Tegna Inc (TGNA) 2006 Q3 法說會逐字稿

Good day, everyone, and welcome to Gannett's third quarter 2006 earnings conference call. Today's call is being recorded. Due to the large number of callers, we will limit you to one question and or comment. We greatly appreciate your cooperation and courtesy.

Our speakers today are Mr. Craig Dubow, Chairman, President and CEO, and Ms. Gracia Martore, Executive Vice President and CFO. At this time, I'd like to turn the call over to Ms. Martore. Please go ahead, ma'am.

Thanks and good morning again. Welcome to our call and webcast to review our third quarter results. Hopefully you've had the opportunity to review the press releases from this morning, which also can be found at www.gannett.com. We will keep our comments relatively short this morning in order to allow enough time for questions. With me today are Craig Dubow, Chairman, President and CEO, and Jeff Heinz, Director of Investor Relations. Craig will begin with an update on some of our strategic initiatives and then I'll follow up with some specific details on the quarter, Craig?

Thanks, Gracia, and good morning to everyone. The strategic direction that we've had in place now for several months is all about becoming customer centric, nimble and innovative. There are several initiatives underway at this time and I'd like to update you on them and we'll keep you posted as we move along. I believe these efforts are positioning us quite clearly for the future, as we face a changing competitive landscape. We understand our key franchise is local information delivered how and when the customer wants it. We also know that we must enhance and support our core businesses while growing our robust digital business. These are our key goals and during the quarter, we made some significant strides moving forward with this plan.

On the digital front, we are rolling out Planet Discover, our provider of local search technology across all of our domestic community newspapers. Linking useful search technology to our local knowledge translates to outstanding opportunities for us as a more effective local search connects consumers to more and better content and advertisers. Increasing our stakes in Career Builder, shoplocal.com and topics.net also solidifies our commitment to the digital space. Career Builder in particular has expanded its position in online recruitment and leads the industry in jobs postings, traffic and revenue. Most recently, we affiliated with revenue science to provide us with behavioral targeting technology for advertising on a national, regional and local basis. A key element in growing our online advertising.

Creating duopolies with the acquisitions of WATL in Atlanta and KTVD in Denver enhances our core as did the expansion of the California Newspaper Partnership. These moves helped generate profitable revenue growth while providing valuable local content.

We also acquired some interesting niche publications, the Florida State University student newspaper and the Marco Island Sun Times which speaks to our commitment to make smart deals to support the core and deliver to our readers. We have come to understand innovation is a key to our success and it is taking hold deep into Gannett. Our center for design and innovation is accelerating the best and new ideas brought through for management approval. Nearly 700 ideas have already been submitted and the quality and number of strong ideas that are being generated by employees is impressive and gratifying. Several have been targeted and green lighted for further development. We will have more about this later in the year.

This innovative mind set is not limited to the design center. Our focus on the customer, being truly customer centric, is changing the way we think throughout Gannett. We recognize the need to be more audience based in everything we do, and that we need to reach out to new potential customers, especially advertisers. Pilot programs are demonstrating that we can gather more and better local content and package it effectively, attracting larger audiences. Our audience aggregation efforts have had all the hallmarks of this customer centric focus. We're developing a variety of products that deliver consumers to advertisers creating that very partnership. The result has been better core products as well as better digital products and positive monetization of these efforts.

Although our results this quarter reflect a challenging advertising market, we are quickly putting into place a strategy that will position us for success in this ever-changing environment. As we build our digital business and enhance our core assets, we are becoming the desired source of information for more people in our communities. More than anyone else, Gannett is positioned to deliver the right content to the right audience in newer and better ways. We will continue to take advantage of our position in the communities we serve to do our best for our customers. And we believe that we will drive our growth in the future.

Now turning to our shorter term results for the quarter. As you saw in our release this morning, Gannett earned $1.11 per diluted share this quarter including about $0.03 for stock based compensation expense. Overall, our reported operating revenues for the quarter totaled over $1.9 billion. Operating cash flow was about $524 million in the quarter driven by a 28% increase in operating cash flow on our broadcasting segment compared with last year's third quarter. These results reflect very challenging advertising environments that softened as the quarter progressed. Geographic divergence continued with revenues in the west and south outpacing other regions of the country.

On a pro forma basis, newspaper advertising revenues for the quarter were down a little over 1% although local advertising was up almost 1%. In Classifieds, the trends we experienced at the beginning of the quarter continued through September. Real estate was positive while employment and automotive remain negative. National was down due in part to community newspapers in the south which could not overcome the level of national advertising related to hurricanes in September of 2005. USA Today ad revenues were up as they experienced strong growth in some important categories in the quarter. Gracia will talk more about this in just a moment.

In the U.K., the tough advertising market continued in the third quarter, although we saw a slowing of revenue declines in the critical categories of auto and employment in September. Real estate continues to be positive and in all our results benefit from a favorable exchange rate for the quarter. Broadcast delivered the ratings that helped drive significant increases in our politically related advertising and resulted in double digit revenue growth. We expect the political season to be robust in the fourth quarter with the number of critical elections in our markets. Audience aggregation is and will continue to be a focus in all of our markets, a key element to that providing multiple products in a marketplace to attract various audiences is paying off. Revenue from our local nondaily products which does not include the Army Times, Nursing Spectrum or Clipper Magazine was a source of growth again this quarter. Again this works to enhance our core.

Growing our digital business quickly and profitably, which is the other prong of our strategy, is reflected in a 25% growth rate for online revenues company wide for the quarter. Online revenue at domestic community newspapers was up about 21% and News Quest it was up about 38%. Online and broadcasting jumped 48% and USA Today.com was up 24%. Our latest monthly numbers for September show our domestic web sites had about 24 million unique users and reached over 15% of the internet audience. In the U.K., News Quest online audience totaled 3.6 million unique visitors with 51 million page impressions.

Again, pointing to the strengthening of our digital business, we continue to see robust growth from Career Builder with Career Builder network revenue up 29% compared with the third quarter of 2005. Traffic for the network increased 22% and averaged approximately $22 million for the third quarter. We're enthusiastic about the progress we're making in many of our strategic initiatives and we're moving quickly to further position Gannett for the future.

So with that, let me turn the call over to Gracia.

Thanks, Craig. Before we go into detail in our quarterly results, I am obliged to tell you that our conference call and webcast today may include forward-looking statements and our actual results may differ. Factors that might cause them to differ are outlined in our SEC filings. This presentation will also include certain non-GAAP financial measures and we have provided a reconciliation of those measures to the most directly comparable GAAP measures in the press release and on the investor relations portion of our web site.

Moving to the quarter. A number of items had an impact on our results. Strong demand for election and issue-related advertising, as Craig mentioned, and the acquisition of two television stations had a positive impact on our broadcasting segment. The full consolidation of 100% of Detroit's results affected both revenues and expenses and also the margin for the newspaper segment, although to a lesser degree than past quarters. The reorganization of the Texas/New Mexico newspapers partnership with Media News Group had an impact on our nonoperating items. Our percentage of the net results of the partnership is now included in other operating revenues, rather than fully consolidated in the financials, similar to our investment in the California Newspaper Partnership. Comparisons of this quarter's results to 2005 again were impacted by stock compensation expense of $10.3 million this year that was not recorded last year. Now, let's get into the details a little bit more.

Reported newspaper ad revenues were up slightly, as Craig indicated. Assuming we own the same newspapers in both years, total advertising revenues in the newspaper segment decreased a little more than 1%. Pro forma advertising revenue at our domestic newspapers also declined 1% and ad demand at our UK operations continued to lag, though not as significantly as the first and second quarters. At the category level, there was some deceleration for our domestic properties. While in the UK revenue declined the News Quest classified categories slowed on a constant currency basis. Some of the softness in the U.S. reflected concerns about things like the spike in oil prices during the summer months as well as some retrenchment in the housing market due to higher interest rates. Both of these factors have moderated considerably so we'll just have to see where that takes us over the next several months.

Classified advertising company wide and for our domestic properties declined about 2% for the quarter. Real estate was positive for the quarter while employment and auto continued soft. Real estate advertising for the entire company was up over 8%. Our U.S. community newspapers results were better than the UK, increasing about 9% driven by continued strength in the south and far west in this category. Employment advertising for the Company as a whole and for the U.S. community newspapers both declined about 6%. Our domestic community newspapers experienced a decline in automotive of roughly 10% reflecting in part easing comparisons. Results for this quarter improved from declines of about 14% and 13%, respectively, from the first and second quarters of this year. Company wide, auto was down about 9.5%. In the UK, declines in autos slowed considerably in September relative to July and August.

Looking at local advertising, pro forma in our newspapers, it was up almost 1%. Across all products, health, restaurant, home improvement were positive while the department store furniture, consumer electronics and other categories lagged compared to the third quarter of last year. As we projected last year, we are seeing the impact of the Federated /May merger, though it is being partially offset by increased spending from some other retailers and increased focus on our smaller customers and noncustomers. National advertising was down over 3% for the quarter due in part, as Craig mentioned, to the absence of hurricane-related advertising in the south in September of last year. Gains in telecommunications, retail, home and building, real estate and pharmaceutical at USA Today were partially offset by a little bit of softness in automotive, packaged goods, classified and advocacy.

In the UK for a moment, revenues for News Quest, in pounds, were down 5%. News Quest operating profit, again in pounds, and including the cost of staff reductions was 13% lower. The UK ad market remains challenging, however, we are seeing indications that the worst of the declines are ending and some of the tougher comparisons have been cycled. While revenues are still down year-over-year for News Quest categories that have been hit the hardest, auto and employment, a number of properties had revenue in September that was flat relative to the year before. News Quest's revenues and NIBT declines during the third quarter improved compared with both the first and second quarters of this year. As always, our team in the UK has kept things very tight on the cost side. Significant expense savings have been achieved by management, primarily through the rationalization of back office operations. We remain very well positioned to benefit from the anticipated return to growth.

Turning now for a moment to broadcast, which also includes Captivate, pro forma revenues increased about 11% compared with last year and total revenues on a pro forma basis for our TV stations also were up about 11%. National ad revenue advanced 19% and local was up about 6. As expected, significantly higher demand related to political advertising and increased online revenue growth drove the growth. The latest pacings for the fourth quarter overall are up in the mid to high, and I'd say mostly high single digits, compared with last year's fourth quarter. We expect election and issue-related advertising demand to accelerate as we approach November 7. In fact, pacings for October at the moment are up in the very high teens. That is what it looks like at the moment but we'll keep you posted via our monthly reports.

Now let's take a quick look at expenses. The items I said had an impact on revenue obviously also had an impact on expenses as well. And as I've done previously, I want to sort through some of those factors to give you a clearer picture on an apples-to-apples basis. As I mentioned before, stock-based compensation was $10.3 million, about 6.4 million after tax or $0.03 per share. Roughly $6 million was allocated to the newspaper segment, approximately $1 million to broadcasting, and $3 million was allocated to corporate. Our reported expenses were up a little less than 5%, however, excluding those stock-based compensation expenses and on a pro forma basis, expenses for the quarter increased just over 1%. And this quarter, we did not have the benefit from changes in certain retiree benefits in the U.S. which was about $7.6 million in the third quarter of last year.

In the newspaper segment, there was a 4% increase in recorded expenses, however, on a pro forma basis, and that assumes we owned 100% of Detroit and the same complement of properties in the third quarter of '06 and '05, and excluding stock compensation expense, newspaper expenses would have been up less than 1%. Reported news print expense was up 6.6% in the quarter. Price was up about 11% offset by about 4% lower usage. If you look at that on a pro forma basis, our newsprint expense was actually up 4.4% with usage down about 6%. So to put it into perspective, pro forma newspaper segment expenses excluding stock-based compensation and newsprint expense would have been up only 3/10 of 1%.

In the broadcasting segment, operating costs were up about 11% higher on a reported basis. Again, excluding stock-based compensation and on a pro forma basis, costs were up about 6% reflecting higher sales costs related to the double digit revenue advance. Corporate expenses were 16% higher due to stock-based compensation. Excluding that, our corporate expenses would have actually been 3.6% lower.

One comment on the tax rate for the quarter. The lower tax rate reflects the favorable settlement of several state tax audits in the quarter, as well as a further refinement of our section 199 manufacturing deduction now that additional rules have been issued by the IRS. Looking to the fourth quarter, we have several state and federal items along with the section 199 deduction that if resolved as we anticipate would help us sustain that lower rate.

Back to newsprint for a moment. As we've told you previously, we have longer term price arrangements through the second half of 2006 covering a substantial amount of our requirement. As the drop in consumption accelerates, supply and demand is shifting in favor of publishers. In recognition of these market realities, producers publicly rolled back an August increase from $40 per metric ton to $20 per metric ton. Despite these lowered expectations, however, implementation has faltered as producers face strong resistance and it becomes clearer that prices have reached the upper limit. And late last week, a West coast producer began notifying customers of its decision to cancel the price increase completely. Other producers are likely to soon follow this lead.

Finally, before we go to questions, let me give you some of the key balance sheet items. Total debt at quarter end stood at $5.5 billion reflecting the TV acquisitions, the Career Builder topics and ShopLocal additional investments, the California Newspaper Partnership buy up and share repurchases. Cash and marketable securities were $132 million at quarter end. At this point, our all-in cost of debt is 5.4%, with commercial paper at 5.3%.

In the quarter, we had capital expenditures of approximately $44 million and they have totaled $135 million year-to-date. We now expect CapEx to be about $225 million for the year down from the $240 million originally budgeted.

With respect to shares outstanding, basic shares at the end of the quarter were 234.3 million and the quarterly average was 235.9 million. We repurchased 2.6 million shares in the third quarter doubling the amount we repurchased in the second quarter.

So let me stop here and we'll take your questions now. Tom?

Thank you, ma'am. [OPERATOR INSTRUCTIONS] We'll go first to Paul Ginocchio with Deutsche Bank.

Thanks. Gracia, just wondering about the share buyback, it seems relative to your $1 billion announcement back in, I think it was July 25th, it's not actually that active of a buyback. Are you thinking about doing something differently with the cash flow, higher dividend or anything else? Thanks.

Paul, as I mentioned, we did double the amount of shares we repurchased this quarter compared to the second quarter, however, with respect to our free cash flow, as I also mentioned, we had a number of acquisitions, and additional investments that we completed in the quarter, which obviously, used up some of that free cash flow. But I think that you, as always, last year we increased our dividend by 7% and I would anticipate that you will see a similar situation this year. So I think we continue to have the same focus we've always had on our free cash flow redeployment, which is, we will continue to do strong accretive acquisitions as we have done this year. We'll also look at share repurchases at the same time if those make sense, and we'll also return some value to shareholders through dividends. But at any given point in time, depending on the opportunities that -- that will determine how we split up the dollars. I would say that there are a few things right now that we're looking at on the acquisition front that we'll have to see how those play out.

Okay. And I guess, Craig, your focus has been more smaller internet acquisitions that just don't seem to be using up the cash flow, like, the historically the traditional media acquisitions have. So does that force you to you change your, sort of, thoughts about dividends?

No. I think there have been, as you have noted already, and we talked about, with Planet Discover and a few of the smaller ones, but that's not in any way limiting for us. Certainly by some of the other step ups that we have done relative to Career Builder, our partnerships in California, et cetera, it has no impact. And again, what we're trying to do is make certain, as Gracia clearly indicated here, that we're looking for very accretive opportunities that would make the most economic sense for us.

Thank you.

Thank you.

We'll take our next question from Lauren Fine with Merrill Lynch.

Thank you. A couple of questions. Career Builder growth rate seems to have slowed, and I'm wondering if you could give us a sense if you think that's temporary or if it's what we should expect prospectively? And then, I'm wondering if you could comment on just how bad things are in Detroit?

With regard to the Career Builder growth rate, Lauren, I think that Matt Ferguson in a press release that they issued with regard to job prospects, indicated that if you look at the Bureau of Labor Statistics numbers on job growth that the numbers had slowed from the first quarter to the third quarter, I think, in the first quarter B.L.S. numbers were something like 176,000 and that had slowed to about 123,000 or so. Don't hold me to the exact numbers. So I think that the job sites, as well as our own results, reflect some of that slowing that we saw over the summer, which I think in part reflects some of the uncertainty that folks felt with rates increasing and fuel costs increasing, the uncertainty surrounding the war in Iraq and other factors. I think we're just going to have to see how all of those things play out. Certainly interest rates and fuel prices have moderated, which may make companies a little bit more comfortable going forward on the hiring front. But we'll just have to see how that plays out and Career Builder will continue to do the great job they've been doing there. They are the number one site across the board in every metric and so we feel very good about their future prospects both domestically as well as overseas. I apologize, Lauren --

Detroit.

Detroit. Obviously a tough, tough revenue environment in Detroit, but I think that our folks there have been doing a terrific job in terms of dealing with the expense side of the equation, and they understand the need that their expense picture keep pace with what is happening on the revenue side. So, clearly Detroit's a tough area, but doing a good job on the expense side to moderate that issue. And we'll just have to --

Gracia, given its size, can you give us any sense of how much worse than the overall division results the top line really was? And then I guess just taking a step back for the whole group, the change in retail momentum if you can give any more color on that, too?

Sure. On Detroit, obviously, their revenue numbers would have been more similar to what we've been experiencing in all of the auto-based economies, which would have been higher declines than the average. I don't have the specific numbers in front of me, but again, we'll -- we continue to address that on the expense side.

As to the retail picture, as I think we mentioned, we had projected that the Federated /May merger would have an impact on our local and retail revenues in this year, probably in the middle of the year. And I think we're starting to see that. But clearly, some of that is being mitigated by some increased spending by some of the larger other larger retailers and also the focus we've placed on the very, very local advertisers and bringing more noncustomers into the fold as part of the audience aggregation efforts and the like that we have been doing. So I think you're seeing, as we had projected, that the Federated /May merger with the stores now rebranding and all of the rest, there's the uncertainty of the spending there, and we're beginning to see the impact or have been seeing and are seeing it more so right now.

Lauren, jumping back just for a second to Detroit. I think with the work that Craig Moon and the team are doing there, we are very comfortable. What we need to see, obviously, is some pickup within the economics in that marketplace, but to date, overall, with everything that has been done, we feel very, very comfortable with the direction this is heading. We just need a little economic help.

Gracia, one last thing on retail, anything going on with preprints at all that's unusual, positive or negative? And as you look at the fourth quarter, any optimism overall on retail, especially given fuel prices coming down?

I think on the preprint side, what we've seen over the last several months has been that advertisers have been reducing the number of pages and reducing the -- and the sizing of some of the preprints. And as we had indicated, oh, gosh, I guess a couple of years ago, when preprint revenue and distribution was rising, that it is impacted by newsprint pricing, and that as newsprint prices rise, we tend to see a pullback on the preprint side because they are directly affected by that pretty quickly whereas R.O.P. is a little less so. So I think there's some combination of factors. I think it's too early for to us predict what the fourth quarter is going to bring. I've seen some mixed reports out on whether this is going to be a particularly merry Christmas or not with fuel prices moderating, with interest rates moderating, and the jump we saw on mortgage applications at least last week. The consumer could be in better humor in the fourth quarter than they have been in the summer months when they had a lot of things at play.

Thank you.

You're welcome.

We'll go next to Craig Huber with Lehman Brothers.

Thank you. Gracia, could you just clarify, your tax rate, you said it would probably continue, roughly 31.5% in the fourth quarter, what's your expectation though for next year for your tax rate?

You know it's probably a little too early for us to have a specific number on that. That's part of the process we go through at the end of the year and projecting outward. I can tell you, obviously, that the manufacturing deduction, which has benefited us, will continue. We also -- it'll also, in part, be dependent on where News Quest's earnings are because as you know, we pay a lower statutory rate in the UK than we do here in the U.S. So there's a bunch of factors that play into that, but we feel good about our ability to sustain that rate assuming things go our way in the fourth quarter. And I think we could see some positives also into the new year if a variety of factors move our way. But we'll give you more color on that in December when we share all of our assumptions.

And then also, looking at your help wanted, it's weakening for you obviously and others as well, do you have any sense on what labor categories you're seeing the biggest falloff and also could you talk about the regions as well for help wanted? Thank you.

Yes, Craig. We really don't categorize it by the type of job. I would say that, in some of the markets like the south and the west where they were very, very hot real estate markets, as we've seen housing permits fall over the last few months, I would suspect that we're probably seeing the impact of that on the job creation side of the equation as folks aren't going out and doing speculative developments and the like. So, I suspect that's having an impact on things, but don't have any better color than that. Assume that the healthcare side is probably continuing to be strong, but on the manufacturing side, I think we're probably seeing some caution on the hiring side and obviously in the Midwest where we've got the auto base, the domestic auto based economy clearly those economies continue to suffer from the layoffs that are continuing to be announced in Detroit.

And then just real quick. I assume there's still a change of control provision with Career Builder? I'm just asking given the Tribune situation. Thank you.

Yes. Let me just comment on that. Obviously, we would never speak to what's going on at Tribune, but just so you are aware in the new agreements, in the event of a sale or a change of control, the agreement includes the fact that the economic interest of Tribune would remain with any buyer. We would not have, therefore, the ability to purchase that interest. However, it also provides under certain circumstances, for some substantial operational control to be shifted to us, in terms of things like board representation and voting arrangements depending on what would happen either to us or to Tribune or whatever.

Thank you.

Thanks, Craig.

We'll go next to Alexia Quadrani with Bear Stearns.

Thank you. A couple questions. First, Craig, just following up on your acquisition comments earlier, do you feel your focus has changed a bit from perhaps a year ago given the ongoing challenges of traditional media? And I guess, given your -- would it be fair to say that you're more focused on, maybe the digital space given your recent investments and you're less likely to make a significant investment in the newspaper area at this point? And then a second question is, just following up on News Quest, how much of the weakness there do you really think is reflective of the weaker economic environment versus possible share shifts of their media? I guess put another way in a more stabilized normalized economic environment what is your growth anticipations for the News Quest properties?

Okay. Alexia, first, I would just say that from a couple of the traditional investments that we have certainly participated in this year in Denver and Atlanta, we, in the traditional side, still feel absolutely enthusiastic about larger market duopolies and what that can mean to us, and I think with what we have proven out in Jacksonville and certainly with the expectation now of Denver and Atlanta, that will continue. We see that as a good opportunity. I think as well, as we have demonstrated with our step up in the California Partnership this year, that the core, depending on what the economics are, and if we believe we can make real sense out of it, we'll continue to pursue it in every way. Obviously, we're taking very, very hard looks on the digital side. We think from what we have created with our partners with Career Builder, we have tremendous opportunity here, and certainly how that lines up as we go forward is something that we're paying extreme attention to, but there are no restrictions that we have relative to how we would pursue an investment. The key is how it will fit with the rest of the portfolio, will it contribute in the ways as, obviously, we want and have traditionally done for the kinds of growth that we're looking toward. And you know, beyond that, we're not going to restrict it. But we're looking again at everything that would make good economic sense. Gracia, you want to talk on News Quest?

Sure. Alexia, on News Quest, I think there's a combination of factors that play there. Number one, I think, clearly, in part it's the consumer economy there that has been somewhat constrained over the last year or so, but I also think there is some consolidation that has gone on in the automobile dealership arena similar to some of the consolidation that has gone on in this country only they've experienced it later. So I think, clearly, that has had an impact on the automotive side. Then on the employment side, the government, which has always been a sizable factor on the employment side has been -- their hiring has slowed considerably. So I think you've got a variety of factors at play in the UK, which has impacted their results. With regard to share shift, clearly, I think there's some dollars, obviously, that have flowed out into the Internet space. We happen to have a significant ownership stake in Fish Four(ph) which is the beneficiary of those -- some of those dollars, and so we're very pleased with that investment and have seen some good growth there. But I think that that's probably as is the case here, is more prevalent in the national side of it and in the larger urban markets rather than in some of the smaller regional areas of the country.

Do you think you might be able to see positive revenue growth in a healthier economic environment in those properties?

In a healthier economic environment, absolutely.

Absolutely. I have to just comment here, Alexia. What we have with Paul Davidson and his group, they are so well positioned at this point, I think you can see that through the expense management that they have done over the course of the last year. If we get a slight uptick, you will see that conversion rapidly.

Thank you.

And we'll go next to Christa Sober Quarles with Thomas Weisel Partners.

One follow up on Career Builders. I was wondering if you could just indicate whether or not 100% of their revenues are career related, whether they have other advertising in the mix there or not? And then just, on your, I think you said your own online revenues were up 25%, I was just wondering if you could indicate what help wanted was up within that? Thanks

With regards to Career Builder, if you are speaking to other verticals, no. Recruitment and job seekers would be the thrust of that entire business. Classified ventures would have the other verticals that we're involved with.

I was actually just referring to just general advertising on the site in general I mean if you classify that strictly as career related or is it --

My sense is, and I'll go back and look at this, but my sense is that it's pretty much all career related.

Yes.

Okay.

If there's anything else, it's as small a piece of the pie as can be imagined.

Okay. And then on your own?

On our own Internet revenues?

Yes. Within that help wanted.

Yes, I think we mentioned that they were down 6%.

Just online, sorry.

Oh, online, no. Our online revenues were not down in the employment sector. They were up again.

Okay. And were they up in the range for your overall online, which would be that 25%, I think, I think, that you gave?

Alexia, I'm going to have to probably get back to you on that. Let me see if I've got something here. Actually, they were up but a smaller percentage. It was a double digit percentage in the quarter but not, obviously, the 25% that we alluded to at least in our new state -- or domestic new state operation. I simply don't have the breakdown for the UK, although, their, obviously, their revenue growth on the online side outstripped the fact that they had a decline in [inaudible] on the purely print side.

Okay. Thanks.

Thanks.

We'll go next to Debra Schwartz, Credit Suisse.

Hi, great, thank you. I was wondering on broadcast, can you comment if you've seen any changing pacing since NBC launched their fall schedule? And then, can you also quantify how much political was in the quarter?

Sure. First of all, reflective to NBC, I think you are beginning to see some nice uptick, specifically with the Sunday Night Football that has been added. It's gotten off to an extremely positive start. Some of their other new programming as well has done quite nicely. With respect to political, we have been seeing through third quarter quite a bit of increase. Lots and lots is coming in on the issue side -- a lot of party money, specifically from democratic as well as republican side. The markets that we're really seeing it in most recently would be in Cleveland, Denver, Phoenix and in Tampa where the biggest increases have come. We're anticipating at this point that that will significantly improve itself further as we approach, obviously November 7, but we are looking for a very robust 4Q on that.

Great. Thank you. I was just wondering if I could ask a quick question on newsprint. I think it was last quarter, Gracia, I think you mentioned you were going to start to look to China for newsprint. I was wondering, can you just update us on your thinking there? It seems like pricing in the U.S. has sort of stabilized, do you still need to look to China?

Yes. We actually have, as I think I mentioned, tried and piloted some newsprint in several of our newsroom -- in several of our newspapers and have done so quite successfully. The quality is very good, reflecting the new mills that they have there. I think that we'll see trickles of it, but I think the main thrust of it will be coming in the beginning in the first quarter of next year. We should see some good amounts of volume coming in from China starting at the beginning of the year. But, we are very pleased with what we trialed and anticipate that we will be a buyer.

Okay. So about how much of your news print do you expect to get from China?

I would not want to speculate on that at the moment.

Okay. Thank you.

Thanks.

We'll go next to Lisa Monaco with Morgan Stanley.

Yes, Gracia, is it possible to get by month the ad revenue performance for the domestic community newspaper group in the quarter and then the UK by quarter-- by month in the quarter?

Sure. What I will do is I will have Jeff give you a call after the call and he can give you those numbers.

Okay. And then just unrelated. What was the thinking behind the change in the CapEx guidance? And is it possible for you to quantify what percentage of your advertising comes from Federated and May? Thanks.

With regard to the CapEx guidance, it's simply that, as we set a budget and then as the year progresses, we take a look at the projects again to make sure that the returns that were indicated initially actually come to fruition as we start to look at the projects. And, as is typical, some projects tend to fall out or get deferred because certain contracts aren't necessarily negotiated, or the rest, or we simply just relook at a project and decide that it's not the right time to do that. So I think a little bit of that will slip into next year but most of it is just projects that did not live up to the ROIs that we had hoped that we could obtain from the projects and therefore we passed on them.

And do you think that's a good number going forward for normalized CapEx?

I think that we've completed a press project in Binghamton this year that consolidated three newspaper printing operations up there, so I think you could expect to see, we haven't finalized the number yet, but you could expect to see that CapEx will drop a little bit farther next year, but we'll, again, give you that final number in December.

Okay. Then just quickly on Federated?

On Federated, I'll have to get back to you on that. We'll have Jeff give you a call and also share that with all of the other participants on the call.

Okay, thank you.

We'll go next to Brian Shipman with UBS.

Thanks, good morning. I am wondering if you could give us a little extra color on how October is shaping up on the newspaper side; you mentioned some data points for broadcasting. I just wanted to see if you could talk about newspapers as well?

It's really early, obviously, in the quarter, Brian. I can say that from the weekly notes we get on USA Today, I think that they're anticipating a positive quarter in the fourth quarter, so they're feeling pretty good about their ability to generate advertising throughout the fourth quarter. On the News Quest side, probably, again, a little easier comparison for them, but thus far in a couple of weeks that we've seen so far, their expectations that they had coming into the quarter have been exceeded a little bit each week, but again, it's a long way till the end of the year. And then on the domestic side, we just don't have any really good early indicators yet of how the quarter's shaping up. So we'll obviously keep you guys posted in the monthly revenue stat reports that we send out. But that's kind of what we're seeing only about 11 days into the quarter.

Thanks, Gracia.

Thanks.

And we'll go next to Steven Barlow with Prudential Equity Group.

Back to newsprint for a second, Gracia, are you willing to share what the price differential with Chinese paper would be from the U.S.?

I'm afraid not. But I would say that it is favorable compared to the U.S.

Fair enough. And then, I guess, on the combination of Tex-Mex in Detroit, is there any way to give us sort of an EPS impact from this quarter versus a year ago and how that is trending and where it might trend towards the fourth quarter?

On the Tex-Mex side, I think that they are doing reasonably well, so I think that they are a little bit of a positive on the Detroit side. Obviously as we've said, they're struggling a bit. But to just break out what the EPS impact would be difficult for us to do at this point. So just to refresh your memory, you'll see the impact of Tex-Mex for the full quarter in the fourth quarter it will still have that slight distortion. But in Detroit, we have now cycled Detroit as of August first so in the fourth quarter will be apples to apples on that.

Thank you. Lastly, is there any prediction on what quarter the UK is going to turn around? We're seeing, obviously it looks like it's stabilizing.

Unfortunately, businesses don't necessarily fall into specific quarters so we'll just have to keep watching the numbers, but I think you'll see in the fourth quarter, hopefully better numbers than we saw in the third quarter and in the second. I don't want to predict at this time because we're just in the midst of our budgeting process and I'd like those folks over there to give us all of the good news beforehand.

The only thing to add from a category standpoint would be in the housing area, as we had talked about in previous conferences the northeast had just been slightly up and what we're seeing is that expand a bit into south of London in that area, and as Gracia said, it's not much at this point, but, obviously, keeping a close eye and we'll be over there shortly going through the budget process. We'll have a better handle on it here very shortly.

Thank you.

Thanks, Steve.

Our next question comes from John Janedis with Wachovia.

Thank you. Can you give us your thoughts at USAToday.com as it relates to display advertising and rates? I guess I would ask, what had been your typical rate increases? And as others offer similar rates, is there potential for CPM increases to flatten over time? And then, do you think you may be losing some share to Monster on the help wanted front? Thanks.

It's a little bit difficult for us to project out what's going to happen with CPMs. I think we continue to see very good growth at USAToday.com. They just had a very strong quarter for us, and it's really difficult for us to project out where the CPM side of it will be. We're anticipating at USAToday.com that they are going to have another strong quarter in the next quarter, but a little difficult for us to at this point to speculate on that.

Historically, has it been double digits?

In terms of?

CPM growth at USAToday.com or --

Historically, that's a little difficult to say because pre the Dot-Com meltdown, the numbers were roaring.

Absolutely.

And you could charge any price, pretty much, that the market would bear. The Dot-Com meltdown came and obviously they were impacted terrifically by the national side of things. But now we've built that back up, so it's a little hard to say, but we'll try to get a little bit more color on that if we can and then get back to you.

Okay, thanks. Anything on the Monster side in terms of Career Builder? Do you think it's just a slowdown or do you think you may be losing share?

No. If anything, we're increasing share against the number two job site.

Absolutely increasing.

We feel very good about where Career Builder is headed. They are a clear number one and it's not that we're losing market share in any way, shape or form. In fact, if anything, we believe that we're continuing to pick up market share here in North America. You have to be careful comparing apples to apples there, North America to North America.

Sure. All right. Thank you very much.

Thanks.

We'll go next to Dave Lewis with J.P. Morgan.

Actually it's Fred Searby from J.P. Morgan, thank you. Just one quick question. Can you give us just some color around the auto on the broadcast side? It's been a challenging category in retail as well, if you look at that both in the prior quarter and in the pacings how that's doing given that the head winds the sector is facing overall. Thank you.

I would say that domestics at this point from a pacing standpoint, I think, obviously, are seeing a greater challenge. Frankly, they, on the broadcast side, have done quite well from the foreign side particularly in the Toyota and Honda area. They've done very well. From a retail perspective, it has been moving up and down. We have, still there is no clear indication as we are going into the pre of the holiday season here exactly where things are. I think it's still a bit too early. We would certainly hope that there would be some improvement from what we are seeing, but again, it's a bit early to comment.

And auto is pacing positive in the fourth quarter at this point.

Yes.

Thank you.

Thanks. I think we have time for one more question because I think our friends at Media General are on at 11:00.

All right. And we'll take a question from Peter Sokowski (ph) with Goldman Sachs.

Yes, good morning, everyone. Just a quick question on the classified side with regards to real estate. I noticed in the quarter that the -- the year-over-year growth rates slowed quite dramatically as the quarter progressed. I'm wondering if, obviously that's a function of several years of robust growth there. Just wondering a couple of things if you believe this trend's going to continue we'll see negative numbers kind of coming into the first quarter of '07? And also wondering, with regards to online revenue there, what percentage of your online revenue or how much online revenue you're seeing from a real estate classified advertising?

I think it's probably a little too early to be predicting negative numbers on real estate. We were up a nice percentage again, and as you said, that's on top of pretty good growth that we've experienced over the last couple of years. I think some of the softening reflects the fact that in some parts of the country, as I mentioned earlier, particularly on the new home side and the developer side, with housing permits down and fewer houses, housing starts that we're seeing a little bit of softness there, but at the same time, on the resale market, with the inventory of houses higher, and the time on the market higher, we're still continuing to see good follow through there. So I'm not sure that I would necessarily subscribe to the thought that we will see negative real estate numbers in the first quarter unless interest rates were to back up considerably; obviously that could have an impact. But we're not projecting at this point negative real estate in the first quarter.

And on the online side with regard to real estate, in the U.S., it's a piece of the pie, maybe in the 8% or 9% range, but it's not obviously as significant as employment or actually some of our local online revenues.

Do you have any sort of focus to grow that because I would think that's the next category to go online?

Real estate?

Yes.

Yes, well, obviously through our ownership in Classified Ventures that's an area of significant focus for them as well as us, and we'll continue to look to do the right thing vis-a-vis the real estate side of it. But we have to be careful that we don't interpret some of the slowdown on the new homes building as morphing into the online side of the business necessarily.

Excellent. One quick last question on newsprint. In terms of year-over-year growth rates on the price increases, do you expect sometime in '07 that we'll start to see a flattening? I think your prices were up in the third quarter here, probably up a little bit in the fourth quarter?

We would hope that given what we have now seen vis-a-vis the August price increase, there's obviously carry through of the earlier year price increases that were -- they were able to put through the reduced levels. So we'll have to cycle those over the first couple of quarters, but that's clearly a possibility.

Great. Thank you very much.

Thanks very much. Tom?

And this does conclude our conference call for today. We appreciate your participation. You may disconnect at this time.

Thanks very much and have a great day.

Thank you.