New York Times Co (NYT) 2009 Q2 法說會逐字稿

Good day everyone, and welcome to the New York Times second quarter 2009 earnings conference call.

Today's call is being recorded.

A question-and-answer session will follow today's presentation.

(Operator Instructions).

For opening remarks and introductions, I'd like to turn the conference over to Ms.

Catherine Mathis.

Please go ahead.

Thank you.

Welcome to our second quarter earnings conference call.

We have several members of our senior management team here today to discuss our result with you, and they include Janet Robinson, our President and CEO; Jim Follo, Senior Vice President and Chief Financial Officer; Martin Nisenholtz , Senior Vice President Digital Operations.

Because Scott Heekin-Canedy, the President and General Manager of the Times is traveling on business today, we have asked Denise Warren and Roland Caputo to join us.

Denise is Senior Vice President and Chief Advertising Officer at the New York Times Media Group and she is also General Manager of NYtimes.com.

Roland is Senior Vice President and Chief Financial Officer for the New York Times Media Group.

All comparisons on the conference call will be for the second quarter of 2009 to the second quarter of 2008 unless otherwise noted.

And our discussion will include forward-looking statements.

Our actual results may differ from those predicted.

Some of the factors that may cause them to differ are included in our 2008 10-K.

Our presentation will also include non-GAAP financial measures, and we have provided reconciliations for the most comparable GAAP measures in our earnings press release, which is available on our corporate web site, www.NYTCO.com.

An archive of this call will be available on our web site as will a transcript and a version that's downloadable to a MP3 player.

With that, let me turn the call over to Janet

Thank you, Catherine.

Good morning, everyone.

We continue to experience a very difficult economic climate in the quarter as well as secular changes affecting the entire media industry.

We made significant progress in decreasing our cost base and reducing and restructuring our debt.

For the second quarter, operating profit was $23.3 million compared with $40.3 million in the second quarter of 2008.

Excluding depreciation, amortization, severance, and a pension charge, operating profit was $66.1 million compared with $100.5 million in the second quarter last year.

Earnings per share were $0.27 compared with $0.15 in the second quarter of 2008.

This quarter's EPS was favorably affected by a $0.26 income tax adjustment and unfavorably affected by $0.04 for a premium payment on debt that we redeemed.

$0.02 for a pension withdraw obligation related to the closure, of City & Suburban, and $0.01 for severance.

In the second quarter of last year, we had $0.11 per share for severance.

Adjusting for these special items, EPS was $0.08 compared with $0.26 for the same period last year.

This quarter our operating costs fell 20%.

Given our strong cost performance, we have increased our estimate for cost savings in 2009.

In the first half of the year, we reduced operating costs by approximately $210 million.

For the full year we expect to save approximately $450 million.

That amounts to 16% of our 2008 cost base.

And we will continue to look for new ways to reduce expenses.

On the divestitures front, last week we announced an agreement to sell our New York City classical radio station WQXR-FM to subsidiaries of UniVision Radio, Inc.

and WNYC Radio for a total of $45 million.

The transaction will enable WQXR to continue its 73-year legacy of providing classical music and other cultural programming to listeners in the New York metropolitan area.

We are moving ahead on the sale of our 17.75% stake in the New England Sports Venture.

We wholly conclude that the Boston Red Sox, Fenway Park, and approximately 80% of New England Sports Network, a regional cable sports channel.

The bidding process is underway and we currently expect that this transaction will be closed around the end of the year.

While there has been speculation concerning the sale of the Boston Globe, we have not and are not commenting on this.

What we will say is that we regularly review our portfolio of properties to insure that they are meeting our financial targets, and remain a strategic fit.

The recent revenue and expense initiatives we undertook at the Globe, which I will discuss in greater detail, help put it on stronger financial footing.

We plan to use the proceeds from the divestitures of WQXR and our Red Sox stake to pay down debt.

During the first half of the year, we made progress on reducing our debt levels from approximately $1.1 billion at year-end to $1 billion at the end of June.

We have also restructured our debt and nearly three-quarters of it now matures in 2015 or later.

With the steps we are taking to reduce our debt and lower our cost base, we believe that we will be very well positioned when the economy turns around.

Now let me provide you with more detail on our revenue.

Total revenues for the Company declined 21%, with ad revenues down 30%, circulation revenues up 1.5%, and other revenues down 37%.

Excluding the results from City & Suburban, the Company's retail and newsstand distribution subsidiary, which was closed in early January, total revenues declined 20%, circulation revenues rose 3%, and other revenues decreased 12%.

At the News Media Group, which includes the New York Times, New England, and Regional Media Group, ad revenues decreased 32%, with national advertising down 29%, retail down 25%, and classified down 45%.

Within the classified area, recruitment advertising fell 60%, real estate declined 48%, and automotive was down 43%.

Print advertising revenues decreased 33% in the quarter at the News Media Group, with percent declines evenly spread across the New York Times, New England, and Regional Media Group.

Digital revenues were down 22% in the quarter, with most of the decline coming from classified advertising.

Overall, as the quarter progressed, the rate of decline and advertising revenue with the News Media Group lessened across all major categories, national, retail and classified.

Total advertising revenues decreased 35% in April, 30% in May, and 29% in June.

At the Times Media Group, advertising revenues decreased 32% in the quarter.

The national print categories, where we saw the largest decline, were financial services, where major banks, credit cards, insurance companies, reduced spending; live entertainment, where revenues from Broadway shows and concerts declined; and books, due to limited support from publishers from new releases.

National print ad categories where we saw the largest increases were telecommunications, where wireless carriers increased advertising; health care, because major hospitals, medical centers and pharmaceutical companies increased their placement; and technology, which saw gains from new product launches.

Classified advertising at the Times Media Group decreased in all three major categories, real estate, recruitment and automotive.

The rates have declined in real estate and recruitment advertising moderated as the quarter progressed.

Retail advertising revenues decreased due to declines in department store, fashion jewelry, and home furnishing store advertising.

At the New England Media Group, advertising revenues decreased 31% in the quarter.

National ad revenues in the quarter decreased as declines in entertainment, travel, and health care categories, more than offset modest growth in financial service and other services, and technology advertising.

Retail advertising revenues were lower as a result of weakness in home furnishing, department store, electronics, and appliance advertising.

Classified recruitment, real estate, and automotive advertising at the New England Media Group was soft, although the rate of decline for each area improved in June.

In the fall of 2008, the Globe and Boston.com developed a strategic plan to deal with their operating loss, which was projected to be roughly $85 million for 2009.

But the plan has several components to increase revenues and lower costs.

The strategic steps we have taken include, the consolidation of printing facilities in Boston, which is expected to save $18 million a year.

Increased prices on newsstand and home-delivered copies of the Globe, which is going very well.

Reduced compensation for the Globe managers and other non-union employees and the restructuring of the Globe's labor contracts, which we project will save $20 million in annual operating costs.

This was essential to our turn around plan, and in the second quarter we reached agreements with seven unions that provide slightly better than $10 million in savings.

Earlier this week, the Boston Guild ratified a contract that is projected to provide $10 million in annualized savings.

With these steps, the Globe is on a path to a more secure financial future.

We are deeply grateful to all of our colleagues in Boston, both union and non-union, for the hard work and sacrifices they have made to put the Globe on stronger financial footing.

Across the organization, our employees are demonstrating their commitment to dedication, to improving our Company's performance, and meeting the challenges we face.

At the Regional Media Group, advertising revenues decreased 33%.

Unlike the Times in the New England Media Group, the Regional Media Group shows consistent decline of 33% to 34% every month in the quarter.

Total circulation revenues were up 1.5% in the quarter, primarily because of higher prices at the Time, the Globe and some of our regional newspapers.

Excluding C&S, circulation revenues increased 3%.

The preliminary results from our price increases have been encouraging, which indicate that high quality journalism is valued by our readers.

Other revenues for the News Media Group decreased 37%, mainly as a result of the closure of C&S.

In the second quarter of last year, C&S had other revenues of approximately $18.4 million.

Excluding C&S, other revenues decreased 11% at the News Media Group, mainly because of lower commercial printing and direct mail advertising services at the New England Media Group.

In the quarter, digital ad revenues in the News Media Group declined 22%, led by classified advertising decline.

NYTimes.com display advertising had very difficult comps to last year's second quarter when it had a very strong double digit gain.

The advertising model we have used at NYTimes.com has been very successful, generating more revenue than the vast majority of other web sites we have studied, including some that are much larger than our site.

But we believe it is very important to explore other means of deriving revenues.

Therefore, we are undertaking qualitative and quantitative research as to how many of our readers would be willing to pay for online content and how much they would be willing to pay.

We want to know more about our readers' mind sets and preferences.

In this way we can find new opportunities for online revenue strength.

At this time our work is centered on a metered model and a timed membership model with special offers.

It is too early to say what this research will yield, but the process is part of our effort to augment our online advertising.

We expect to have more to report in the fall.

At the About Group, total revenues decreased 5% to $27.1 million, as lower levels of display advertising were only partially offset by higher cost-per-click advertising.

Good expense control at the About Group enabled it to grow operating profits 12%.

In total, internet businesses decreased 14% to $78.2 million from $91.3 million.

Internet businesses accounted for 13% of the Company's revenues in the second quarter versus 12% in the second quarter of last year.

As we continue our transition from a company focused primarily on print to one that is increasingly digital and focused on multi-platform and delivery, online advertising revenues are an important part of our mix.

They make up 21% of our ad revenues in the quarter, up from 18% in same period a year ago.

Based upon what we have seen so far in July, we expect the advertising environment to continue to be challenges.

We believe the rate of decline will moderate slightly in the third quarter from what we experienced in the second quarter.

For the balance of the year, we are focused on developing innovative products based on our high quality journalism which we believe is a key competitive advantage and serves us well across platforms.

We will continue to aggressively lower our cost base to better align it with our revenue.

When the economy and ad markets improve, we believe we will be very well positioned to benefit from the aggressive restructuring of our business.

Now let me turn the call over to Jim, who will tell you more about our cost-reduction initiatives and steps we are taking to enhance our financial flexibility.

Thank you, Janet.

We continued our strong expense discipline in the second quarter control, and managed our costs even better than we did in the first quarter.

As Janet said, operating cost declined 20%, and reductions occurred in nearly all major expense categories.

We are putting an even greater on emphasis on lowering expenses and plan to decrease our operating costs by approximate $450 million in 2009.

Across the board ,we have been reducing costs, but some of the major year-over-year savings we expect in 2009 are approximately $117 million for C&S, $65 million for news print, $50 million in severance expense, and $18 million as a result of changes in our benefit plans for nonunion employees, $10 million in the second half of the year from our unions in Boston.

$9 million in the second half of the year for consolidation of the Globe's two printing plants, and significant savings as a result of the decrease in the size of the Company's work force, which at the end of June was down 19% from the prior year.

In addition, salaries were reduced in the second quarter, which was also providing us with savings.

Severance costs were $0.01 a share in the quarter for $1.7 million, compared to $0.11s per share or $27.6 million in the same quarter last year.

Depreciation and amortization increased 5.5% to $34.4 million.

From $32.6 million in the second quarter 2008, primarily because of accelerated depreciation for the consolidation of the Globe's print plants.

News print expense decreased 24.5% mainly from lower volume.

News print transaction prices peaked last November and have decreased steadily since.

Forecasters believe that the price will continue to decrease this month, and are likely to hit bottom during the third quarter.

Prices are expected to remain under pressure unless there is a substantial reduction in capacity.

Interest costs increased in the quarter to $21.7 million from $12.1 million as a result of higher rates on our debt.

At the end of the first quarter, our debt totaled $1.3 billion.

This included the financing liability for the sale lease back transaction that closed in early March.

The proceeds for this transaction were held in an escrow account at quarter end and subsequently used along with borrowings under our revolving credit facility to redeem $250 million of notes, due in March 2010.

With the redemption of these notes, our total debt is now approximately $1 billion.

We had costs of $9.3 million in the quarter for the premium associated with the early debt redemption.

We remain comfortably in compliance with the minimum shareholder's equity in our revolving credit agreement.

For the year, the Company expects interest expense to be approximately $85 million.

In the second quarter 2009, the Company's calculation of taxes resulted in a change in estimate for the first half 2009.

The effect of the change was the recognition of a $37.7 million tax benefit.

The effective tax rate for the first half of 2009 was 52.9%, primarily because of a favorable adjustment to reduce the Company's reserve for uncertain tax positions.

CapEx in the quarter totaled $9 million and year-to-date was $35 million.

We have taken decisive steps to reduce capital spending and improve all liquidity.

This year we expect our capital expenditures will decrease from the 2008 level of approximately $127 million to about $70 million.

As always we continue to evaluate our assets to determine if they remain a future fit and determine and outlook for the business and their financial performance, it makes sense to be part of the Company.

At the end of March, we sold the Times Daily, our news paper in Florence, Alabama; to a strategic buyer in an adjacent market.

As Janet mentioned, we recently announced an agreement to sale our classical radio station, WQXR, and are pleased by the interest we have seen in our stake in the New England Sports Venture.

With the moves we have taken to refinance and pay down debt, and the anticipated asset sales, we believe we have the financial strength to manage through this challenging time.

And with that, we would be happy to open it up for questions.

Thank you.

(Operator Instructions).

Our first question comes from Alexia Quadrani from JPMorgan.

Thank you.

A couple of questions.

First, on the circulation front, you have seen very good growth in circulation revenue, certainly New England in this quarter, do you have any sense about how much more you can continue to raise rates for your papers before you see and inverse impact on buying or a negative impact in circulation revenues?

With the increases we are seeing less than (inaudible) declines in the volume and circulation, but the revenue is performing very, very nicely.

When indeed we have raised rate we always have forecasted of course beforehand to judge what volume impact it will have, and so far both the Times and at the Globe with these recent increases, we are very pleased to note that indeed they're performing well, that cancellations are well below our expectations.

And then if you look specifically New York Times property, can you give us any color in terms of the ad revenue decline that you are seeing there?

What portion really comes from a hit to rate versus ad revenue decline?

It is primarily volume.

Rates more or less held as a result of a mix, higher more national business versus classified.

Primarily volume.

Okay.

Thank you.

Our next question comes from John Janedis from Wells Fargo Securities.

Hi.

Thank you.

Sorry if I missed this, but Jim, on the cost side, can you talk more about the rest of year?

I think the guidance implies a mid-teens decline, and (inaudible) present in Q2, with prices versus last year, is there any reason why the high teens decline wouldn't continue to get better as we go to 4Q.

If you recall last year, as we went through the year, our cost performance was much more aggressive as we went deeper into the year.

So we had a fair amount of staff lay offs last year, that was cycling for us, just like the comparisons get easier on the revenue, they get more difficult on the cost side.

We obviously had some benefits this quarter as well on buy-outs, although we do expect that to continue as well.

You are right, though we will have a number of initiatives back through cycling more agressive through third and fourth quarter this year.

And just secondly, Martin, can you just talk a bit more about what you are seeing on the display side, with the News Media, did any major customers pull out, and do you thing you are losing share relative to the total industry?

No, I will ask Denise to come in on this specific to the New York Times, but the -- I don't think we can point to any major losses.

I think that your comments about overall volume on the businesses is true of the digital side as well.

I would point out that -- to point to Janet about the most of the hit or disproportionate amount coming in the classified area.

Can I jump in and remind you again that we had a really robust quarter on -- overall for NYTimes.com last year, but really in the display area, so we are up against really difficult comps.

That's just the context of the report you have.

Just based upon what we have been seeing in the market comparing to other sites there, we do believe we are taking share in the display marketplace.

So we believe we are performing better than most of our competitors in the display marketplace.

Yahoo just announced a 14% decline in display.

I think while we are not breaking out the numbers, I think our display performance overall at NYtimes.com and across News Media Group is better than that.

Thanks.

(Operator Instructions).

We will now go to Craig Huber from Barclays Capital

Yes, good morning.

A few questions, can you just, for the news print, what was the average price percent change year-over-year in consumption for news print in the quarter?

The price was basically flat in the it quarter.

It was favorable by 2% (inaudible).

As we get into the second half of the year, you will see fairly significant price reductions year-over-year, and that will generate some fairly significant savings in the back half of the year as we said total savings with news print.

$65 million in total savings, news print first (inaudible) you will see fairly significant improvements in the second half.

But then my second question, in the newspaper division, what is the percent change for nonnews print for various one time items in the press release.

The news, just on a kind of on a buy out basis, which is where the most of the print numbers are, we were down about 20%.

And within with that number, and we then detail on the back, raw materials in total.

Raw materials were down about $17 million in total (inaudible).

Also as a sort of follow up.

On the advertising price, they admitted their average they said it was -- you said ad revenues were down 5% to 5.5%.

(inaudible) General communications (inaudible) they say their average rate for news papers is down 12.8%.

Just more clarity as you look across your portfolio, I'm curious across the Times, the Globe or regionals.How much was your ad rate percent change year over year.

Honestly I have a hard time believing they were flat if everything else is down, or were you just talking about the New York Times,.

Yes, the comment was just about the New York Times.

What about the Globe or regionals?

I think we have pressure certainly across all newspapers, and I think we can certainly say that that's the case with the regionals and at the Globe.

But it is not meaningful.

The people at both, at both the Globe and regionals are working hard to make sure that they are holding rates as much as they possibly can.

There are more issues in regard to volume as opposed to rates.

So you were talking down 1%, 2%, 3% in that range?

I don't think we need to quantify.

I think it is in the, in -- a low range, put it that way.

Okay.

And then the other thing is (inaudible) decline down, with the rate of declines moderating slightly.

(inaudible) Isn't that really just based on the comparisons (inaudible) or significantly easier difference --

Certainly the comps are existing us as the year goes on, and that is true, I think of really all newspaper companies primarily because the recession started to hit much harder in that period of time, but what we are seeing is that there is a loosening up of some of the budget that was very much rock solidly closed in the first half of the year.

There are more in many of the categories, and budgets are going to be robust or their commitments are going to be robust.

But it is encouraging, to see many of the advertisers are looking at ways in which they can utilize within our portfolio.

My ad rate question (inaudible) should be greatest flight year-over-year there.

Yes, again, this is a really complicated question as you know, very difficult to answer because we have so many different categories and so many different factors, but it is a lot to do with mix and a lot to do with the fact that as advertisers reduce volume, they move up on the rate card.

So the rate does go up, and those are just two of the key factors that you should be aware of when you think about and talk about (inaudible) That is also true, Craig, when you talk about Boston and the regionals when you look at the rate cards for news paper.

It is important to note that when the frequency drops the rate increases.

Great.

Thank you very much.

You're welcome.

Our next question comes from [Scott Davis] from JPMorgan.

Hi, just a small point, I wanted to follow up Martin on what you were saying when you made reference to taking market share versus some of the big guys like Yahoo and one thing they mentioned on their call was that despite the fact the number was good it felt like pricing for some of the categories of advertising was starting to improve.

As you spoke to them more it seemed like the large advertisers compared to the small advertisers were showing some signs of early distress.

Are you seeing anything that would be similar or different from that?

Let's let Denise take that for the regional side of the business.

So, in terms of pricing we for the first half of the year, maintain and grow in our pricing slightly on the online side.

We did see a slight dip in Q2 on some of our premier units, but again that's a result of the robust comps we were up against in the prior year.

We have introduced several premium display units that are garnering significant premiums and rates in the market place, so that is really helping our display position and will bode well for us in the coming year.

Okay.

Martin you suggested something as (inaudible) could you increasing could you add a little color to that.

Yes, actually I didn't -- Janet described the CPC strength in her introduction.

That is that we have seen better CPC results in the second quarter at about.com, and we expect, to continue to see good results on CPC.

The business is quite positive at this point.

Thank you.

That is all the time we have for questions today.

I'll now like to turn the conference back over the Ms.

Mathis for additional or closing remarks.

Thank you all for listening today.

If you have any additional questions, please give me a call.

This concludes today's presentation.

Thank you for your participation.