended I know that was area you called out last quarter as potentially facing some difficulties here, how is that turn it over to quarter and then on pharma, this is we've had a couple quarters of weakness now, I am wondering if the outlook there is that as soon as we get to easier comps that could improve or is really the lack of new sort of drugs in that pipeline going to continue to make that week for a couple more quarters?

Steve Lacy

Tom do you want to take those two category questions on advertising for us?

Tom Harty

Sure, yes, to your point in the first quarter the CPG count has been weak, especially in the food and household supplies area, and to your point on the drug category it's been very difficult for that 18 months now as we look to the second quarter fiscal second quarter we are seeing improving trends and we believe we will actually be up slightly in the pharmaceutical category for the second fiscal quarter.

John Crowther - Piper Jaffray

Great, and then I really appreciate the detail you guys gave, in terms of the acquisitions in terms of the contribution there, just looking forward I think when you acquired both the magazines Rachael Ray and FamilyFun and then as well all recipes you sort of highlight that these were properties you thought could get to break-even 12 months out are better than break-even 12 months out from acquisition. I am just wondering how that's trending here, obviously all recipes is seasonally weighted to the December which should help but wonder if you could give an update there?

Steve Lacy

Well, the - those acquisitions are in fact positive to operating profit in the first quarter of fiscal 2013 in the aggregate and certainly as we look at the second quarter because of the heavy emphasis of fourth quarter advertising for all recipes will also add to operating profit compared to the prior year and in both of these periods the results of these three acquisitions well ahead of what we would have expected as we did our acquisitions modeling and really John a lot of that has to do with what I call brining these businesses into the big Meredith machine which from an operating perspective is exceedingly efficient and we always surprise ourselves with the cost efficiencies we find when we really getting to running these businesses day to day.

Steve Lacy

So John just a pile on a little bit to what Steve said, the magazine acquisitions Rachael Ray, FamilyFun and then accretive from day one. As we try to be very clear with our recipes that business was going to be dilutive we made some investments in that business as Steve said it's unplanned it would be accretive in our second quarter and we expected to be accretive for the full fiscal '13. Can we get your questions John?

John Crowther - Piper Jaffray

Yup, that's great and just one last one, in that call you mentioned that average revenue per page was up 5% in the quarter and I think that was I think you're recording PIB state there but just wondering what obviously the page trends have been difficult but what sort of driving that, revenue increase year-over-year?

Steve Lacy

So let me start and then I will ask Tom to give you a little more color. First of all that's not a PIB statistic that is a Meredith statistic that we calculate internally and if there is really two factors that play. Part of it is that some of the weakness that we've seen in certain of these categories are more of our low margin products or well margin pages if you will and obviously the ability to increase that is changing the mix by adding these newer categories that I mentioned that are at much higher net per page and Tom do you want to add little color to that in terms of why that so important to the business.

Tom Harty

Yeah, there is a point Steve it's a lot of it is driven by mix so the pharmaceutical category which is down it's a lower rate per page category because they have disclaimer ad in big units that they usually run, so the business that we've actually been replacing that with is coming in a much higher rate. And then also the our acquisitions are delivering us a better yield also.

Steve Lacy

Did that help, John?

John Crowther - Piper Jaffray

It does, yep. Thank you very much.

Operator

Thank you. Our next question is queue will come from Richard Ingrassia with Roth Capital Partners. Please go ahead.

Richard Ingrassia - Roth Capital Partners

Thanks, good morning, guys.

Joe Ceryanec

Hey Rich.

Steve Lacy

Hey Rich, how are you?.

Richard Ingrassia - Roth Capital Partners

I am good thank you. Steve you've been obviously active in M&A over the past year, can you give us an update on what areas of the business do you feel you can build most effectively now and most synergistically from here.

Steve Lacy

Yeah, Rich I would say a couple things one of the areas that we're very excited about and I'm going to tie back to something we've done and some things we'd like to do. Okay, one of the things we're very, very excited about is a small investment that we made an e-commerce company called ShopNation, I'm sure you recall that the acquisition of all recipes.com really put us on the map from a digital perspective. And made us a scale player that importantly allows us to bid for much, much larger advertising buyers -- advertising buys. But in addition to that it gives us this very large digital audience that we can sell our own products to but we also believe we can sell other people's products too, because the consumer online in digital views that as service journalism very much like are traditional service journalism.

So that is very much in its infancy, just getting launched into this season but if you listened to what I said about our ability to sell our magazine subscriptions online and how that went up 40% in the quarter, I think that speaks to what we can do to further monetize the digital audience which I'm sure as you know has been difficult for the industry taken as a whole.

In addition to that I strongly believe that we will continue to see industry consolidation and as I said a few moments ago every time we have the opportunity to bring another one of these brands into the Meredith magazine machine, we see very, very strong financial results. We would clearly be interested in brands that add to the categories that Tom and his team are working, so hard to develop. So that would be beauty, that would be fashion, that would be retail and across the board you get some financial services opportunities. So I don't have something like right on the boards today that I can speak too but time and time again when we get the opportunity to bring another brand into our portfolio we can deliver really strong financial results.

You know that we've been very active on the TV side but we haven't been able to close a transaction yet because Paul is very disciplined as an owner/operator in terms of what he will pay and from an MXM perspective you might recall that about 18 months ago, we made a 20% investment in international digital company that's called, Iris. So we're sort of in the dating before you get married phase, and working to cross-sell our clients and their clients and if we feel good about that transaction we have a very well defined purchase option that runs through December of 2013. And that would basically double the size of MXM and make it a real scale player in the marketplace.

Does that help, Rich?

Richard Ingrassia - Roth Capital Partners

That's great, Steve, I appreciate the detail. One other quick one and I don't if this is for you or Joe, but nice reduction in SG&A in the quarter, sequentially, or year-over-year, actually not a reduction sequentially but just a nice lower number than I expected and gross margins do seem to be inching up, slightly. Can you give us a general going forward perspective on EBITDA margins? Not asking for you to make any promises here but is the consistent 20% a realistic goal? If they go over the next 2 years?

Joe Ceryanec

Yeah, I do, Rich, obviously as you know, we are always focused on cost. You may remember, we took some actions back in April, especially on the National Media side to focus on costs. The other thing that I mentioned earlier to John, is the impact of our recipes which, initially was dilutive at the operating profit line clearly dilutive at the gross margin line as we continue to grow that business and bring it in, I'll say bring it in house with the other businesses. We would expect to create some incremental cost synergies there. So barring a broader, macroeconomic issue that would be out of our control, we feel really good about taking these acquired businesses and continue to make them a more efficient as well as - manage our current infrastructure. So the short answer to your question is, yes. We feel good about our ability to improve margins.

Richard Ingrassia - Roth Capital Partners

Okay, thanks, Joe.

Steve Lacy

Thank you, Rich. Thanks for being on the call.

Richard Ingrassia - Roth Capital Partners

My pleasure.

Operator

Thank you. Our next question in queue will come from Jason Bazinet with Citi. Please go ahead.

Jason Bazinet - Citi

Thanks, I just have one question for Mr. Ceryanec, one for Mr. Lacy. Given you're relatively lien balance sheet and the high dividend yield and the rate environment I was just wondering do you guys as a corporation think at all about sort of any sort of incremental buyback essentially being neutral or positive from a free cash perspective after the dividend? That's my first question.

And second given the progress you're making on acquiring new customers at a lower via the digital channel offset by the declining organic add revenues on the magazine side. How do those two swirl together to influence how you think about the rate base because it seems like there is cross currents going on there and if you could just add any color that would be helpful?

Steve Lacy

Yeah let me start with that second question and then I'll come back to Joe on how he manages the buyback program because I think you're question is really, really an excellent one. And I am just going to step back for a minute. I think it's quite intriguing that through everything that has happened in the economic downturn and shift in media spend by platform and all of that the one line item and part of the business that has been absolutely solid as a rock has been circulation and circulation profitability.

And Tom's team is about a very, very diligent effort right now to really further study that audience and to study that audience maybe dissecting it in a way that a bit different than what we would have done historically to find the most economic cost, to find a new or renew a subscriber. We think we've got an interesting opportunity going forward knowing that loyalty and that persistency and readership to look at some increases in revenue that might and might not result in some, some changes in rate base. But as we've seen that part of the business continue to be so very strong, we're now going to put some real stringent additional stringent work around how much elasticity might in fact there will be in the pricing model for that business.

We do look, Jason, at every rate base and equally as important the frequency of these titles every year and make determinations around that based on profitability. But I think we're really enthused with this continued persistency. So not only have we had this real success and beginning to sell more subs online but I also mentioned that our direct mail activities, the traditional part of the business, we continue to see really strong results.

And I think that points to optimism I can't exactly today connect the dots for you between that and future magazine ad revenue that I, I'm not as good at predicting but I think it really speaks to the health and vitality of the audience as we look forward.

Jason Bazinet - Citi

Can I just, just to make sure I understood what you said?

Steve Lacy

Sure.

Jason Bazinet - Citi

Are you saying that your cost of acquisition is dropping enough that it affords you the opportunity to charge less to the consumer for a title and potentially expand the rate base is that what you are thinking?

Steve Lacy

No, no, no, I am sorry, then I was not clear. What I am saying is the digital activities have allowed the cost of acquisition to continue to drop. So that's Roman numeral I, the strength of the renewals and the direct mail and the digital activity are causing us to study really hard could we charge more going forward. And we're going to start to do some aggressive testing on that into early calendar '13 and beyond with some different I would audience segmentation on pricing than maybe we would have done it historically. So it's a new project, but I think the continued strength of that audience gives us cause to believe that we could push the top line up. Okay.

Jason Bazinet - Citi

Okay, Understood.

Steve Lacy

Now Joe why don't you talk about the buyback program?

Joe Ceryanec

So Jason I'll, that's a fairly easy one and I am going to walk you through some quick math which might help. Everybody kind of understand the way we look at our cash flow. So, we said on the call this morning our trailing 12-month cash from operations was $190 million. Any of you who have seen our analyst presentations know we have a chart that shows historical operating cash flow and that number has been quite consistent even in tough years like 2009.

So we feel very good about the consistency of our ability to generate cash. So you take $190 million, our CapEx runs about 25 to 35, 25 to 30 this year. So you got about $160 million to $165 million of free cash flow. At our current dividend rate of $1.53 that translates to a little under $70 million of annual dividend payments that leaves me $90 million to $95 million of cash after our dividend commitment, which we have got nominal debt service requirements, which leaves me quite a bit of cash, whether it's M&A, whether its share buybacks and as you know we look at the buybacks kind of as a lever that we can use when there is not much M&A activity on the horizon.

So we feel very good about our ability to continue on the dividend track and sustain those dividends over the foreseeable future. I don't know if that exactly get to your question.

Jason Bazinet - Citi

Well my question is if your dividend yield is 4.7% and you can borrow money at 5%, which is like 3.5% or something after tax. It almost seems like the buyback would be self funding, because it avoids paying the dividend. So my question is when you think about how much to buy back does the dividend payment influence your decision at all or is it sort of excluded from your calculus?

Joe Ceryanec

I would say the dividend payment is separate from the calculus on the buyback program, but you are absolutely right, with our dividend yielding over 4% and the cost of fund it is an attractive use of cash.

Jason Bazinet - Citi

Okay, thank you.

Steve Lacy

We just had a philosophy Jason of not increasing it over time and of course we did the 50% bump a year ago and also not actually going out and borrowing money to fund a one-time buyback. But the persistency of it and you know regular appropriate increases I think are what the market should count on.

Jason Bazinet - Citi

Okay, thank you very much.

Steve Lacy

Thank you, Jason.

Operator

Thank you. Our next question in queue will come from Matt Chesler with Deutsche Bank. Please go ahead.

Matt Chesler - Deutsche Bank

Good morning everyone.

Steve Lacy

Hey Matt how are you?

Matt Chesler - Deutsche Bank

I am doing great. So Steve, I think one of the plays for the Company over time is to wean the consumer off of their print addiction in favor of digital. There is some really nice cost saving opportunities for you as and when you are able to do that. Are you feeling any more or less comfortable with the ability and timing of being able to do that?

Steve Lacy

Well I think the most important thing that we always remember is that the beauty of print compared with digital is that we get paid for the content and she is pretty happy with the content. So what we're trying to do is create the digital addition and enrich it in such a way that she would continue to be willing to pay for it and over time would let her print issue go or a new consumer comes in and would be happy enough to pay and not take a print addition.

I continue to believe that we'll accomplish that over time as we've started to accomplish moving the consumer from direct mail to a digital interface to buy and pay for the subscription, but we are going to do it in the way that the consumer responds positively and that's why we set the objective that we have been very public about to say, every year we are going to try to make that happen by an incremental 2%, where the print goes away and the digital component increases. Some people think that that is more modest than it should be.

I continue to believe that we have to serve the customer on the format she wants to be served on. So I think we are equally as optimistic as we have been, we're quite excited. I don't know if you have gone and played with the next issue media digital store front that allows you to test and [ease] a lot of content, but it's going to take consumer adoption and it's going to be a time period where she likes that content.

Matt Chesler - Deutsche Bank

Then a quick question for Paul and Joe each. So Paul, when you guys think about the crowding out and the guidance that you have offered for TV, non-political, what's the assumption for what happens after the election? What's baked in for guidance in terms of dollars coming back? And then is there any update Joe that you could provide in terms of how you are performing in re-trends on a net basis in the first quarter here. Have you already, to what extent are you already starting to payout the reverse re-trends and what kind of progression throughout the year might we see?

Steve Lacy

So, Paul why don't you speak to post election, how you feel about non-political and then Matt, we'll have Joe give you an update on where we are with re-trends and net re-trends, okay. So Paul you go first.

Paul Karpowicz

First, I think there are really two pieces of that. I think post election there is going to be a lot of displaced advertising that's going to need to be put back into the system and we truly do believe that as we get into the rest of November and December that we'll be able to clear a lot of the inventory that was cleaned out or bumped for political reason.

On top of that we're still seeing a pretty strong push from automotive and that's really been what's driving our non-political advertising. So it's a combination of the spots that have been preempted that will filter back in November and December and then automotive and then other holiday advertisers. We do hear about some pretty positive retail business that maybe coming up for November and December to get us into the holiday season.

Joe Ceryanec

So Matt, I will try and explain what's going on with the re-trends and it's in line with what I have been saying all along. So the re-trends revenue number is in our Local Media Group other. Within that number it was I think almost $13 million this quarter versus about $9.5 million.

So that line was a little over $3 million, about little over two-thirds of that increase was due to increased re-trends revenue. That reflects some of the renegotiations we have had with MSOs and some of the satellite providers. There on a net basis however we're starting to pay reverse re-trends to the networks and in the local media cost on our P&L there was about $2 million - I am sorry, about $3 million of expense in the first quarter that would have been zero last quarter.

So the quick math was re-trends revenue was up around 2.5, expense was up over 3, so we actually had a slight degradation in the operating profit that we would have had a year ago, which is exactly what we have been saying. By the end of the year because the MSO agreements are up for negotiation throughout the year, we expect that that number for fiscal '13 will about with what it was in fiscal '12, which was on a net basis kind of around $28 million.

Steve Lacy

So we know a little bit more math than we did, when we were on the call a quarter ago and we continue to believe that the early thought process that we had that said, this is kind of transitional year. We take a little bit of a step back in the first couple of quarters then it goes ahead in the back half. We come about the same or a little better and then we have got some growth opportunity in net re-trends as we go into fiscal '14 and beyond. Same story, but little more confidence around that story, okay?

Matt Chesler - Deutsche Bank

Yeah, that was helpful. Thank you.

Steve Lacy

Thank you, Matt.

Operator

Thank you very much. (Operator Instructions) Next in queue is Barry Lucas with Gabelli & Co.

Barry Lucas - Gabelli & Co.

Thanks and good morning. If we look at the magazine picture Steven and I think in the outlook Joe mentioned down mid single digits ex-M&A. Maybe you can drill down a bit in terms of bookings and that you have seen so far for the December quarter. How do you stand and is that down mid single digits. Sort of what you have seen such so far or what your expectations maybe, with maybe one book left to go?

Steve Lacy

Well we definitely have one book left to go, and I will ask Tom to give you a little bit more color, but it is really volatile month-to-month and the categories in fact move around from period-to-period. So in aggregate a bit better than what we had in the first quarter, but not completely finalized because the January issues which are December revenue for us are not closed. And Tom any other color you would like provide about that, you know go right ahead.

Tom Harty

Yeah, I just think that we feel confident about the guidance that Joe gave you. The up mid teens and down single digits and we do have one more issue to go the January issue.

Barry Lucas - Gabelli & Co.

Okay, that's great. Just come back to the balance sheet issue which has gotten several questions. May you can just refresh our - at least my memory and what your tolerance for leverage might be whether it is M&A or share repurchase related or what have you especially give the cost of capital these days?

Joe Ceryanec

Sure Barry, and in fact we actually posted on our website about a year ago, when we announced the TSR strategy, because we got a lot of questions about leverage capacity and appetitive and what we have said and we have been consistent is that we are comfortable at a leverage ratio of 2.5 times for specific strategic acquisition, we would push that number to three, but we would clearly want to see a path to deleverage over relatively short [time]. And we have not changed our tune on that at all.

Barry Lucas - Gabelli & Co.

Okay, and just to be clear that stretching for 3X does not include share repurchases?

Steve Lacy

No.

Joe Ceryanec

No, that does not.

Steve Lacy

Does not.

Barry Lucas - Gabelli & Co.

Great, thanks very much.

Steve Lacy

Thank you.

Operator

Thank you. At this time there are no additional questions in queue. Please continue.

Steve Lacy

Well, thank you all for participating today. We appreciate the questions and the input and we'll get to work here at Meredith. So thank you very much.

Operator

Thank you and ladies and gentlemen, this conference call will be available for replay after 1 PM Eastern Time today running through November 8, 2012 at mid-night. You may access the AT&T Executive playback service at any time by dialing 800-475-6701 and entering the access code of 267138. International participants may dial 320-365-3844. Once again those phone numbers are 800-475-6701 and 320-365-3844 using the access code of 267138. That does conclude our conference for today. We do thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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