Lee Enterprises Inc (LEE) 2003 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Pulitzer, Inc., first quarter earnings conference call.

Today’s call is being recorded and will also be available via the web by going to www.pulitzerinc.com.

A replay for today’s conference will be available until Tuesday, April 29, and the Webcast will be available on Pulitzer’s website until Wednesday, May 21.

Before we begin, let me note that any comments made during the course of this conference call may include forward-looking statements.

These statements are subject to risks, uncertainties, and other factors, such as overall advertising expenditures, competition, newsprint pricing, outcome of labor negotiations, and economic conditions that could cause future results to differ materially from management’s current expectations.

For a discussion of these and other factors, please see the note to the company’s press release issued earlier this morning, which is also available on our website and the company’s reports filed with SEC.

In addition, please see our press release for the reconciliation of differences of between non-GAAP financial measures presented during this conference call, and the most directly comparable financial measures calculated and presented in accordance with GAPP.

Thank you.

Mr. Woodworth, you may begin your conference call.

Thank you, Rich.

Good morning and thank you for joining us.

I’m Bob Woodworth, President and CEO of Pulitzer, Inc.

With me today are Alan Silverglat, Senior Vice President, Finance;

Terry Egger, Senior Vice President and Publisher of the St. Louis Post Dispatch; and Mark Contreras, Senior Vice President of Pulitzer Newspapers, Inc. or PNI.

Earlier this morning, we released our financial results for the quarter.

I’ll spend a few moments discussing our perspective on those results.

Alan will then talk about our sharpened focus on expense control, and then we’ll open up the call for your questions.

I’d like to start our discussion for the quarter with two general comments.

First, and most obviously, the first quarter, and in particular March, were tough on the revenue side.

Overall, comparable ad revenue, including our share of the revenue of the Tucson newspaper agency was down 1 percent, driven by a 2.8 percent drop in ad revenue in March.

There were a number of factors that contributed to those results.

Two of them: advertiser caution, in part related to the war; and the late Easter this year affected all the companies in our industry.

In addition, the Rams Superbowl appearance and the Winter Olympics together generated about a million dollars in revenue for the Post Dispatch and our newspaper in Provo in early 2002 and created tough comps for us in the first part of ’03.

But, whatever the explanation, I must tell you that we are unhappy any time we aren’t one of the industry leaders in revenue growth.

The second point I want to make about this quarter is that we run our business with a long-term perspective.

That means that even in a tough quarter, we’re willing to continue to make long-term investments to improve our ability to increase readership and advertising market share.

We made a couple of those investments in this quarter and I will tell you more about them in a moment.

We made those investments despite an ongoing focus on cost control that blocked comparable expenses down 1.1 percent in the first quarter, down 4 tenths of a percent if you exclude the impact of lower newsprint prices.

As a result, despite the decline in ad revenue, we achieved a 1 cent a share improvement in both net income from continuing operations and base earnings, which excludes non-operating investment charges.

Alan will tell you more about our cost containment efforts in a few moments.

First though, I’ll drill down a bit into our revenue performance.

In St. Louis, total ad revenue was down 1.9 percent for the quarter with most of that coming from a 2.8 percent decline in March.

Retail advertising, including pre-prints, was up 6 tenths of a percent.

And national, including national pre-prints, was up 9.6 percent.

Overall, pre-prints were up over 16 percent.

The increased sales pressure exerted by our refocused sales force paid dividends as local retail territory revenue increased 9.6 percent for the quarter.

Our weakest categories were major retail, including financial department and furniture stores and total classified.

Overall, classified was down 7.9 percent, reflecting weakness in help wanted and automotive, which were down 12.8 percent and 10.4 percent respectively.

Again, most of the damage was done in March and reflected advertiser caution related to the war.

Our St. Louis portal site, stltoday.com, leveraged its strong position in the market.

It reaches 39 percent of web-enabled adults and turned in a nice profit for the quarter.

Turning to P&I.

Overall, ad revenue was down 1.6 percent for the quarter driven by a 5.4 percent decline in March.

We saw strength in pre-prints, up 11.3 percent and in national which was up 19.2 percent.

Those gains were offset by declines in retail, which including pre-prints, was down 1.4 percent; and classified, which was down 2.8 percent.

As in St. Louis, we saw sharp declines in March, particularly in help wanted and automotive.

And I shaved a percentage point off expenses for the first quarter, which improved its operating margin, albeit slightly.

In Tucson, ad revenue trends continued positive as P&I achieved its third straight quarter of ad revenue growth.

Total ad revenue was up almost 5 percent in the first quarter, with retail, including pre-prints up 4.2 percent, and classified up nearly 7 percent.

To a large extent, these gains reflect the benefit of last August expansion and refocusing of the Tucson sales force.

The impact of increased sales pressure is apparent in local retail territory revenue up 13.5 percent for the quarter.

I spoke earlier about our long-term strategic perspective, and I want to emphasize that even though this quarter was tough, we continued to execute our growth strategies.

At the Post Dispatch in St. Louis, we launched two new sections: a new health and fitness section and expanded business section.

These initiatives are a continuation of our plan to strength the Post Dispatch and expand our base of readers and advertisers.

Early indications are that readers are enthusiastic and advertisers are responding.

In fact, the health and fitness section has been averaging 8 to 12 pages and the Friday business section has been running 18 to 20 pages.

I should note that our investments in these initiatives are included in our previous guidance for 2003 expenses, which was for an increase in non-newsprint expenses of less than 3 percent.

At P&I, we now have cost-selling programs in 8 or our 12 markets, and we achieved positive results by supplementing our print products with direct mail vehicles in Provo, Napa, and Flagstaff, and we continue to make sure that we have enough feet on the street.

We talked before about the Arizona Daily Star’s ongoing initiatives to improve news coverage and make the Star a must-read in the local community.

Those initiatives continue to drive circulation growth with another record in daily circulation set in the first quarter.

Let me just close by reaffirming our guidance for the year.

As we indicated earlier this month, we expect to meet our December guidance for a full year 2003 base earnings per fully diluted share of at least $1.95.

Even though the economy remains sluggish, and we have yet to see how the ongoing engagement and the lack will affect advertisers and the business climate in general, we expect to benefit from tight cost control and from the strategic editorial and advertising sales initiatives we have been implementing.

Thank you and I’ll turn the call over to Alan.

Thank you, Bob, and good morning everyone.

As Bob indicated, I will concentrate my remarks on the expense side, both what we did in the first quarter, and the things we are doing to improve performance in spite of the sluggish economy.

The major cost side factors driving the 1.1 percent decrease in comparable first quarter expenses were: 1.

Lower distribution costs primarily related to eliminating duplication in St. Louis non-subscriber products. 2.

Reduced FTE’s down 1.7 percent from the prior year quarter and 1.2 percent from the fourth quarter of 2002. 3.

Reduced by a debt expense relating to absence of Kmart-driven reserve increases present last year and overall improved collections. 4.

Our 5.6 percent decrease in newsprint cost per ton.

And finally, our ability to hold employee benefit cost increases to 1.5 percent for the quarter.

In total, these factors represent comparable, pre-tax cost savings in the first quarter of about $2.7 million.

These reductions were partially offset by the cost associated with covering the Iraqi conflict, increased sales presence in Tucson, and inflationary increases in compensation and benefits.

All together, those increases totaled 1.7 million, of which approximately $250,000 was related to war coverage.

You can expect this to keep particularly tight control over expenses as the year goes on.

In particular, we are looking at three areas: staffing, particularly including not filling positions as they come open; deferring capital expenditures; and finally, looking at all discretionary expenses, such as travel and promotion.

Now, I will turn it back to Bob.

Thanks, Alan.

We’ll be happy to open it up for your questions.

Ladies and gentlemen.

This is your question and answer session.

If you have a question or comment, please queue star 1 on your touchtone phone.

If you wish to withdraw your question, please queue star 2.

Questions are taken in the order they are received.

Once again, that’s star 1 for questions.

We’ll now pause to build the question queue.

And sir, our first question comes from Peter [Apar] [ph], of Goldman Sachs.

Hi.

Good morning.

A couple of questions on the revenue side of the equation.

I’m wondering -- I wonder, Bob, if you’d be willing to share with us the assumption that goes in -- the revenue growth assumption that goes in to getting you to the $1.95.

That is number one.

Number two, I was wondering if you could share with us anything in specific in terms of your early read on how April is going to turn out and just sort of sequentially how it looks versus March.

And then third, and last, the auto number looks weak relative to some of the other companies in the industry.

I’m wondering if there’s anything specific in your markets that might account for that.

Thanks.

Yeah, Peter, hi.

It’s Bob.

Good morning.

I’ll start out and then turn part of it over to Alan and then on to Terry, particularly on the auto question.

But, I think in terms of our revenue guidance for the rest of the year, we’re certainly looking at being at the lower end of the guidance we provided in December.

We certainly haven’t given up the prospect of improving substantially through the rest of the year.

And as I signaled, I think our results in the first quarter, I hope don’t pretend our results for the rest of the year.

Let me put it that way.

You know, I think many of the initiatives that we have in place are bearing fruit.

We gave you some specifics on the local retailer territory revenue.

As I mentioned, particularly in St. Louis, it was just a downdraft in majors, particularly in furniture -- majors, furniture, financial and we had been weaker in classified.

So, I mean, there’s a lot more of the year to come, but I think the important point there is that we’re managing with the assumption that the revenue environment is uncertain and we’re aligning our costs appropriately.

On the auto question, we had specific issues in St. Louis, and I’ll let Terry comment on that.

Hi, Peter.

Yeah, they were particularly in March which is where the majority of the falloff was.

I think there was just a skittishness among our auto dealers here in the market and it just kind of spread.

It seems to be improving slightly this period.

But again, the first two periods of the month weren’t too bad.

It really was strong in March in terms of [technical difficulty] and probably is as a big pull back as I’ve seen in any particular month in the market.

Specifically though in St. Louis, not in the other markets.

Peter, this is Mark Contreras.

About half of our markets experienced some pullback in auto during March.

March was the culprit.

Anecdotally, we do not sense that auto dealers are shifting their money to other media.

They’re simply pocketing it.

They did in March, at least.

Okay.

And then just broadly in terms of how April is trending.

Well, I think the best way to look at the Easter season is a combination of March and April, Peter.

I mean, as you know, with the flip-flop of the Easter holiday, it can really wreak havoc in one month or the other.

So I think the best thing for us to do is to let’s see how the next week or so in April unfolds, put the two together.

And I think that’s a better read of our overall performance.

Right.

Okay.

Thanks very much.

Thank you.

Thank you, sir.

Our next question comes for Lauren Fine of Merrill Lynch.

Ma’am, please go ahead.

Thank you.

A couple of questions.

One, I’m wondering if you could give us more specific information on the cost at Tucson, specifically compensation expense or other costs to help us understand.

You know, clearly you’re making an investment there, but if you could help us understand the specifics of the cost structure.

And then, what kind of merit pay increases have you put in?

You did refer to those in your prepared remarks, but I’m wondering in sort of what range.

And then I’ll come back with a couple of other questions.

Lauren, hi.

It’s Alan.

On the Tucson costs, it’s in the neighborhood of 500 and 750,000 for the quarter.

It’s principally personnel and sales-related expenses as we put more focus -- feet on the street and focus on the sales territories and further add sales support for those items.

And I should note that we share those expenses with Gannett through the agency relationship.

Relative to the sales -- or to the wage increases, I think it varies some by market.

But generally, less than 3 percent throughout the company.

Okay.

And then just a couple quick questions.

I guess having heard your explanations on why your ad revenues trailed your peers, it’s still -- somehow still feels weaker than I would have expected overall on the quarter.

Not specifically March.

March, I think I understand.

Are you doing anything on the ad rate side in terms of any strategies there that might account for any of it?

And then, unrelated to that question, I’m wondering if you could refresh my memory on the non-operating items that appeared this quarter and a year ago in terms of anything unusual about your marketable securities or what that might relate to.

Lauren, I’ll hopefully, at least, lead you in on the question on ad rate strategies and Terry and Mark can comment.

But, I wouldn’t pinpoint anything specific that we’re doing differently in 2003.

As you know, we’ve taken the opportunity to selectively evaluate rate structures and really just the opportunistic to leverage rates where we can -- where we think we’re really driving a lot of value for the advertiser or correspondingly, use a carefully disciplined discounting structure to drive volume.

So I can’t point to anything specifically that’s different in the first quarter of ’03, you know, versus the past say, three or four years.

Terry or Mark.

The one thing, Lauren, too I think, as I mentioned earlier, the particular significance of the pullback in automotive, I think surprised me more than anything in the quarter.

And that is something that we’re being very aggressive about right now in conversations with auto dealers to stimulate that activity again.

Lauren, I just might mention for the P&I group.

Particularly, in March -- you know, last March, we were up 4.5 percent, which was somewhat anomalous at that point, primarily because of the Olympics in Provo, as well as some other one-time activities.

So I hate to bring that up, but it is a fact that we’re going up against some pretty tough comps on the P&I side.

Right.

I’m aware of that.

Thanks.

And then the other question was on the marketable securities or the non-operating items.

Sure, Lauren.

It’s Alan again.

It relates to an investment made in the -- or a series of investments made in the mid 90’s and just non-operating investments and it’s an ongoing exercise to adjust those to market value, which unfortunately, continues to decline.

I mean, hopefully, we’ll recover but --

But, what kind of investments are they?

In a managed -- principally, in a portfolio of managed funds.

Oh, okay.

And actually, one last one, Alan.

I think you indicated that you expect the tax rate to be lower for the rest of the year.

Yes.

What is that coming from?

I think just continued focus on that aspect of the business, Lauren.

You know, small successes that fortunately, have added up and given us some comfort in booking a lower rate.

No one big item, just a lot of small initiatives, quite frankly.

Great.

Thank you.

Thank you, Ms. Fine.

Our next question comes from Michael [Kapinski] [ph] of A.G. Edwards.

Thanks.

I was wondering if you can give us any update on newsprint prices and the recent attempt by manufacturers to raise them.

And then, just following up on Lauren’s question.

If I recall, I think that you did increase rates fairly aggressively in St. Louis, particularly for the auto category.

I think the rate increases were in the range of 6 to 9 percent, if I recall.

And I was just wondering if you can comment about that, if I’m right about that.

And then, finally, I was wondering if you’ve learned anything in Tucson that can be replicated in St. Louis given the fact that Tucson strongly out-performed your other newspaper group.

And then, probably finally -- I’m sorry for all these questions.

But finally, if you could talk about acquisition prospects.

I know that there are some newspapers that are up on the market and I was wondering if you are actively looking at them.

Mike, let me -- this is Alan -- let me start and then I think it makes sense for Terry to address the St. Louis question and Mark, the Tucson question.

On news print, we’re currently negotiating with the producers.

I’m not sure what part, if any, of the March increase asked for by some, but not all, will stick.

And it’s just, quite frankly, it’s just too early to say what the outcome of all that will be.

On acquisition prospects, it’s our policy not to comment on what we are or aren’t looking at and probably the best thing to do is to stick with that policy.

And --

Mike, hi, it’s Bob.

I’ll comment on Tucson.

Candidly, one of the things we were dealing with in the first quarter in Tucson is relatively easier comps last year.

And it really was the exact opposite of what we encountered in the other major pieces of Pulitzer.

We are very encouraged at the growth in local retail territory revenue.

This is essentially the same strategy that we’ve employed in St. Louis for the past several years and in P&I.

So we’re very encouraged by that.

We think there is substantial upside in growing ad market share in Tucson and are pretty encouraged that we’re on a path to do that.

In auto -- and I’ll let Terry comment on this too.

Many of the big auto dealers, as you know, are on revenue-based contracts.

And those are individual negotiations that are essentially negotiated within a discipline of being equitable across the auto category.

So it really is somewhat a process of negotiation.

As you know, it’s always a situation where we try and align value delivered with rates.

And we’re pretty focused on that.

As it relates to Tucson, Bob, if I can follow up real quick.

How much of the impact have you had in Tucson related to the joint sales for the Gannett paper in Phoenix?

Well, it’s primarily in national at this point, Mike.

And, I honestly don’t know the number for the first quarter.

But, it was about a million dollars -- it might be a little less than a million dollars for ’02.

And so it -- I mean, it is significant we believe, and our partner believes, there’s more opportunity to cross sell in Tucson.

But, the bigger opportunity there is just growing share of the local ad market.

Okay.

Thank you.

Thank you.

Thank you, sir.

Our next question is from Steven Barlow of Prudential.

Sir, please go ahead.

Good morning.

A couple quick ones.

Alan, can you talk about the new Cap Ex number, what it was, what you’re going to go down to, and what projects would be then delayed.

The [indiscernible] revenue in Tucson is up very high.

Is there a point where we cycle through some of that in terms of the incentives or whatever you’ve given to the local subscribers to look out for there that maybe of the rate of growth begins to drop off as those people need to renew.

And the last thing, could you just talk about the pre-print strategy.

Obviously, it’s been very strong for a number of quarters here.

Would you anticipate pre-print revenue would be up double digits in the second quarter or we down now to maybe a high single-digit number going forward for the rest of the year?

Thanks.

Steve, hi.

It’s Alan.

On the capital expenditure number, our previous guidance was 12 to 14 million, and we’re not changing that right now.

And I think that the current activities will cause more of that to be spent in the balance -- in the very late portion of the year as opposed to more throughout the year.

But, I just don’t want to take the number down at present.

Do we know how much you’ve spent in the first quarter?

We’re still putting the numbers together, but it’s in the neighborhood of a million dollars.

Thank you.

In the circulation revenue in Tucson, the price increases were late last year.

And so, we don’t cycle until well into the fourth quarter.

But, the trends there are very encouraging.

They’ve ramped up most of the home delivery subscribers to the new rates at this point.

And frankly, this is -- we’re into year three or four of record circulation levels for that.

So we don’t see anything that would indicate to us that we don’t have continued growth to experience in Tucson circulation.

Thank you, Mark.

Steve, hi.

It’s Bob.

On the pre-prints, I’ll let Terry and Mark also comment on this, but we’re pretty optimistic on the whole pre-print category.

You’ve seen it across the industry.

You know, we’ve done fairly well ourselves in that category.

There’s just tremendous opportunities to develop programs that target single sheet inserts for local advertisers and yank some of that money out of direct mail.

And the thing that’s encouraging about it is we’ve talked a lot about the realignment of our sales force.

But, in terms of the people in St. Louis that we now have out selling, we’re just able to make a lot more contact and effectively market our programs.

And I think what you’re seeing in pre-print revenue is a direct manifestation of that.

Terry.

No, I think that’s exactly right.

You know, there are things -- as Bob mentioned in his opening remarks, we are not at all pleased with where our revenue performance was.

And I’m being pretty aggressive about that.

But, there are a few areas that we are very pleased with.

And the local territories, as we mentioned, the continued strong growth there is one of those.

Mike Kapinski, I think, asked the question about our use of the rate card.

And clearly, pre-prints is an area where we had an opportunity and we seized that opportunity.

We did implement a new program, as you recall, last June when we eliminated the pre-distribution of the post dispatch non-subscriber product and changed our pre-print distribution.

That led to a lot of savings.

But, at the same time, we were able to increase our revenue by making it a more efficient buy for major advertisers.

So the combination of a better buy for major advertisers at a better rate for us and the activity in pursuing local single sheet business on the territory sales side are two of the big drivers of our business in the local and pre-print areas.

Steve, I would just add in P&I, particularly in Provo and in Napa and in Flagstaff where we’ve started direct mail programs to track advertisers and get them out of traditional direct mail companies.

We’ve had very, very good success in Provo for more than a year and more recently in Napa than Flagstaff.

And I would anticipate that we’ll explore those opportunities where they make themselves apparent.

We’ll have tougher comps in the second half of the year overall in St. Louis, but we still anticipate this to a strong growth area for us.

Do you think during the second quarter we can still get double digit on pre-print overall for the company?

Well, Steve, I’m reluctant to pin down precise numbers.

But, our perspective is, as you know, is more than a quarter.

And I think over time, our opportunity in pre-print is extraordinary, frankly.

Fair enough.

Thank you.

Thank you.

Thank you, Mr. Barlow.

Our next question comes from William Drury of CSFB.

Sir, please go ahead.

Thanks.

Just a quick question.

I got on a bit late, so I apologize if this is redundant.

But, just wondering if you had talked about the revenue performance at the non-post dispatch properties in St. Louis, number one.

And number two, just to clarify on the cost side the target for non-newsprint cost is around 3 percent and doing better than that this quarter.

Does that mean that so on a sequential perspective for the remaining quarters of the year, that those cost numbers may pick up?

I just want to make sure I understand that correctly.

Thanks.

Bill, good morning.

It’s Bob.

I’ll let Terry comment on the -- really the suburban journals, and to a lesser extent, stltoday.com in St. Louis.

Just kind of over-arching, as you know, we accomplished a major transition there last June in terms of the realignment of the sales force.

As I said in the annual report, we had some bumps along the way.

It was a major reorganization.

We largely worked our way through that.

But, we really believe we have a lot more upside in terms of those local retail territories that are staffed by suburban journal reps.

Terry, do you want to --

Bill, specifically, in the first quarter, we really report on St. Louis combined, so without giving the exact numbers, the suburban journals were up in the quarter and as was STL Today showed very nice revenue growth.

The pullback was really in the areas that impacted the Post Dispatch most, and that is auto recruitment in some of the major accounts.

So the individual pieces looked better than the whole, and again, as we address those larger issues, we expect improvement.

Bill, and on the cost side, as I signaled in the comments, we are pretty focused on our costs.

I mean, we just are assuming going forward that we’re going to be in an uncertain revenue environment.

And we’re managing staffing and discretionary expenses appropriately.

So I don’t -- I’m not sure I’d throw out a specific number in terms of how we’ll perform relative to the original guidance, but we’re pretty focused on our expenses.

Okay.

Excellent.

Very helpful.

Thank you.

Thank you.

Thank you, sir.

Ladies and gentlemen, as a reminder, queue star 1 for any questions or comments.

Mr. Woodworth, it appears we have no questions at this time.

Okay, Rich.

Thank you.

I’d just like to close by emphasizing just a couple of key elements that will drive our performance for the remainder of ’03.

First, as I just mentioned to Bill, we are sharply focused on share of local ad dollars and will continue to execute growth strategies in all of our markets.

And second, only time will tell whether the war-driven cautions and the economic conditions we saw in the first quarter will continue to affect advertising demand.

But our planning assumes we will continue to be in a highly uncertain economic environment and we’re intent on aligning our expenses to match that environment.

So just a couple closing thoughts.

We appreciate your time today.

Thank you very much.

Ladies and gentlemen.

That does conclude your conference call.

Thank you for your participation.