New York Times Co (NYT) 2002 Q1 法說會逐字稿

(audio gap in Webcast) star, then the number two on your telephone keypad. Thank you. I will now turn the call over to the Vice President of Corporate Communications, Ms. Catherine Mathis.

Thank you and good morning, everyone. And thank you for joining us on our first quarter earnings conference call. By now, I'm sure you've seen our press releases on both our earnings and our ad revenues. And we have several members of our senior management team who are with me today, to discuss them with you. And these include Russ Lewis, our President and Chief Executive Officer, Len Forman, our Chief Financial Officer, Janet Robinson, Senior Vice President of Newspaper Operations, as well as President and General Manager of The New York Times Newspaper, Martin Nisenholtz, CEO of New York Times Digital, Ellen Taus, CFO of New York Times Digital, Jim Lessersohn, our Vice President of Finance and Corporate Development, Stu Stoller, our Corporate Controller, and Tony Benten, our Treasurer.

Our discussion today will include forward-looking statements. Our actual results may differ from those predicted and some of the factors which may cause the results to differ are set forth in our publicly filed documents, including our 2001 Form 10-K. We are undertaking no obligation to publicly update any forward-looking statement, either as the result of new information, future events or otherwise. This conference call is being Web cast and an archive of it will be available on our Web site, which is www.nytco.com. And, beginning at 1:30 p.m. today, an audio replay will also be available by calling 1-800-642-1687 - that's in the United States. Or 706-645-9291 for those outside the U.S. The access code is 18555 for both people inside and outside the United States.

The replay will be available until 5:00 p.m. on April 17 and we will also be posting a transcript of our conference call on our Web site, later this week. And with that, let me turn the call over to Russ Lewis for some comments.

Thank you, Catherine, and good morning, everyone. Not surprisingly, in our quarterly earnings conference calls, we generally focus on the accomplishment of our short-term financial results. Today will be no different. And on that score, we're happy to be reporting continued improvement in our advertising revenue picture and in our overall financial performance.

However, before Len details our first quarter results and we take your questions, I'd like to take a moment to focus on our long-term strategy. During the first quarter we completed two transactions that reflect our strategic goal of operating the leading news and advertising media in each of the markets we serve. As you know, our company operates ...

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... of the crisis in the Catholic church, which the Globe was instrumental in bringing to light. But, as

once said, you can't grow long-term if you can't each short-term. So, here is Len with some more on our short-term quarterly results. Len?

Thanks, Russ. And good morning, everyone. Today we reported analyst diluted earnings per share, excluding special items of 39 cents, compared to seven cents per share last year. As you know, adopted

, accounting for amortization of goodwill and intangible assets at the beginning of 2002. If we had done so at the beginning of last year, our first quarter earnings per share in 2001 would have been six cents a share higher or 43 cents. So, on an apples to apples comparison, our earnings were down nine percent.

Still, we came in two cents more than the first call consensus of 37 cents. Our better than expected performance was driven by an improving advertising environment, strong circulation revenues and the rigorous measures we took last year to reduce costs.

I'll walk you through our results and then spend some time on what we're currently seeing for the balance of the year. Barring any economic shocks resulting from the turmoil in the Middle East, a second half recovery now seems likely. The economic news over the last several months has been quite positive. And the economy is here to overturn to its upward growth trends, albeit it a modest one at the moment.

Throughout the quarter, the rate of decline in newspaper advertising revenues, adjusted for the Easter effect, improved. In January, advertising revenues were down 14 percent. In February, they were down nine percent. In March, down 10 percent. Easter, which fell in April in 2001, but in March this year, on the last Sunday of the month, adversely affected the results for the Times and Globe, since it's a day of little advertising for those newspapers. If you adjust for the Easter effect, the decline in March would have been less than the February decline. So, clearly, the trend is in the right direction.

The categories that did well in the quarter included entertainment, real estate, pharmaceutical, media and advocacy. The Golden Globe and Oscar babbles and the Hewlett Packard property fight were played out on the pages of the New York Times, with the weapon of choice being $100,000 ads.

We discontinued in help wanted, transportation and technology products. Strong circulation performance, however, is the story of the moment. Circulation revenue grew a robust 8.8 percent, due to the home delivery price increases instituted at the Times and the Globe and higher volume, at the Times, for both daily and Sunday and at the Globe, for the daily paper. We just filed our ABC report for The New York Times, which showed gains of 43,400 copies for the daily and 40,900 copies for the Sunday paper, or a 3.8 percent daily and 2.4 percent on Sunday.

The daily and Sunday gains were the largest in more than a decade. And given this strong performance and the outlook for the rest of the year .

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... within that range. For the full year, we'll provide more detailed guidance in the mid-year media review. As Russ indicated, we made two recent investments in pursuit of our long-term strategy. These actions will raise our interest costs for the year above the previously announced levels of $45 to $50 million by about $3 million or 48 to 53 million.

Also, weaker paper prices at our paper mills, a weak advertising environment in Europe and Asia, which is negatively affecting the IHT and the modest impact of our investment in the Red Socks and

and Discovery, will reduce our income from equity investment, which will now be at a break-even to a loss of five million. We continue to believe that if, as we expect, there's a second half recovery in the advertising market.

Our full year earnings per share will grow in the mid-single digit to low double-digit range. If there is no advertising recovery this year, we believe modest earnings growth per share is still possible. And we remain committed to returning to our earnings growth projectory of 10 to 15 percent, just as quickly as possible.

With that, let me open it up to questions.

I would like to remind everyone, if you would like to ask a question, please press star, then the number one on your telephone keypad now. And please press star, one, only one time, as pressing star, one, more than once may take your line out of queue. We'll pause for just a moment to compile the Q&A roster.

Your first question is from

of Merrill Lynch.

Thank you, very much. I'm wondering, on the circulation side, at The New York Times, if you could give us a sense of how much of the increase was the national edition or, maybe more pointedly, what the trends were in the metropolitan edition. And then, I'm also wondering if you could comment on the impact on you with the launch of the version of The Wall Street Journal on April 9.

The growth is predominant - this is Janet,

- the growth is predominantly in the national arena in home delivery as we had expected, even though there have been price increases in those - in that area. And, in regard to The Wall Street Journal, they had announced this move quite a few months ago, in regard to what they were planning on doing the personal journal.

The extension of the national expansion that, indeed, took place about two week ago, as you saw many of our sections running nationally, was really planned for a long period of time and part of our national expansion strategy. 9-11 really curtailed our plans in the fall of the year. But, indeed, we felt it was important for us to provide our readers with something that they had been asking for.

Overwhelmingly, the national circulation - the readers nationally - had been asking for what they considered to be the New York paper, which, of course, included the fold sections that now they are receiving. And I must tell you ...

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... the

is down 1.3. Out of the

is up 6.6 and Sunday is up - I'm sorry. The total is up 2.4.

That's great. Thank you, very much.

Yeah. You're welcome.

Your next question is from

of Deutsche Bank.

Good morning. I was hoping that maybe either Russ or Janet could delve in a little more in terms of the source of your confidence on the ad recovery. I'm wondering if you're seeing some specific indications from advertisers in terms of advanced bookings that, you know, might reinforce the confident view you expressed.

What we are seeing and we have seen this, traditionally, at The New York Times because I think I've said this many times, we are much more like a magazine than we are a newspaper. You know, newspapers are more on a daily commitment basis, whereas The Times, because we've had a huge national share of advertising has always scheduled longer in advance. And that continues, you know, as we speak right now.

But, in light of that, what we are also seeing is that there are some people that are still shelling a wait and see attitude. But they are giving us more share than they are giving a lot of our national newspaper competitors and a lot of national magazines. I think you see that with the numbers from syndicated research.

, this is Len. We're seeing some of the similar results at nyt.com, where last year, we were scrambling right up to the end of the month to try to close the month. And we're now seeing advertising being booked well in advance so that, well before the month's over, we've pretty much - comfortable that we're going to the month.

How about from this perspective - to get to the mid single digit to low double digit earnings per share gain, what do you need to see in the second half in terms of the ad market?

Well, I mean, given the leverage that we've had because of the comps from last year, it won't take much to put us into the low single digit range. If we simply are flat for the balance of the year, we'll be in pretty good shape.

And I want to indicate to you that, just as we did last year, we're going to be very, very careful with our expenses, so that our being able to hit the earnings range that we talked about is a function of both, as you know, revenue and expense. So, to the extent that revenue turns out to be weaker than we'd like, obviously, we'll do more on the expense side. And one of the things that will help us is the bonus accrual that we have if revenue turns out to be more anemic than we'd like. Then those bonus accruals will get reversed and that will help the expense performance.

And then, the flip side of that, Russ. Assuming, or hopefully, you know, we get - we get some relief on the ad side. Are there catch up expenditures that need to be made that might limit then, the upside, in terms of the leverage?

No, not really. We think we're doing a very good job of balancing both short-term ...

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... or the newspaper group in non-newsprint cash costs. And we were down about eight-tenths of a percent.

Second question was on broadcasting and we would expect the cost for broadcasting for the balance of the year to come in slightly less than we were for the first quarter. Broadcast group, as you know, has run very lean over the years. And where we took out many of our costs last year, we've had some increases in benefit costs this year. But we expect to come in under four percent for the balance of the year.

And I think your third question,

, was on stock repurchases? And, as you know, we balance stock repurchases against the uses of all of our cash - capital, acquisition and dividend. And we certainly explode somewhat in the first quarter from our rate at - in the last quarter of 2001. But we would expect that we would, on average, continue our rate of purchases that would be consistent with the last several years, perhaps a touch lower.

Just to clarify, when Len says under four percent on the broadcast, he means that those expenses are going to be about four percent below last year, under last year - about 3.5 percent.

Your next question is from

of Credit Suisse First Boston.

Hi. Two questions. One is, just on that last question on expenses, on the newspaper

down 0.8 percent. Have you cycled through the headcount reductions that you made? You cited that headcount first with Q4 2000 is down, I think, nine percent in total. So, a little surprising that cash cost is only down .8 percent ...

No, we haven't recycled through yet. As you remember we really went - announced our program at the end of the first quarter. And we'll recycle through by the end of the second quarter, into the early part of the third quarter.

Was it benefit cost, then, that - rising benefit cost ...

Yeah. Benefit cost - like everybody else - benefit costs have hit up pretty substantially. And we've done a number of things to keep those cost increases manageable, by collapsing the number of plants we've had, by putting more of the burden on the employee and so forth. Had we not done those things, the cost would have been significantly higher.

And so, for the balance of the three quarters this year, would that number trend back up, quickly, back into positive territory as you cycle through these headcount reductions?

No, it's going to be relatively flat the balance of the year.

OK. And then, just the other question I had was, could you give us the help wanted numbers for March for both the Boston Globe and The New York Times?

Yes. Give us one

that introduced a

as well

looking on the

on the just on the broadcast expense

it will trend

six-and-a- half percent in the first quarter. More like three-and-a-half

the year. And in part that's driven by

as a consequence of taking the stations digital.

OK. Great. Thank you.

Your next question is William Bird of Salomon Smith Barney.

Thanks. Yeah, just two quick questions. One, views on capital allocation and best alternatives. Maybe you could speak to that within, you know, the context of the regulatory environment. And second, are you done with most of the major cost cutting in your Internet businesses? <Sync time Thanks.

On the second part of the question, the answer is yes. We've taken out most of the costs that we need to. Clearly, in the event revenues don't materialize, there's always ways to find incremental savings, but the Internet game today is about growing revenues, and as Martin indicated, we're very optimistic about that.

I didn't quite get the first question.

First question was just simply, you know, views on capital allocation and best alternatives, and also maybe kind of addressing, you know, some of the anticipated regulatory changes and how that might affect your strategy.

Well, as our two transactions during the first quarter indicated, we are opportunistic and on the lookout for acquisitions or partnerships that strengthen our position of being the leading news and advertising media in the markets that we choose to serve. So, that certainly circumscribes the areas that we're looking at. We have not lost and will not lose our financial discipline, so that in the two transactions we engaged in, we expect to see a good rate of return. They're very important strategically, and those are the earmarks of the acquisitions or joint ventures that we might go into in the future.

In the absence of those kinds of opportunities, we will continue to fund the national expansion of "The New York Times" aggressively. We will continue to upgrade

technology

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... which will help us not only in April, but going through the second quarter.

, in terms on the west side, we're seeing exactly the same thing continuing improvement, and we're seeing the renewals on the advertising side up substantially over last year. We're seeing good strength in new advertisers in April, and some of the advertising innovations that we've introduced

sessions have taken hold as well. So things are looking positive on the Internet side.

Yes,

, this is Len. Just on the broadcast expense, it is will trend better than the six-and-a-half percent in the

quarter. More like three-and-a- half to four percent up for the balance of the year. And in part that's being driven by some of the digital expenses that we've been forced to incur as a consequence of taking the stations digital.

OK. Great. Thank you.

Your next question is William Bird of Salomon Smith Barney.

Thanks. Yeah, just two quick questions. One, views on capital allocation and best alternatives. Maybe you could speak to that within, you know, the context of the regulatory environment. And second, are you done with most of the major cost cutting in your Internet businesses? Thanks.

On the second part of the question, the answer is yes. We've taken out most of the costs that we need to. Clearly, in the event revenues don't materialize, there's always ways to find incremental savings, but the Internet game today is about growing revenues, and as Martin indicated, we're very optimistic about that.

I didn't quite get the first question.

First question was just simply, you know, views on capital allocation and best alternatives, and also maybe kind of addressing, you know, some of the anticipated regulatory changes and how that might affect your strategy.

Well, as our two transactions during the first quarter indicated, we are opportunistic and on the lookout for acquisitions or partnerships that strengthen our position of being the leading news and advertising media in the markets that we choose to serve. So that certainly circumscribes the areas that we're looking at. We have not lost and will not lose our financial discipline, so that in the two transactions we engaged in, we expect to see a good rate of return. They're very important strategically, and those are the earmarks of the acquisitions or joint ventures that we might go into in the future.

In the absence of those kinds of opportunities, we will continue to fund the national expansion of "The New York Times" aggressively. We will continue to upgrade our infrastructure, particularly our technology infrastructure. And we will continue to increase shareholder value through stock repurchases, and, as you just noticed, we increased our dividend so that sorry. Oh, we have had a process of increasing our dividends, and that's a trend we'd like to continue.

So in any event, that's sort of the level of priority that we look at our excess capital.

Thank you.

Your next question is from Douglas Arthur of Morgan Stanley.

Couple questions on sort of the '03 cost outlook. I know it's a little far ahead, but, I mean, with the nine percent drop in headcount in Q1 and 20 percent lower newsprint, obviously, there's a lot of other cost pressures here. <Sync time If newsprint prices do go up a lot, least on a percentage basis over the next sort of 18 months, I guess, number one, how do how do you sort of see your whole cost structure in the newspaper group faring '03 over '02? And number two, do you have a lot of price increase power left in circulation and ad rates if you do get, say, an unexpected surge in newsprint prices?

Well, I don't know that it'd be an unexpected surge if newsprint prices were to go up, as we would expect they would if the economy improves, commensurately, so will revenues and volume. So obviously, we're we always love to have low newsprint prices, but that's part of the cyclical game we're in, and as those prices go up, our revenues will go up commensurately.

As far as pricing flexibility, we are relatively aggressive on pricing, and will continue to be so going forward.

And then, I mean, any thoughts on the on the sort of preliminary outlook for '03 expenses?

It's way too early to be thinking about '03. We're just trying to get through '02, having just got through '01.

Well, I just want to add, one of the things we've talked to you about are our optimization councils, and those are efforts to continue to introduce systemic cost reductions in specific areas. I think we have eight of those councils in operation now from areas such as utilities, telecommunication costs, systems costs, and the like. So while we certainly have done a lot of the heavy lifting in terms of expense reduction, that job is never done, and we've been quite successful in on in unearthing additional ongoing reductions.

Yeah, and I think it's worth reminding you that, you know, over the years, we've done a number of things to reduce newsprint costs as a percentage of overall costs. <Sync time And it's now down into the 10 to 12 percent range, so that a big spike up does no longer has the impact on our financials that it did five or six years ago.

And, in addition, Doug this is Janet we are doing a lot of value-based analysis both at the "Globe" on the circ side and the advertising rate side, and also at the regionals with both the advertising rates and the circulation rates. So in regard to pricing power, at both of those units, there certainly is opportunities, and we still think that there is pricing opportunity at the times as well.

OK. And just as a follow-up, Len, the can you just go back over the projected impact of benefits on labor costs for '02?

We don't break out those costs in that way, but, as I say, it's included in our estimates of one to three percent overall expenses, and we we're we'd like to come in at the lower end of that range, but our increase is it's well within that range.

Great. Thanks.

Your next question is from Lee Westerfield of UBS Warburg.

Thank you, and good morning. <Sync time Actually, I have a question about

. First, I guess the basic question is how the accounting treatment runs through for

in two fronts.

First, your own, I guess, $100 million input into that organization how do the expenses run back through your income statement? And then there is a $40 million, I guess, purchase of programming that comes back from

to you ...

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... mean that there won't be more than that. We certainly hope and believe there will be more than that. But that represents a floor, if you will.

OK. Thank you.

Your next question is a follow up question from

of

.

Hi. Could you remind me what the difference is between the pro forma broadcast results and the reported broadcast results?

There was some buyout expense in the quarter at ...

Got you. Thank you, very much.

It looks like about two million bucks.

Yeah. It was small.

Thank you.

The next question is from

of Lehman Brothers.

Hi. I was wondering if you could provide any more detail as far as your strategic plans for the rest of the year. Are there any specific transactions in the works?

Well, we never comment on specific acquisition or divestiture opportunities. Obviously, there are a lot of things going on in the regulatory area, which one of the questioners alluded to before. Those rules are changing very quickly. And I hope that I've pointed out to you, in our remarks this morning, that we are focused on the markets that we currently serve. Certainly, The New York Times' national mileage audience market is the most important to us.

But the other markets we serve, such as Boston, are also of great significance. And, it's in those markets where we want to be the leading news and advertising media groups, if you will, or group. That's where our focus will be. And to the extent that regulatory changes or court decisions are helpful in that ...

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