Lee Enterprises Inc (LEE) 2004 Q1 法說會逐字稿

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

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

A replay for today's conference call will be available until Friday, April 23rd, and the Web cast will be available on Pulitzer's web site until Monday, May 17th.

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 expectation.

For a discussion of these and other factors please see the note on the Company's press release issued earlier this morning which is also available on Pulitzer's web site and the Company's reports filed with the SEC.

In addition please use the Company's press release for reconciliation of the differences between non GAAP financial measures presented during the conference call and most directly comparable financial measures calculated and presented in accordance with GAAP.

Thank you.

Mr. Woodworth, you may begin your call.

Thank you, Jean, and good morning.

Thank you for joining us.

I am Bob Woodworth, President and CEO of Pulitzer Inc.

With me today are Alan Silverglat, Senior Vice President and CFO;

Terry Egger, Senior Vice President and publisher of the St. Louis Post-Dispatch; and Mark Contreras, Senior Vice President with responsibility for Pulitzer Newspapers Inc. or PNI and our operations in Tucson.

Earlier this morning we released our first quarter financial results.

I will spend a few moments providing our perspective on those results, Alan will briefly review the numbers with an emphasis on the expense side and then we will open up the call for your questions.

As we discuss results please keep in mind that unless otherwise noted the numbers we are presenting are comparable numbers which include our interest in the Tucson joint operating agreement and exclude the impact of acquisitions we made in 2003 and 2004.

I should also note that when we discussed the retail and national revenue categories both include pre press.

As you can tell from the release we're pleased with our quarter.

Total revenue increased 3.1 percent, ad revenue up 3.8 percent.

Much of that gain was driven by the third period when total revenue increased 5.4 percent and advertising revenue was up 7.4 percent.

We were especially encouraged because the revenue gains were led by classified, which strengthened month by month and was up up 9 1/2 percent for the quarter.

Significantly we saw gains in each major category with recruitment up 13.7 percent, real estate up 11 1/2 percent and auto up 5.6 percent.

We remain cautious but we are encouraged by the trends in classified.

Retail advertising increased 1.7 percent, 3.1 percent excluding Tucson, with gains from smaller local advertisers and from the furniture, grocery, and home improvement categories.

We also received one month of revenue from Local Values, our new direct-mail initiative in St. Louis.

I should also note that our online operations made a significant contribution to our results for the quarter.

National advertising, our smallest category, decreased 6.7 percent, primarily reflecting weakness in telecommunications and travel.

Frankly national was a disappointment, particularly in St. Louis.

Reported operating income was down 4.2 percent largely because of increased cost associated with our new direct-mail product, higher newsprint prices and increased health-care costs.

With the benefit of lower net interest costs and a higher gain on the sale of securities, reported earnings increased 12 percent to 37 cents and base earnings which are explained in our press release were up just under 6 percent.

Now let me give you a bit more detail about the quarter and I will start with St. Louis.

Total ad revenue was up 3.6 percent led by a nearly 8 percent gain in classifieds.

For the first time in several years, we saw gains in all three major classified categories.

Real estate increased 10.3 percent; help wanted was up 6.3 percent; and auto was up 7 percent.

Retail was up 3.2 percent and national was down 6.8 percent.

While we continued to see some weakness in a couple of majors, as has been the case in other markets, we also continue to achieve solid growth in local territory revenues -- the category over which we have the most control.

Local territory revenue was up 13.1 percent for the quarter with a 20.6 percent gain in March.

Much of the increase in local territory revenue came at the suburban journals.

This is a real momentum story.

As you know we are approaching the end of a redesign.

Now completed at 32 of the 37 weekly papers to make the suburban journals more engaging and sharper in their local news content.

Reader response has been quite positive and our sales force, focused on growing our local advertiser base, has driven significant revenue growth.

Another important accomplishment during the quarter was the March launch of our new St. Louis direct-mail initiative Local Values.

As we had mentioned we launched Local Values with the support of two of the largest food stores in the market.

The launch went smoothly; advertiser and reader response has been positive; and we are tracking well with projections on both revenue and expense.

There is an important point to be made here about both the growth in local retail and the new direct-mail initiative.

In both instances we have seized opportunities to grow market share by building upon the attributes of the platform we have created in St. Louis.

And both are good examples of our willingness to make investments that we expect to pay significant dividends in the future.

With the addition of direct-mail, we now have four major components in our St. Louis platform.

The Post-Dispatch, the suburban journals, the largest chain of suburban newspapers in the country;

STLtoday, the market's leading local web site; and now our new direct-mail operation.

We have told you before that we are targeting the approximately $500 million in ad spending in the St. Louis market that we don't currently get.

Local Values gives us a great tool with which to expand our market share.

Advertisers spend between $50 and $60 million annually on direct-mail in St. Louis with shared mail programs such as ADVO receiving about half that total.

With our new Local Values shared mail program we will be directly competing for that business.

In closing our discussion of St. Louis, we'd like to say a word about our online business, STLtoday.com.

It continues to grow audience rapidly with page views up 67 percent in the first quarter.

We are seeing good response to the unbundling of the rates for our ad zone initiative and we are about to launch the second version of Auction Express, which debuted successfully last year.

Turning to PNI.

PNI had a terrific quarter.

Best first quarter ever for total revenue, ad revenue, and EBITDA.

Total reported ad revenue including acquisitions was up 10.9 percent.

Comparable ad revenue was up 7.4 percent on the strength of a 9.2 percent increase in period 3.

TNI saw substantial strength in classified which was up nearly 15 percent on a comparable basis.

Importantly, as in St. Louis, we saw gains in all three major classified categories.

Help wanted increased 28.1 percent with gains in each of the PNI markets.

Real estate was up 18.7 percent and auto increased 3.3 percent.

PNI continued to focus on expanding active advertisers which were up 11 1/2 percent in the quarter.

That number includes acquisitions which continued to be an important component of the PNI strategy.

PNI made two additional acquisitions during the first quarter in Illinois and Oregon and has become quite adaptive at realizing revenue and cost benefits.

PNI's E-mediate (ph) businesses continue to deliver strong results with revenues up 70 percent for the quarter and excellent margins.

Significantly given the rapid growth of our online reach, we are re-evaluating our ad rate at least quarterly and often monthly.

PNI achieved increases in operating income in 11 of its 12 markets and operating income and EBITDA margins each increased 1.1 points.

EBITDA per FTE was up more than 11 percent and payroll costs as a percentage of revenue decreased 4/10 of a percent.

Turning to Tucson.

Total ad revenue was down 1.8 percent with a 6.8 percent decline in retail and a 23.6 percent decline in national.

The good news was the classified revenue continued to be strong up, 9.5 percent overall and 36.5 percent in Help Wanted.

We are in agreement with our partner Gannett on our priorities in Tucson, which start with growth and ad revenue and market share.

We've hired Mike Jamison as president and CEO of the Tucson partnership.

Mike brings extensive industry experience, including significant accomplishment working with in a JOA and we are very pleased to have him on board.

I'd like to close with a comment about our outlook.

Back in December, we issued our initial guidance of 2004 base earnings of at least $2.10 per fully diluted share.

With a solid quarter behind us we're reaffirming that guidance.

This view assumes the continued health of our key advertising segment.

Thank you and I will turn the call over to Alan.

Thank you, Bob, and good morning, everyone.

As Bob indicated I will concentrate my comments on the expense side.

Reported operating expenses were up 5.8 percent primarily reflecting first, our 10.3 percent increase in newsprint expense, including a 9.4 percent price increase.

Second, a 2.2 percent increase in labor and benefit expense, resulting from salary increases and increased health care and pension benefit costs, partially offset by 2.1 percent decrease in FTE levels.

And, third, expenses associated with Local Values, the Post-Dispatch's new direct-mail initiatives that Bob discussed.

The expenses were primarily related to production, postage, and promotion.

The initiative added about 1.5 percent to St. Louis ad revenues in March and cost us about 1 to 2 cents per share in the first quarter.

We expect the initiative to cost us about 5 cents per share for the year and to become profitable in 2005.

The first quarter expense increases were partially offset by decreased bad debt expense, reflecting continuing focus by our managers on business basics.

Overall, excluding the impact of direct-mail and newsprint costs, expense increases were generally held to inflationary levels.

Going to Pulitzer's bottom line base earnings benefited approximately $1.5 million from interest rate swaps and investment gains.

Our tax rate remained relatively constant with 2003.

Now let me turn it back to Bob.

Thank you, Alan.

Now we will be happy to open it up for your questions.

(OPERATOR INSTRUCTIONS) Peter Appert, Goldman Sachs.

Bob or Alan, could you expand a little bit on the competitive positioning of Local Values, specifically though, what's the proposition to customers to use your service vs.

ADVO, maybe talk about the relative pricing dynamic and then over time do you think the margin on this business matches what you can do in the core newspaper operations?

Thanks.

Peter, good morning.

It's Bob.

I think I'll let Terry answer this because he's been most heavily involved and I'll jump in.

Hi, Peter.

With Local Values we think the shared-mail market here in St. Louis has been one that frankly had not had enough competition in it and, therefore, the pricing of the players in the shared-mail programs -- ADVO, etc. -- may be on the higher end.

And we think that, from a price standpoint, that there was room to compete there but more importantly we think that the combination of paid home delivery as opposed to dispatch as a portion of the distribution vehicle with the proven ability by the company we worked with Trib (ph) Direct to complement that with mail delivery is a very efficient incredible means of competing in that area from a delivery standpoint.

So a combination of price, delivery, and then the size of our sales force we think are great advantages we have to getting in here and compete.

As far as the second point, obviously these initiatives take some initial investment and they take a lot of coordination upfront to execute them properly.

We are very pleased with how that has rolled out thus far.

We anticipate that we will be moving towards profitability through the course of this year and will be profitable as Alan noted in 2005.

What's important to remember is from our standpoint and the strategy, this just gives us one more very, very compelling vehicle to offer to advertisers in the marketplace and one more vehicle that we can use to compete for that share of market.

And Terry, the Post-Dispatch had no total market coverage product prior to this?

Again, we means of delivering a free Post-Dispatch product to each household prior to but the dynamics of mail are just different.

There are certain customers who like the idea of been in mail and/or the combination of mail and paid.

And so we are now talking about delivering our product in a means that they have accustomed to and are comfortable with.

Got it and you're using the existing sales force, correct?

Correct.

Peter, I'd just hitchhike one point there.

There's another dimension to this in that this content of local advertising content has high readership value.

So we think over time as we build this advertising inventory in Local Values -- at least the part that's distributed in the paper -- is going to help our readership.

Got it, great, thank you and last thing I should know this, but I don't.

The supermarket business.

Is that currently held by you or by ADVO?

That is a great question, Peter.

Currently if there are essentially three major players, four major players in the marketplace ADVO had all of those, in direct-mail we had some of that business -- some of that business in preprint in certain small areas and some ROP but with the direct-mail program we just launched we have two of the major grocery players as anchors in our program so that was very, very significant.

And as Bob alluded to, that grocery content being delivered with the daily newspaper is high readership.

John Hernandez (ph) Bank of America Securities.

Just a couple of brief questions.

First I know it's not a big category for you but most of the other companies have pretty solid telecom numbers.

Is there something specific that's going on in your markets or do you think this could be the beginning of an industrywide trend.

And then, Alan, on the tax rate, could you just remind us what your thoughts are for the full year?

Thanks.

John, let Terry talk about national and the telecom issue because it was pretty specific to St. Louis.

John we obviously -- the home of SBC, and I think that we had quite a significant run-up of that business over the course of the last couple of years and I think we're just seeing a pull back for a period of time.

We don't know that that is going to be sustained pullback by SBC and some of the other players in the market.

Obviously like others we are watching to see if there is more consolidation in the telecom, particularly the market to see if that has an impact but that really was more specific to St. Louis.

Good morning, John.

The tax rate if you measure it by taking pretax income and then subtracting the minority interests that also shows is, for the quarter, 37 3/4 percent.

And we would think it's going to reside in a range of 37 1/2 to 38 percent as it did in 2003.

Lauren Fide (ph) of Merrill Lynch.

I am just wondering a couple of things.

First of all you do have tough comps in the second quarter and I wonder if there's any comment on that?

And any sense you can give us of how April is trending right now?

And then in Tucson you know with the change in management it sounds like you're pretty encouraged.

I wonder if you have any anecdotal evidence yet of anything that's changing and what you plan to do to really attack the relatively weak retail category?

And then I'll come back with a follow-up question.

Good morning, Lauren, it's Bob.

On the tough comps in the second quarter, really, this is part of our fall behind my comment opening the conversation.

The third period was I think at least by our estimation pretty strong and consistent with what you're seeing across the industry.

Given the Easter holiday, I think we've got to look at March and April really together.

And so I think it's a bit early to get a good read on the second quarter.

So we would like to get a couple more months behind us and, obviously, we will be going against some tough comps but clearly some of the numbers we talked about in the third period are encouraging.

But we've seen this kind of uneven pattern before.

And so we're still a bit cautious on it.

I'll let Mark talk about Tucson.

Good morning, Lauren.

As you know, Mike was hired in January.

We are also currently engaged in a search for a new advertising director there and while performance is attributable, performance accounts for some of the shortfall.

We did have some softness particularly in margin health care and telecom there that hurt our efforts.

But just to be very upfront with you about that, we're not -- we're not pleased with how the first quarter shook out in Tucson nor are the local managers and we really anticipate particularly in the second and third quarters to see that turn around.

I guess just a follow-up.

A couple of things.

On the new direct-mail program in St. Louis I think you given us enough clues that I should be able to back into this but should you just want to give us the number, that would be helpful.

What were the revenues associated with that first month activity and sort if you could give us a sense of what you think the run rate could be for the year?

And then, Bob, going back to your comment about looking at March and April together, could you just expand on that?

Is there a sense that some of the strength in March was because it was an earlier Easter and so some pre-Easter spending came in in March?

Lauren, let me take the direct-mail question first.

I don't think we are benefited by giving out too much specifics on businesses particularly at the start off page here but we are pleased with the results and I think we've given you a fair view of what we expect the impact of 2004 to be and let me just turn it over to Bob.

Just on the direct-mail product, Lauren, this will -- it's going to be an interesting year for us.

We talked a lot about the local sales force on the strength of that group here in St. Louis between the folks at the Post-Dispatch, the suburban journals and at STLtoday.

We think we've got a terrific opportunity to really drill down into that local retail advertising base with a very exciting new product in direct-mail to reach subscribers and nonsubscribers.

So it's very consistent with the strategy we're trying to execute here.

And as you can tell by our comments, we are really pretty excited about it.

On the March April.

I do think that Easter, the timing of Easter did affect some of the March results because as you know there's somewhat of a retail buildup toward the Easter holidays that I think benefited us in late March and others could comment on that but that's my read.

Steven Barlow of Prudential.

Hi.

I have a couple here.

Mark, could you talk a little bit more about Tucson?

Over the last 18 months or so, you had talked about hiring an awful lot of salespeople in Tucson.

So I just want to figure out why it really hasn't worked there.

Have you been decreasing the amount of salespeople lately or what's happening on that side?

Comment from someone on newsprint or outlook and then, lastly, just still trying to figure out the other costs item.

Alan, you gave us a whole bunch of (inaudible).

Just trying to see what do you think the other will be up going forward for the rest of the year?

Stephen, good morning, this is Mark.

I'll take a crack at the first question.

Basically, we have attempted to keep the level of sales pressure in the market as we had talked about 18 months ago.

There has been frankly much more turnover than we anticipated and we hope to address that in the next -- particularly in the quarters two and three with the -- particularly the new advertising management.

I should also mentioned the first quarter that I neglected to mention during Lauren's question.

In the first quarter we're also dealing with grand openings of a Lowes store in Tucson, which really ramped up the activity of Lowes and Home Depot which did not reoccur, obviously, this year.

So that was a significant factor.

But, Steve, to answer your questions we have not let up on our commitment to the general level of staffing.

It's as much an execution problem as it is an economy problem.

Steve, good morning.

Let me address your next two questions.

On newsprint we said in December that we anticipated the year-on-year increase for the full year to be in the low double digits.

And I think that's probably a fair expectation.

The 9.4 percent we saw in the first quarter will -- there's some indication of that.

We're I should say responding by building inventories and managing the costs as effectively as we can and we're, I think, doing a very good job of mitigating that -- you know, the effect of that cost increase.

And we hope that the mills will keep that increase in line with the revenue growth in the industry.

Have you paid any of the February 1st increase?

We're starting to see it in the second quarter from some producers.

Not from all.

The outlook for other costs, I think, will be for the full year quite frankly in line with what we saw in the first quarter and that's at or slightly less than the inflation if you exclude the new costs associated with acquired properties and the new costs associated with the direct-mail initiative.

I guess I was trying to get it without any of the exclusions what is I was going to say is at the 12 percent level?

Well I am trying to not overly complicate your modeling process.

You might want to take the 2003 base and perhaps consider something close to inflation for that and then factor in the direct-mail cost that we quantified in our earnings release this morning.

If that's helpful.

Okay and then, lastly, any change in St. Louis labor?

As I recall, not everything has been settled so where are you, Terry?

Hi, Steve.

Again the negotiations with the guild are still ongoing.

I would say that these things are never predictable.

But we are encouraged.

I believe both sides are encouraged by the tone and the progress in the recent talks.

They've been more frequent and I think, again, that more progress is being made.

I'm encouraged.

I think that the union is encouraged.

But, essentially, we still just need to get this put to bed.

You know it's holding up increases for our employees and you know we just need to get this behind us.

So both parties are anxious to do it.

I'm encouraged, again, by the recent progress but we don't have anything definitive to report in terms of closure just yet.

Michael Kupinski, AG Edwards.

I apologize if I've said your last name incorrectly.

That's okay.

Thank you.

Do you have some thoughts about the cost impact of Local Values in the second quarter?

I would assume since it's ramping up and you only have one month in there, would that be more like 2 cents or 3 cents in this current quarter?

And, then, I have a couple of other questions.

Mike, it's Alan, good morning.

We just haven't given any further breakdown other than the first quarter and the full year impact.

But I mean, there's 4 cents left to go for the balance of the year and there is a clear ramp to the business.

I'm sure all of you know it is a largely fixed cost business and the real success comes from filling up that fixed cost base and incremental revenue goes significantly to the bottom line.

Michael I would just add to Alan's comment.

Clearly it is a ramp up business too in terms of some of the cost early in addition to the ongoing fixed cost of mail etc. in the distribution.

We have some promotion cost that we incurred in the first period here in March.

And we will again through the first couple of periods in the second quarter that we think are just critical to be able to make sure there's significant awareness in the marketplace of the new product.

So we see that as more one-time investment but very very important investment and the lion's share of that will be in the second quarter.

Okay.

How much visibility do you have on national advertising?

Does it just come in from agencies and you really don't have any visibility or since SPC was based here do you have any visibility of what they might do in terms of coming back into the paper?

Again you do have some visibility.

Ironically, National is one of the categories going into '04, I think the entire industry was crowing about being extremely strong.

And if you look at it around the country it's been strong in some parts of the country and softer in others.

Generally, you have visibility out two to three months in the National category and then you're always susceptible to a few pleasant or unpleasant surprises in that.

But SPC was something that we saw we knew about.

Again we tried to get some other business going.

The other impact, clearly, was American Airlines that was cycled against American movement out of some of the flights here in St. Louis did impact us.

But I would say for the balance of the year, we are more optimistic.

Certainly more optimistic than what the results were for the first quarter, based on our conversations with agencies and clients around the country.

Terry, would that be in the second quarter as well?

Again I anticipate improvement in the second quarter.

And then, again, beyond that it's not as clear other than the conversations, the early conversations, we're having with agencies and major clients do speak to a stronger second half of the year national.

And my final question is more related to Tucson.

I'm know that, Bob, you had mentioned that your focus for the Company was going to be on St. Louis because you thought that there was some significant opportunities in St. Louis and, obviously, you're executing on that and doing extremely well.

There might be still a little bit left here in St. Louis, I think.

But Tucson, though, has been a constant problem it seems.

It just never really -- it's getting up to steam, getting up and running, so to speak.

What do you think, is it that maybe you're not focused on Tucson as heavily or -- as you are in St. Louis -- or is it just that an issue with the JOA there that is creating some of the focus problems maybe?

No, Mike.

Hi, good morning.

No. 1, just a quick thought on St. Louis.

Honestly we think we've got a lot of opportunity (MULTIPLE SPEAKERS)

ongoing conversation as you ...

I mean, the $30 to $60 million in direct-mail, $30 million in shared mail, you know.

There's $500 million out there and we've got a pretty good platform we're trying to get just a bit of it.

Now in Tucson I think this is an opportunity for us to be candid.

We are in agreement with our partner Gannett who is, as you know, a very accomplished newspaper operator for a variety of reasons.

I just don't think we have executed in a fundamental way in Tucson on the revenue side.

I mean, the cost there had performed extremely well but Tucson is a terrific market and I think if we can employ, effectively, some of the strategies that our partner uses and that Pulitzer has used in PNI and in St. Louis.

We think with the current management we've got some good things on the horizon there, but...

Would there be any reason why you would not just sell it to Gannett since they would obviously be able to get a lot of the cost synergies in having the JOA there and their paper's certainly just slightly just sliding off into oblivion in terms of circulation.

It would seem like they would have an interest and especially owning Phoenix and having cross ownership in Phoenix.

It seemed like you would get a strategic multiple out of that and maybe then you could redeploy.

You have a lot of cash.

Maybe you could buy the other paper here in St. Louis like the Vevo (ph) Democrat which would round out your St. Louis cluster significantly.

What are your thoughts about that prospect?

Well I appreciate the thinking, Mike.

I really do.

And I just can't comment on, I wouldn't comment on aspirations in Tucson, relative to our partner.

They own a 50 percent interest in our operation out there and we've got a good relationship and we're pretty focused on moving forward and, candidly, in terms of redeploying whatever cash may come out of the potential sale in Tucson, you'd struggle to find another Tucson.

And, particularly, with the upside we believe we've got there.

So I mean from a Pulitzer standpoint, we feel we've got a very handsome newspaper operation there and one of the best markets in the country and we've just got to go out and execute.

Toby Sumner of Suntrust.

Couple of questions.

If you could maybe comment on what the acquisition market looks like currently in terms of activity and I was curious in terms of national advertising. (inaudible) exclude telecom, some of your peers have been talking about the secular trend towards nontraditional newspaper advertisers maybe a little bit more incrementally towards newspaper advertising.

Wonder if you've experienced that in the quarter and that's a trend that you see?

And I was hoping if you could refresh my memory -- I probably should know this.

In terms of your expectation for share of the direct mail market in St. Louis?

Over sort of a medium to long term?

Sure.

It's Bob.

Good morning.

I'll let Alan really comment on acquisitions, but just as an overview, we look at a lot of opportunities that I think as you would know, the confusion and perhaps uncertainty with the relaxation of cross ownership I think is impacting the acquisition market.

Now on the other hand you know there's some indication business is getting better.

And I think that would tend to foster an environment where opportunities might present themselves.

Alan?

Thank you, Bob.

Toby, on the acquisition market we haven't seen a lot shake loose yet.

I mean, there is a hope and expectation that it will as business improves and owners may be a little more willing to sell at levels they would feel would bring a fair price.

The --our ability at PNI to make end market acquisitions I think continues and continues to be strong and we do aggressively pursue those opportunities and I'd just like to remind our investors of our disciplined approach to the acquisition activities.

We're not going to make acquisitions simply because we might be able to afford them.

They would have to meet reasonable investment criteria.

Toby, on the national.

I really don't have much context for you on that.

I think what I would say is that the readership of daily newspapers and certainly Sunday newspapers as a mass reach vehicle remains quite high.

I mean, it is the only vehicle that reaches 60 to 70 percent of adults in the St Lewis or markets in Tucson every Sunday.

So that's a pretty formidable way to connect with potential buyers and I think with the changes in various marketing strategy, it's kind of logical to think that if you can reach that kind of an audience and also target that audience that nontraditional advertisers would want to give us a look.

On the third part of the question on direct mail in terms of market share, I'll let Terry comment on that but we did try and give you kind of paint the size of the opportunity in terms of a $60 million direct mail category here in St. Louis about half of that really to share mail products.

Not all ADVO, there's other shared mail competitors in the market.

But, clearly, with us being able to distribute advertising in the paper and having a very accurate database to go after our nonsubscribers, we kind of like our chances there and I made the comment about the sales force because nobody in the market has the kind of sales power on the ground that we do.

Just a minor build on Bob's comment, I think that something that was very significant in our move to gain market share was again getting the two major grocers, those base players and having those players really gives us the platform to go after the other business.

I don't want to, because it is a competitive environment I don't want to wear on our sleeves, specifically, what our goal is.

But we're in it to make a viable business and I think one of the earlier questions was what types of margins should we expect from this business over time.

Our expectation would be that these are the margins from the direct mail business, are not dilutive to what the margins are of our core business.

And so we anticipate and have a goal on the wall of trying to get to newspaper type margins for this business as well.

Toby, just one other quick add-on there.

The key here is to generate results for advertisers and that sounds pretty basic.

But we believe and we're very focused on ringing the bell for those grocers and other people who are in our direct mail product.

And if you do that and the awareness of Local Values in the market really accelerates, we're going to be in good shape and we'll have a great partnership with those advertisers going forward.

Thank you very much.

If I could follow up with one other question on Tucson.

You mention that perhaps things would improve, you have an expectation for improvement in second quarter and third quarter.

I was wondering if there are any specifics regarding your visibility into that?

Is it a function of the sales force gaining traction?

Easier comps?

Or is there some additional business that you see in the pipeline?

Perhaps store openings or something like that that may boost retail?

Thanks.

Toby, this is Mark.

I would attribute much of it to a strategic planning process that Mike Jamison just went through with his managers, which identified a whole series of very specific tactics to raise both retail and classified revenue.

Mike has a track record of getting results by using this process and it was just completed in the last month or so.

And that's the primary reason that I mentioned that we would anticipate in quarters 2 and 3 seeing results.

I don't want to get into gory detail, but there are -- to say just several would be understating it.

There are several specific programs and strategies that he's rolling out, as we speak.

In addition to the fact that will have additional advertising management and an ad director there hopefully in the next several weeks.

(OPERATOR INSTRUCTIONS)

I'm showing no questions at this time.

I'd like to turn it over to the presenters for their closing remarks.

I'll just close with a few comments.

We are obviously pleased with the way the year is starting for at least several reasons.

First is the encouraging trends from classified; second, our continuing progress in growing local retail cross selling between our properties and up selling online.

Third, the rapid growth of online.

We have the leading local online site in each of our markets.

And we're realizing real benefits as online develops into a vibrant business.

And, fourth, our continuing investment in opportunities like direct mail that strengthen our platforms in each market and enable us to pursue growth opportunities.

The result is that we are well positioned in each of our markets to serve readers, deliver results to advertisers, grow market share and create long-term value for shareholders.

We really do appreciate your time and interest and thank you for joining us today.

Ladies and gentlemen, thank you for joining us on the conference call.

You may now disconnect your lines.