Tegna Inc (TGNA) 2002 Q1 法說會逐字稿

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

At this time, I would like to inform you that this conference is being recorded for rebroadcast, and that all participants are in a listen-only mode.

At the request of the company, we will open the conference up for questions and answers after the presentation.

I will now turn the conference over to Ms. Gracia Martore. Please go ahead, ma'am.

Thanks, and good morning. Welcome to our conference call and Webcast to review Gannett's first quarter results. We hope you've had a change to review our press releases from the morning, which also can be found at www.gannett.com.

With me today are Doug McCorkindale, Chairman, President, and CEO, and Larry Miller, Executive Vice President of Operations, and Chief Financial Officer.

Very briefly, as you saw, Gannett earned 91 cents per diluted share, in line with the twice upwardly adjusted first-call consensus estimates for the quarter. In 2001, on a comparable basis, we earned 85 cents per share, or a seven percent earnings increase year-over-year. As importantly, after-tax cash flow per share was $1.11 for the quarter, versus $1.05 in the first quarter of 2001, again on a comparable basis. At the beginning of the year we adopted SFAS NO. 142 which changed the rules for good will and intangible assets. If the new rules had been in place at the beginning of 2001, then the first quarter of 2001's previously reported diluted earnings per share of 66 cents would have been 19 cents higher, or the 85 cents I mentioned earlier. And as you saw, we included pro forma schedules in our earnings release this morning, to reflect these adjustments.

I'd also like to briefly detail a few other numbers. Newsprint expense declined 18 percent in the quarter, comprised of 16-percent decline in prices, and a three-percent decline in usage. As you may recall, we're on Fiscal Accounting for Newsprint. Also on the newsprint front, the same price pressures that lowered prices in 2001, combined with reduced demand overseas, forced prices lower in each of the past three months. Most market observers believe we are very near, or at the bottom of, the pricing curve. Continued down-time efforts on the part of newsprint producers, as well substantial recovery in North American and offshore demand for newsprint, are necessary before we will see upward pressure on prices.

In the second quarter, Gannett's usage price will probably decline in the low 20 percent.

Turning to the balance sheet - total debt at quarter end stood at $4.85 billion. And cash and marketable securities were 110 million.

In previous calls, we had indicated that we were looking to term out a portion of our debt, all of which had been in floating rate commercial paper. In mid-March, we termed out a total of 1.8 billion, 600 million of three-year money at 4.95 percent, 700 million of five-year money at 5.5 percent, and 500 million of 10-year debt at 6 and three-eighths. While it was very tough to give up some of the 1.8 percent commercial paper, without rates we're bottoming, and it was appropriate to layer out some debt.

At this point, our cost of debt remains at a very attractive 3.3 percent. And we will continue to enjoy significant positive year-over-year savings in interest expense in the second quarter.

Turning to our shares outstanding, with respect to basic shares, a quarter end they were 266.6 million, and averaged 266.2 million for the quarter. Capital expenditures were 57.8 million in the quarter. And we continue to expect them to be around 300 million for the full year.

Finally, before I turn the call over to Doug, I need to tell you that both our conference call and Web cast today may include forward-looking statements. And all of the risks associated with these forward-looking statements are outlined in tremendous detail in our SEC filings.

Doug?

It's my job to give you some forward-looking statements. I'll do that in a few moments.

In the presentation, we made about three weeks ago to the media and entertainment analyst group in New York; we indicated that advertising might have bottomed, though it is still a bit of a mixed bag. I think you can see from our first quarter numbers that we released today, that those numbers seem to reinforce that belief, at least from a cyclical perspective. And the worst is behind us, and we are making directional progress.

Total pro-forma advertising revenues for our newspaper segment were down three percent year-over-year in February and March, versus being down eight percent in January. Some of the improvement in February obviously resulted from "USA Today", which was helped by the Winter Olympics. Classified revenues in our newspaper segment got better each month during the quarter, being down six percent in March after losses of seven percent in February, and 12 percent in January. In March, our classified results were constrained a little by Easter falling on the last Sunday of the month, versus mid-April of last year.

In employment, the numbers aren't good. But they are getting better. Overall, including our domestic and UK operations, employment advertising declined 24 percent in March. That's two percent better than February, and eight percent better than January. Automotive remained strong throughout the quarter.

On the retail front, the results were mixed and finished down one percent for the quarter. March finished flat year-over-year, helped, as compared to classified, by the earlier Easter.

Two local categories were soft for the quarter, groceries and consumer electronics. Both were down in the teens.

National advertising, at both our local papers and at "USA TODAY," remain very volatile, finishing down five percent for the quarter. At "USA TODAY," ad pages are still being booked very close to deadline. So making predictions about the near-term, or other trends, is still very difficult, but some categories are showing signs of life. For example, for the quarter, travel was down 18 percent. But it was up 13 percent in March. was flat for the quarter, but up five percent in March. And Auto was down 12 percent for the quarter, but down just two percent for March.

Turning to the UK for a moment, Newsquest continued to be an important contributor to our results. In the first quarter, we saw softer ad results in employment, so property, their term for real estate, remains strong. As you may recall, employment was very strong for Newsquest in the first quarter of 2001. It was up 28 percent. So overall, while Newsquest ad revenues are about flat year-over-year, operating profits are up in the mid-single digits. In the UK, newsprint prices have fallen over 11 percent.

In television, we're off to a very good start for the year. The quarter enjoyed heavy automotive, an aggressive and successful Olympic period, and healthy political advertising. Thus far, political has far exceeded our expectations. With us, especially with the strong position we have in each market, we are well positioned to maximize the political ad dollars, which seem to be coming in on an aggressive basis. But, as with "USA TODAY," we are seeing a very different buying pattern emerging in television. For those of you who followed us in the past, you know that audits have customarily been booked 12 to 18 weeks out. But that's no longer the case. Advertisers are booking much closer to airtime. Therefore, our pacings have been increasing every week for the last several months. Our pacings for the second quarter are up in the very low single digits with April down a few percents, May about flat, and June up in the teens. Again, though, I want to caution you that the pacings are very volatile, and what I'm telling you is what we're seeing right at this moment. Obviously we'll keep you up to date as the quarter progresses.

On the Internet side of the business, we generated about $20 million in revenue in the first quarter, which is about a 25 percent gain year-over-year. Like we've mentioned in the past, our domestic community newspaper, "Websites," continues to , and generated in the aggregate a profit for the quarter. That's also true of our Newsquest operations. Television joined them on the plus side with a small profit over all. However, usatoday.com continues to reflect the challenging national Internet environment.

Over all, we are cautious, but a little bit more optimistic about the outlook for the remainder of the year. We'll get a lot of help from interest, costs and newsprint over the next several months. We'll continue to control costs, and we will continue to run this business as if we remained in a recession. We hope we'll be able to report more progress on the advertising front in the coming months, but right now we're proceeding very cautiously.

Looking at first call, most of you have current estimates of the second quarter in the $1.11 to $1.12 range. It's very early in the quarter, but based upon the trends we're seeing today, we would expect to achieve earnings in that range. But again, these are volatile times, so we'll keep you posted as the quarter progresses.

I think we should stop now and take your questions.

The question and answer session will begin now. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press one, followed by four on your push-button phone. If you wish to withdraw your question, press one followed by three. Questions will be taken in the order they are received.

Please stand by for your first question.

Our first question comes from . Please state your affiliation, followed by your question.

Merrill Lynch, thank you. Just a couple of quick questions - I'm wondering, Doug, if you can quantify the overall affect of the earlier Easter on your results in March, or maybe help us understand how trends look in April, given the, you know, presumably negative affect of the earlier Easter this year. And then secondly, I'm wondering if you could give us more color on the categories of advertising at "USA TODAY" in terms of what was strong and what was weak, and what you're seeing in April there as well.

Yeah, , we haven't quantified Easter, but as you know, it negatively affects classified, as I've made the comment on. And it positively affects retail. So you know, over all, since classified tends to be a little bit more profitable, it probably was a little bit of a negative to us. But we didn't measure it on a dollar basis. Turning to April in general, we're cautious. We're picking up a little by little. But there are no big positive signs on the horizon, except as I mentioned in the television category. But on the print side, it's just cautious, slow movement.

And in "USA TODAY," you know, the major categories are travel and tech and entertainment. And as I indicated, the travel was down for the quarter, but picking up significantly in March. And that seems to be continuing in April. And the tech side is also picking up nicely. Having said that, we're going against some pretty negative numbers from the first part of 2001, so we have a long way to go. "USA TODAY's" window is very, very short right now. One week it's looking very positive. The next week it's not so positive. So it's even worse than television. It's a day-to-day thing. But in those two categories, at least we are seeing some positives.

And what about an entertainment at "USA TODAY?" How does that look in the quarter, and how does it look in April?

It was down slightly in the quarter. In April, I don't have a picture for it in April off hand. But it wasn't down near as much as travel for example. And it is the third category. So, it probably did a little bit worse than tech, but basically just down a little bit in the first quarter.

Great, thank you.

Thank you. Our next question comes from Douglas Arthur. Please state your affiliation, followed by your question.

Morgan Stanley - a couple of questions. I didn't see in the press release today a discussion of non-newsprint costs, year-over-year change. So I was wondering if you could just talk about that. Secondly, any updated guidance in terms of year-over-year change in total FTEs for the company? And third, cross ownership, there's been a lot more discussion, obviously, recently that it may slip into '03. Any comment on that?

Doug, let me start with the last one, and Gracia or Larry can jump in on some of the other two. You probably read what we heard out at NAB from the chairman of the SEC. I think the most optimistic way to read his comments is that maybe something will happen post-election time. But knowing what's going on in Washington, I think that would be just that. It would be optimistic. So your 2003 reading may in fact be the results that we're looking at.

On the FTE, I don't have a body count, but our payroll was down about one percent in the first quarter. And non-newsprint cost - does anyone have any ...

I'd say relatively flat.

Yeah, down a little to flattish, on the newspaper side. And on the broadcast side, obviously, up some, reflecting Olympics coverage, and you know, more sales intensity.

Great, thanks.

Thank you. Our next question comes from . Please state your affiliation, followed by your question.

Thank you - Bear Stearns. My question had to do with the other lines. On the revenue side, I suspect Detroit was the biggest part of that pressure. But I wanted to check in with you and see what was impacting that line.

And also, I know that other net on the non-operating side is amalgamation of a lot of different factors. Were there any one or two factors that swung that negative?

It's a little bit of Internet write offs.

Yeah. There's some Internet write offs in that, Kevin. That's where we would take some small Internet write offs. But, you know again, it's an amalgamation of a whole bunch of different ins and outs. And it varies every quarter, plus or minus a couple of million dollars.

Then back to Detroit, Kevin, they've had a very tough first quarter, although their numbers were a little better in March. But Detroit is probably our toughest market right now of all I can think of, especially in the large markets, because the small ones are doing OK. In fact, some of them are rather positive. But they don't have a big impact on us. But on the big picture point of view - from the big picture point of view - Detroit is clearly the toughest market.

OK. Is the majority of that decline in that line?

Up in the revenue, I'd say yeah.

Yeah, I think you're right.

on the other revenue, yeah

Thank you.

Thank you. our next . Please state your affiliation, followed by your question.

I just wanted to drill a little bit more on some of the revenue figures, in particular on the classified side. You know, in March you guys had a one-percent decline, as I recall, in the real estate line. You know, but the housing market seems to be, you know, relatively strong nationally. I just wondered if you could comment on what's behind that, and maybe what the outlook would be, you know in that line, and also in the other classified lines as we move into April. And then in terms of the television revenues, you guys had said in the past, you know, you're looking at about five percent growth in that line for the balance of the year. You know, given what you're seeing now in the second quarter, and you know, in the prospect perhaps, you know, the political showing in the second half, and secondly against ad interrupted broadcasting in September, do you still feel that five percent figure is the best estimate? Or is there perhaps some tweaks that can be made to that?

Well on the classified side, , automotive was strong in March. But real estate was negative in March for us, because again that's Easter. It was positive for the quarter. But you know, it was up about a percentage point or so. Automotive was up about six percent for the quarter. And the employment was down in the 30-percent range. So April should come back a little on the real estate. You saw the numbers that were announced this morning. Listening to the commentators, I can't tell whether it's good or bad. Some of them saying the seven percent negative is down, and more than they expected. Others are saying it's less. So we'll just have to wait and see. But I assume that real estate will continue to be positive. And of course overseas in the UK, the real estate numbers have been fine for us.

One the broadcasting front, I don't think we're going to change any of our estimates at this point. As I said, political is coming in stronger than anticipated. But the windows are so short, with people moving up and down, automotive was clearly better than we had anticipated before the year began. So I think we'll stick with the same projections until we get a little better feel. Having said that, it is clearly coming in better than we had anticipated. So I hope our conservative estimates are just that, and we'll do better than what we predicted.

OK, great. And then if I could also just follow up in terms of the local advertising there. You guys gave a little color, you know, in terms of the grocery stores, you know, in some of the areas that, and in the consumer electronics. But I was wondering if you could fill us in, in terms of some of the other categories in department stores, and, you know, what the outlook might be, you know, looking ahead into April in that line?

Well, for the quarter, department stores were down in the domestic papers, you know, mid-single digits. The same with furniture. The more positive categories were financial, telecom and real estate - excuse me - and restaurants for the quarter. Those actually had positive comparisons year-over-year, as well financial on the month of March as well. It's probably a little early for us to be able to really speculate on what the April numbers are going to look like by category. But, you know, we've got that Easter phenomenon. And that's why we suggest that you take the March and the April results when we post them, and combine them to give you a better comparison to last year's similar period with the flip flop of Easter, because that can obviously have an impact on the grocery category, the restaurant category, department store and others.

OK, great. Thank you.

Thank you. Our next question comes from Edward Atari . Please state your affiliation, followed by your question.

Good morning. Three questions - one, could you go a little bit m ore into TV politics, remind us what level of spending occurred in sort of the last off year, non-presidential year? Number two - shares are up. Is that just option issuance? And third, could you discuss the interest cost outlook? Three point three is a pretty nice rate long term, at least for the rest of the year. That means interest expense might be at least lower than I thought it would be anyway. Thanks.

Ed, others will jump in here. On the political front, I don't know whether I have a comparison to the similar period. What we are seeing though on the positive side is, as you know, this year the House will be up. You've got like two-thirds of the governors, and you have a lot of issue advertising going on out there. So we're seeing a lot of money being spent. And if I had to try to remember back what it would be, my impression is that it is more positive than we would have seen in 2000, or whatever the correct comparable year would be. I guess ...

"98.

"98 rather. So I have a gut feeling - I don't have any numbers in front of me - I just have a gut feeling that it is more positive than it was in 1998 on a comparable basis. And I hope it stays that way. As you know, under the existing rules, this is the year that they can spend it.

a law.

They'll find a way to encourage other ways around it. We're already hearing people with some imagination out there trying to figure out how they'll be able to spend it next year. But it is coming in fine.

On the interest rate, Gracia, you may have a comment on that.

Yeah. Obviously, Ed, we still have about 2.8 or 2.9 billion in commercial paper. And what happens with those rates will be highly dependent on what the Fed does, you know, for the rest of the year. You know, I would imagine that if the Fed starts raising rates in the latter half of the year, obviously, that 3.3 percent would rise in relationship to that as well. As our debt comes off - and it's coming off from commercial paper - the longer-term debt becomes a little of a bigger piece of that pie. But we're still going to have a very favorable comparison in the second quarter, not obviously as favorable s the first quarter. And then we'll just have to see where the Fed takes rates in the second half of the year.

On the shares - that's exactly it. It's stock option exercising and issuance.

Ed, we did file a 2.5 billion shelf. You know, we're just going to sit on that and take a look at where the markets go. And that billion eight we did a couple of weeks ago, that was part of a billion five shelf that we had sitting there for what, a couple of years. So, we're on line, depending on where the market goes, to take advantage of it if necessary. And the 2.5 billion shelf got through the SEC in a week. So it's effective. And we can use it whenever we need to.

Thank you.

Thank you. Our next question comes from . Please state your affiliation, followed by your question.

Just two quick questions - first proportionately, how big are tech and financial advertising at "USA TODAY" now? And second, in online recruitment advertising, I was wondering if you could give us your point of view on going it alone versus partnering or acquiring? Thanks.

I'll give you the statistics on "USA TODAY," and I guess Doug can chime in on the online. You asked about telecommunications and financial. They're each about five or six percent of first-quarter ad revenues at "USA TODAY."

How about tech as a whole?

Tech is about 15 percent.

And does that include telecom?

No. Telecom is separate. And that's about five or six percent.

OK.

On the going it alone, so far we're satisfied with the way that's going. "USA TODAY" careers network is getting some nice fill in from our community newspapers. And we're actually having some discussions with some non-Gannett groups that may want to join in with us there. So we are going alone, but you may see some other partners there. And right now, you know, we're looking at everything. And as I said, in New York, I think there's going to be a little consolidation on some of the Web sites. I don't know who those players will be. But we'll look at everything and see what happens. But we don't find it necessary to go out and spend a lot of money to protect our online classifieds. We're doing it ourselves.

Thank you.

Our next question comes from . Please state your affiliation, followed by your question.

Could you give us an update on how you're feeling about the central newspaper and deals, and specifically, if you give us some quantification of how they're going to impact the '02 results. That was question one. Question two is, on the newsprint side, it seems like the manufacturers maybe are finally having some success in reducing the capacity. And I'm wondering if that makes you just a little bit nervous about the potential for the magnitude of the price rebound in newsprint. when we eventually do see the prices rebound?

Let me talk to the central first, Peter. And then Gracia can jump in on the newsprint. The bottom line is, bring us lots more central transactions. It's worked out very, very well. It helped us a little bit last year. It helped us definitely in the first quarter. It's just been positive all the way around. Now, obviously, we got helped by the interest-rate part of that, but there were more opportunities in central than we had programmed in our initial review. It's been a little bit more work, but it's plus, plus, plus. So, you know, all those of you who have banking connections that are listening, bring in the centrals of this world, and we'll write the check. What about our newsprint, Gracia?

Yeah, on the newsprint side, Peter, obviously they have been taking out some capacity. But at the same time, the newspaper industry has completed a significant round of Web with reductions. And, you know, for us it can net where we'd reduced Web with that savings about six or seven percent on the newsprint side. That being said, if supply and demand, you know, comes back into shape, and we see a lot of advertising demand, and that sparks up newsprint demand, then if there's a price increase so be it. But it'll be driven by supply and demand. And we've got some counterveiling forces there with the Web with reductions.

You know, I would also hope - and this is the result of some conversations I've had with some of the newsprint folks, that the swings will be less volatile in the upcoming years than they have been in the last decade. I think the suppliers realized it doesn't make sense for them to lose a lot of money and then try to get it all back in 18 months, and then go negative again. And I think they're going to work with the industry, the buyers. We need each other. And I think that the results will be smoother. At least that's the message that they've been delivering to me, and I hope it holds.

Back on the acquisition front, Doug, in the context of your enthusiasm for the central deal, maybe you could just share with us what you're seeing in the marketplace now. Is there much going on in terms of flow of interest in properties? And what are the valuations looking like?

There's a lot of discussion that's very preliminary. The things that are actually for sale, in our minds, the asking prices are too high, especially on the broadcasting side. Lots of folks are asking for significant multiples of the magic numbers they did in the year 2000, and that doesn't make a lot of sense to us. We're ready to write checks for the right transactions. But, as you know, we don't do dumb deals. So, but most of those pieces that are for sale, openly for sale, at too high a price in our minds. The rest of it is just discussion. And it goes back to what's going to happen with the SEC. Everybody's wondering what the results will be, what the new rules will be on duopoly, on cross ownership, on the 35-percent rule, et cetera, et cetera. Right now I think the newspaper folks are in somewhat of an unfair position, compared to say Cable and TV. They can do cross ownerships in the markets. But we're all hoping that logic will prevail, and we're therefore chatting with each other.

OK, thank you.

Thank you. Our next question comes from . Please state your affiliation, followed by your question.

A couple of questions - one in the broadcasting area - I was wondering if the joint venture in programming you have with NBC and is of any significance, either now or expect to be in the future. And does that wind up in the broadcasting numbers, or the other numbers?

And separately, "USA TODAY" had very strong momentum, I think, going into the downturn. And the way you described it today with the tightening timeframe between when the ads are placed and when they're booked, you know, I'm just wondering if that momentum shift can be explained away in any - or is it surprising to you that, that type of relationship that's taking place has occurred? And can you recover the momentum you had before?

Jim, on the Hearst, NBC programming venture, we're very positive about it. And it is in the TV numbers. But it's so small, you'll never see it. I hope it gets to be big enough so that you will see it, but right now it's just a positive venture with very little financial impact on it though it is positive.

On the "USA TODAY" ad trends, you know, what I was explaining is basically what we're seeing in television. It's this very, very short window on the national scene in particular. And of course "USA TODAY" is almost all national. So until the national advertisers decide which way they want to go, and we are getting some mixed messages, some of them are signing up for contract commitments, but not yet spending the dollars. And others are sitting on the sidelines. It's more positive than negative. But they're simply not spending the cash at this point. With "USA TODAY's" numbers being so strong from a distribution point of view, and readership and all of that, I'm assuming - and I have no reason to doubt this at all - that when the national advertisers decide that they want to cover a certain topic, whatever it is, they'll be in "USA TODAY." As I said, that travel category jumped up in March. That was stronger than we anticipated. But it's clearly a category that they will turn to "USA TODAY" when they think the public is ready to start doing some leisure travel. So, we'll get the dollars - I have no doubt about that - as soon as the advertisers make the decision that they think they will get results for the expenditure.

Thanks.

The next question comes from . Please state your affiliation, followed by your question.

Good morning. I was just wondering if you could quantify at all the Olympics related spending in broadcast? And secondly, there was a significant increase in the corporate D&A. Is that related to the new headquarters?

Yeah. Who is this? I'm sorry, we didn't hear your name.

, at Lasard.

Oh, hi. Well the Olympics, yeah, we were up significantly in February from it. And it was around $25 million to $30 million. I don't have the exact number, but in that sort of a category. On the cost side, yeah there is a little in there on the corporate headquarters. Is there anything else, Gracia?

well that's in the D&A - that would be the corporate headquarters for corporate D&A would be the ...

We're now in the real estate business down here. And it's not something we chose to be, but it's worked out all right. It'll give us an OK return. It won't give us the 15 percent after tax that we're accustomed to getting, but it's fine. And that would be a big piece of that number.

Does that answer your question, maam?

Yes, thank you.

Just a reminder, ladies and gentlemen, if you do have a question you may press one, followed by four on your push-button phone at this time.

And our last question comes again from Mr. . Please state your affiliation folkowed by your question.

Thanks. I'm still with Bear Stearns. And I just want to ask about the pre-print numbers in March. One might have thought that retail was a bit stronger in front of Easter, that pre-prints might be too. And I was wondering if you had any color behind the pre-print comparisons?

Does anybody have any color? Kevin, I'm glad you're still with Bear Stearns, while we try to figure out the answer to your question. And I don't know whether anybody has - do you have anything, Gracia?

Well I know that last year pre-print was pretty strong in the first half of the year as we saw more of local folks shifting into pre-prints. So it may be a comparison, year-over-year comparison issue as well as just various categories that while may have benefited from an early Easter, may have also not benefited from the earlier Easter. So there's probably some forces there.

But with the consumer electronics lagging, you know, they're a big category for the use of pre-prints, Kevin. So that may be a part of it. We'll do a little homework and I'll have Gracia give you a call.

Thanks, Kevin.

No further questions. I'll turn the conference back to Ms. Martore to conclude.

Thanks very much for joining us. And if you have any additional questions, please give us a call at 703-854-6918. Have a great day.

Ladies and gentlemen, a rebroadcast of this call will be available approximately one hour from now. To access this rebroadcast, you may dial into 1-800-428-6051 with a pass code ID number of 237-363.

That concludes our conference call for today. Thank you all for participating, and have a nice day. All parties may disconnect now.