Third Quarter 2005 Earnings
October 13, 2005
Ruthellyn Musil, Sr. Vice-President/Corporate Relations
Good morning, and welcome to Tribune’s conference call to review 2005 third quarter results. Our opening remarks will be brief, we’ll have plenty of time for questions, and expect to finish within the hour.
Our speakers this morning are CEO Dennis FitzSimons, Don Grenesko, senior vice president and chief financial officer and Scott Smith, president of Tribune Publishing.
Turning to our press release, Tribune’s third quarter diluted EPS of 7 cents on a GAAP basis includes a net non-operating loss of 43 cents per share. Our release contains the information needed to make a meaningful comparison to First Call estimates.
Now, before turning the call over to Dennis, a reminder that our discussion may include forward-looking statements that are covered in greater detail in Tribune’s SEC filings.
Dennis FitzSimons, Chairman, President and CEO
Our third quarter results reflect the continuing soft ad environment which is impacting both our newspaper and television groups. Our results also reflect our continued focus on expense control. Earnings per share include the impact of the Matthew Bender Tax Court ruling and Don will have some additional detail on that in a minute.
Consolidated operating revenues were down 1%, although advertising revenue in publishing was up 2% over last year, or 3% excluding Newsday. Circulation revenue declines of 7% were slightly better than second quarter, and we project those trends will continue to improve. Scott will talk more about that.
In television, third quarter revenue for our group was down 6%. Improved baseball revenue in New York for Mets telecasts and in Chicago for the Cubs telecasts, partially offset the impact of an overall soft market and People Meter ratings declines.
Our New Orleans stations had no revenue in September as a result of Hurricane Katrina. Both stations were knocked off the air and 121 employees were displaced. Thankfully, none of them suffered serious injury. Our stations did have significant property damage. We are covered for property damage and business interruption through our insurance.
Now despite evacuating its facility, the staff at our New Orleans ABC affiliate, WGNO, provided continuous coverage by working in conjunction with the Baton Rouge ABC affiliate, WBRZ. The combined news staffs were actually working and living out of WBRZ, and our people did a weeklong nonstop job of covering this tragedy.
Our Washington D.C. bureau also coordinated a record number of live shots and packages for our stations all around the country.
Some other developments during the quarter. As you know, Pat Mullen resigned last week as head of our broadcasting group. We thank Pat for his contributions to our company and we wish him well.
We have excellent experienced leadership in the Broadcast Group. Our regional vice-presidents, John Reardon and John Vitanovec are reporting directly to me in this transition period. Prior to their current roles, John Reardon ran sales at WGN TV and then moved to be General Manager of KTLA for eight years. John Vitanovec was CFO of WGN, then ran our Boston station before returning to Chicago as general manager of WGN. Both have experience with the Superstation. And both have 20 years experience at Tribune and are very strong leaders. Given this environment, everyone in the broadcast division is focused on improving results.
The new fall season is off to a reasonable start.
Sex and the City launched in September in late fringe. Performance has generally been good, particularly in the larger markets and on the Superstation; ratings for young women have been especially strong.
On The WB, new season premieres are encouraging with returning shows like Gilmore Girls, Everwood and Smallville performing well. Of the new shows, Supernatural on Tuesdays night stands out, and that has shown steady growth each week. Actually this Tuesday was the best performance to date.
One change here in looking at the year-to-year numbers is that Fox has premiered their shows before the baseball playoffs this year
In publishing, in addition to better circulation trends, the ad settlement process at Newsday and Hoy New York is coming to a close.
At the Los Angeles Times, Dean Baquet was promoted to editor, and John O’Loughlin, formerly GM of RedEye in Chicago, will now head up marketing at the Times.
Speaking of RedEye, it is now officially a free publication and one of 40 targeted publications that collectively will generate over $300 million in revenue this year.
Online revenue grew 46% in the quarter due primarily to strength in recruitment. For the year, online revenue is expected to be over $175 million.
Given the overall environment, we continue to make cost control a priority. In addition to tightly controlling day-to-day operating expenses, our business units are looking at structural changes where they make sense. An example of this in the third quarter, was Newsday’s staff reduction at its New York city newsroom as it puts more focus on its core market of Long Island.
The TV group also announced reductions in news staffing in Philadelphia and San Diego. The NBC O&Os in those markets will now produce local primetime newscasts for those stations. We’ve had an arrangement like this in Miami for some time, with good results.
Now, let’s go to Don, and then Scott; I’ll be back to wrap up.
Don Grenesko, Sr. Vice-President/Finance and Administration
As Dennis mentioned, we continue to focus on reducing company-wide expenses.
On a consolidated basis, cash expenses grew only 1% in the quarter, excluding the $55 million charge we took a year ago to settle advertiser claims at Newsday and Hoy.
In publishing, cash expenses increased 2%, excluding the charge. Publishing’s staffing levels were 3% below last year, but compensation still rose by 1% due to higher retirement costs. Newsprint and ink increased 5%, reflecting higher newsprint prices, somewhat offset by lower consumption and our switch to lighter weight paper.
In broadcasting, cash operating expenses were down 1%. This was largely due to lower expenses on the radio/entertainment line.
TV cash expenses rose 4% primarily due to $2 million in costs related to Hurricane Katrina; expenses associated with outsourcing our news in Philadelphia and San Diego; and higher broadcast rights incurred with the launch of the new TV season.
Turning back to consolidated results, operating cash flow, excluding the special charge last year, was $343 million compared to $369 million in 2004’s third quarter. The 2005 third quarter results also include a net non-operating loss of $.43 per share related primarily to the adverse Matthew Bender tax ruling
As noted in our earnings release, we increased our tax reserve by $610 million in the third quarter by recording additional income tax expense of $150 million and by adding $460 million of goodwill to the balance sheet.
The $610 million reserve is somewhat lower than the preliminary estimate of $625 million that we provided in our September 27th press release. The reduction is the result of refining our estimates of the taxes and related interest. Also, after finalizing our accounting treatment, the amount charged to the income statement is a bit higher, and the increase to goodwill is below our preliminary estimates.
Debt, excluding the PHONES, was $2.0 billion at the end of the third quarter, and increased to $2.9 billion shortly thereafter as a result of paying the federal portion of the Matthew Bender tax liability. The tax payments were financed through our commercial paper program. For your modeling purposes, total interest expense will be about $50 million in the fourth quarter.
Diluted average shares outstanding declined by 3 percent due to stock repurchases. As noted in our press release, we repurchased 3.6 million shares in the quarter, for a total of 9.8 million shares year-to-date.
Now, I’ll turn things over to Scott.
Scott Smith, President/Tribune Publishing
Thanks Don, and good morning everyone.
Publishing group operating revenues in the third quarter were $980 million, even with last year. Ad revenues grew by 2%, or 3% excluding Newsday, while circulation revenue was down 7%. I’ll talk more about circulation trends in a moment.
Ad revenue growth was led by the Chicago Tribune, Orlando Sentinel and South Florida Sun-Sentinel. Our Florida newspapers benefited some in period 9 because advertising was soft during the hurricanes last year. Los Angeles was about even with a year ago. And Newsday revenues were down less in the third quarter than the first half. By category:
Retail advertising was up 1%, with Chicago, Orlando and Hartford posting the best gains.
Preprint revenues were up 1% with the decline in Newsday more than offset by mid- single digit growth in L.A., Chicago and South Florida, reinforcing that our capital investments are paying off.
National advertising was down 3% with declines in technology, wireless, movies and transportation partially offset by good growth in the financial category.
Classified advertising revenues for the group increased 7%, largely driven by growth in on-line help wanted. Third quarter revenue for the CareerBuilder network was up 72% year-over-year, and increased 78% year to date. CareerBuilder network traffic for August was up 13% to approximately 17 million unique visitors, compared to 14 million unique visitors for Monster. Overall, help-wanted revenue rose 17%. Real estate was up 16% while auto was down 4%.
Let me turn now to circulation. We said we expected to show meaningful improvement in trends by September, and we did. For the third quarter total net paid circulation for our 11 metropolitan daily newspapers averaged 3 million copies daily and 4.3 million copies on Sunday. Those figures are down 2% daily and 3% Sunday versus the prior year.
Circulation most valued by advertisers -- individually paid copies -- were down only 1.3% daily and 2.8% Sunday. And home delivery results were better than that.
Circulation revenues were down more than copies due to continued selective discounting. This includes extending the time period for introductory discounts and from adding days to current subscription plans, and supports our strategy to optimize circulation economics. We are starting to see smaller declines in circulation revenue in the monthly trends as well.
Going forward we will include similar information on group circulation in each quarterly earnings release in response to your request for more information on this front.
When the September ABC FAS-FAX report is released in early November, Tribune Publishing, excluding Newsday, will report total circulation down 4% daily and Sunday. Individually paid circulation will be down about 3.5%.
ABC has released the audited March results for Newsday and we’ve agreed that Newsday’s September results will not be included in FAS-FAX but will be issued when that audit is also complete.
The six-month reports for each of our other newspapers reflect trends that improved slightly in the second quarter, and much more in the third quarter as editorial innovations and better marketing took hold.
With that, I’ll turn it back to Dennis.
As we begin the fourth quarter, publishing ad revenue trends in national and classified are similar to the third quarter, while retail is off some. Ratings issues at our TV stations continue to impact revenues. Fourth quarter pacing is down in the low double-digit range.
Our strong focus on costs will continue. For the full year, expenses should be flat to up slightly, despite higher costs for retirement plans, as well as newsprint.
As Don mentioned, we’ve repurchased about 10 million shares year-to-date. With the stock at its current level, we expect to continue to be active in this area.
- Source: TRB website.
- The Q&A from this call is here.
- All Media Stock Blog articles on TRB.
- A list of full conference call transcripts available on the Seeking Alpha Network.
- The complete list of media stocks (and links to articles about them) covered by The Media Stock Blog.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.