Tegna Inc (TGNA) 2010 Q3 法說會逐字稿

Good day, everyone, and welcome to the Gannett third-quarter 2010 earnings conference call. This call is being recorded. Due to the large number of callers we will limit you to one question or comment. We greatly appreciate your cooperation and courtesy. Our speakers for today will be Craig Dubow, Chairman and CEO, and Gracia Martore, President, COO and CFO. At this time I would like to turn the call over to Gracia Martore.

Thanks, Dave, and good morning. And welcome again to our conference call and webcast to review Gannett's third-quarter 2010 results. We released our results prior to the market open this morning, so hopefully you've had an opportunity to review them in some detail. You can also find them at www.Gannett.com.

Before we get started, however, as always I need to remind 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 also includes certain non-GAAP financial measures. We have provided a reconciliation of those measures to most directly comparable GAAP measures in the press release and on the investor relations portion of our website.

Craig now will provide an update and briefly summarize our quarterly results and then I'll review the quarter in a little more detail, particularly for each of our operating segments. Craig?

Thank you, Gracia, and good morning to everyone. I am very pleased to announce another quarter of improving results. We closed the revenue gap in the third quarter despite a mixed and rather unsteady economic environment. Broadcast and digital revenues were particularly strong and publishing revenues continued their sequential improvement.

The impact of our cost control and efficiency efforts was reflected in expense declines. As a result, operating income and earnings per share were both significantly higher compared to the third quarter last year. In fact, we again improved the profitability of each of our business segments, excluding special items, when compared to third-quarter last year.

In other significant news, subsequent to the close of the quarter we completed $500 million bond financing in two $250 million tranches due in 2015 and 2018. The net result is an even better structure for our debt maturities. We now have a modest amount of maturities due every year through 2018 excluding 2013 in which we have no maturities. All of our maturing debt commitments can be easily managed with our free cash flow and credit availability.

We also amended and extended our revolving credit facilities. Total commitments under the amended revolving credit agreements are now $1.63 billion through March 15, 2012 and a total extended commitment from March 15, 2012 to September 30, 2014, totaling $1.14 billion. Gracia will cover the transactions in a little more detail later.

The completion of these two transactions is a significant achievement for the Company. We have further strengthened our financial condition and ensured our financial flexibility well into the future as we position Gannett for potential growth opportunities.

We continue to progress on a number of strategic initiatives focusing on our ability to deliver our content on any platform, connect that content with consumers and hone our ability to sell across those platforms. We firmly believe that providing engaging content and the ability to deliver it in any way the consumer wishes are key to our success.

Our content has great value and for the past three months we have been testing paid content models at three of our domestic publishing sites -- Greenville, South Carolina; St. George, Utah; and Tallahassee, Florida. We have taken slightly different approaches in each of the tests to help assess different aspects of the paid content business model and consumer dynamics.

In Tallahassee and St. George we are testing content pricing model changes. In Greenville, the home of Clemson University, we are testing a premium site that is available through a separate subscription only, TigersNow.com, that focuses on exclusive coverage of Clemson sports.

We now have a couple of months of data as a result of these tests and, while it is still early, we are seeing some very interesting results and important takeaways. Here's what we're learning. Our subscribers are much more heavily engaged with our content than non-subscribers. Web users who are subscribers are consuming four and five times as many pages per visit as non-subscribers.

And, in the case of TigersNow.com, users are consuming a remarkable level of content, more than 40 pages per visit and as high as 70 compared to six to eight pages per visit our sites typically experience. And our full content subscription model is driving increased usage of our eEditions. In Tallahassee and Greenville the eEditions in both markets now have more than 1,300 unique users daily.

A comprehensive content promotion strategy that spans social media, e-mail and other platforms is driving consumer awareness and we are seeing month-over-month gains in page views at two of the three sites. We also continue to enhance promotion of the changes to the subscription model to drive added online activations by full content subscribers. The result has been significantly higher online engagement around news events.

For example, publisher e-mails to our customers regarding items specific to Clemson football drove significant spikes in page views. Similarly, content targeting high interest topics like public safety, education and outdoors in St. George market has generated strong positive response from our readers.

We are finding that Gannett's well known local public personalities further help us connect with our customers and drive consumer engagement. For example, pieces personalized from a popular columnist in Tallahassee had the greatest success in terms of driving online activations on Tallahassee.com.

And a slightly different approach, direct interaction with editor Bob Gabordi through a variety of media, print columns, Facebook, Twitter, a blog on Tallahassee.com show customers are willing to come down a new path with us if they feel a connection. In fact, Bob summarized the current effort very well in his blog, and I quote, "It is too early to declare victory, and no doubt there will be much tweaking before we settle on the right approach.

But this much is clear, through it all over the last three months Tallahassee.com has remained the region's leading news website according to independent reports on total reach and traffic. What's more, our customers tend to be more local, better serving the needs of our loyal advertisers. This is a powerful and gratifying message. Our readers have told us they are willing to pay for the quality of our local reporting rather than just accept what the others offer for free and our advertisers get the benefit of an engaged local audience."

Honing our abilities to sell across platforms to engage audiences Bob notes, "Developing solutions for local advertisers is crucial to our success and growth. As we announced in July, we now have the ability to offer Yahoo! as another alternative for our local advertisers. The rollout of Yahoo! has moved quite quickly. We have rolled out sales alliances in five publishing sites and three broadcasting sites and the results are very promising.

At the end of the third quarter the pilot markets collectively were ahead of their sales goals to date. 20 additional publishing sites will launch by mid-November and two additional broadcasting sites will launch by the end of November. In addition, our broadcasting sites are further strengthening their commitment to hyper local content through the launch of community level websites.

These sites deliver content that is very relevant to local consumers and provide local advertisers the ability to connect with consumers in that community. To date we have launched in four markets with a total of 140 neighborhood sites. Sales results have been ahead of expectations and we expect to launch four more markets this month.

Our US Community Publishing group continues to make progress on the development of our Client Solutions groups. These groups are developing comprehensive advertising solutions for our customers. Our team in the West market is fully staffed and their early results have been positive.

One recent success included the development of a highly creative and successful campaign for a major grocer in the Midwest featuring a social media driven contest promotion targeted toward young moms in a multimedia campaign including television, newspaper and digital media across the state and into select zip codes in adjacent states.

USA TODAY undertook a major realignment with the creation of new teams that will focus on design and product development, digital asset management and integrated business development and they will be fundamentally reshaping the news, content and editing groups as they continue their evolution as a multiplatform media company. The popularity of its iPad app continues to grow with a total of more than 1 million downloads. That app was recently recognized with the MOBI Award for best mobile app for editorial content.

We are learning more about our customers every day, particularly those accessing content through newer platforms like the iPhone and the iPad and Android, as well as our dot.com and other mobile audiences. This restructuring at USA TODAY creates the infrastructure to design products, to cure new business opportunities, and develop the systems to support the new platforms.

At USA TODAY and across the Company we continue to align our content with the different audiences that access various platforms, print, digital, broadcast and mobile. And of course, we connect those audiences with our advertisers.

I want to emphasize that we are not moving away from our legacy media platforms or our commitment to First Amendment and watchdog journalism. This is important because as the level of content on the Internet continues to grow the value of providing reliable, trustworthy, and relevant content becomes ever more critical.

Moving on to our results; Gracia will discuss in more detail. Third-quarter earnings per share excluding special items increased by about 21% to $0.52 compared to $0.43 in third quarter of last year. As I mentioned, total operating revenues were unchanged although they would have been up almost 1% when adjusted for currency.

Broadcasting revenues were significantly higher this quarter compared to last year increasing about 22%. Ad revenues in television were up about 26% in the quarter. The increase was driven both by stronger core revenues with double-digit growth in several key categories as well as the expected step up in political spending. In fact, year to date political spending has kept pace with ad spending in 2008's presidential election year and is ahead of spending in the last non-presidential election year of 2006.

Digital segment revenues also increased in the quarter, about 10%, as CareerBuilder revenue was stronger and PointRoll had double-digit revenue growth. Publishing segment revenues were down in the mid single digits but better relative to second quarter. There were some bright spots in publishing revenues as national advertising was up about 2%.

Classified auto and employment advertising in the US were also -- substantially year over year. Our focus on online advertising is reflected in higher digital advertising at both US Community Publishing and USA TODAY. In fact, online revenue companywide totaled about $256 million and increased almost 10%; it now represents over 19% of total revenues.

Expenses were kept in check in the quarter and were down about 3% excluding special items. As a result of the revenue gains and lower expenses, we improved the profitability of all our business segments on the same basis and we again reduced our debt in the quarter by approximately $210 million.

In summary, we are moving forward on several initiatives that enhance our position as a leading multimedia enterprise. We are cementing our values as local media franchises through efforts like Yahoo! and client solutions groups and, at the same time, we continue to assess ways to enhance the value of our content and how it is delivered. We are building on the successes we have achieved to date and with a strong balance sheet we are in a great position to propel growth into the future. And with that I'll turn the call over to Gracia.

Thanks, Craig. I'll cover in a little more detail our business segments for the quarter as well as some balance sheet items and then we'll open it up for questions. As a reminder, all of our category comparisons have been included in the release this morning.

This quarter's results reflect substantial revenue growth in our broadcasting and digital segments. Publishing revenues, although down in the mid single digits, improved sequentially from second-quarter comparisons. As a result we closed the revenue gap for the quarter on an as reported basis as operating revenues overall were unchanged, but on a constant currency basis revenues were actually up 1%.

Expenses were lower companywide which help to improve the profitability for each of our segments once we adjust for special items. We have summarized the special items in our release this morning, but in short they are associated primarily with facility consolidations, asset impairments, as well as workforce restructuring.

We reported EPS on a GAAP basis of $0.42 for the quarter compared to $0.31 last year. Adjusting for those special items in both years EPS was actually $52 this quarter versus $0.43 last year, an increase of over 20% as detailed on our non-GAAP schedules.

Also in our release this morning we've provided reconciliations for our non-GAAP schedules to our GAAP schedules. As a reminder, we completed the sale of the Honolulu Advertiser and its related assets and a small directory publishing business in the second quarter of this year. Results for these properties have been reclassified to discontinued operations. Revenues associated with those properties totaled over $24 million in the third quarter last year. To help you with your thinking about the fourth quarter, revenue from these properties totaled approximately $30 million in last year's fourth quarter.

Turning to our business segments, in publishing total revenues were about 5% lower; they were down about 4% on a constant currency basis and the comparison was better than the comparison in the second quarter this year. On the same constant currency basis total advertising revenue comparisons were better relative to the second quarter as all categories -- retail, national and classified -- contributed to the improvement in the comparisons. National was particularly strong swinging to a positive and about 5 percentage points better than the second-quarter comparison.

On a two-year comparison basin, which I know some of you focus on, we saw about a 4 percentage point sequential improvement in total advertising. All category comparisons were better, particularly classified, which improved almost 8 percentage points from the quarter-to-quarter two year comparison.

Domestic advertising revenue trends were better relative to the second quarter and were down just over 3%. National advertising was up over 3% and was well over 5 percentage points better relative to the second quarter. Retail and classified comparisons in the US both improved relative to the second quarter, although to a lesser extent than national. Classified in the US was just 2% lower in the quarter, the declines were lower in the quarter led by sequential comparison improvement on both a year-over-year and two-year basis.

In the UK at Newsquest a more challenging economic environment, and uncertainty around the spending cuts agenda of the new government, had an impact on results there, particularly in the retail and classified categories.

Looking again at the total publishing segment, classified advertising, adjusted for currency, was about 4% lower in the quarter and better relative to the second quarter driven primarily by an increase of almost 7% in classified auto. In the US auto and employment were both stronger in the quarter compared to the third quarter last year up, 10% and 9% respectively. Both categories increased more than 10% in September compared to September last year.

Results in the employment category improved sequentially, building on the positive growth we achieved in the second quarter. At Newsquest real estate advertising continued to be positive as it has been since the end of the first quarter. Automotive and employment, however, at Newsquest lagged last year.

National advertising in our publishing segment was a bright spot overall and particularly in the US. Domestically national advertising increased about 3% driven by solid growth at US Community Publishing. Advertising at USATODAY.com also contributed to the increase with online national advertising for them up over 60% in the quarter. Print advertising at USA TODAY posted its most favorable year-over-year comparison this year in the third quarter, but continues to be impacted by relative weakness in the travel and lodging markets.

Several important categories, particularly automotive, were stronger -- in fact, much stronger compared to the third quarter last year, but some other categories, including restaurants, pharmaceutical and packaged goods, lagged last year.

We are encouraged by the level of online advertising in the quarter in our publishing segment. US Community Publishing online advertising was up over 10% as all categories virtually were up significantly in the quarter. And online advertising at Newsquest increased more than 8% in pounds.

Turning to reported operating expenses, companywide they were down a bit under 4% for the quarter. Special items impacted third-quarter results both this year and last year with them totaling $31.1 million pretax this quarter and $41.5 million last year in the same quarter. Special items impacted all of our business segments this year and just publishing and broadcasting last year.

Operating expenses in total excluding special items were about 3% lower in the quarter. Publishing segment expenses excluding special items were approximately 6% lower and reflect the impact of our cost controls and efficiency efforts as well as lower newsprint. Newsprint consumption and usage prices both declined in the mid single digits which resulted in newsprint expense that was about 12% lower.

Drilling down a little on the current newsprint situation, increased shipments overseas have acted to balance domestic supply and demand. The strength of these export markets has been a key factor in producer price recovery, but those markets are beginning to show some signs of retreat as offshore customer inventories grow.

Here in North America a pattern of regional fragmentation persists with a continuing East/West price divide. In fact, an announced increase for October failed to garner support, confirming that market conditions remain inconsistent across the US. The outlook from the fourth quarter includes two key producers emerging from bankruptcy. A moderate approach to recover efforts by these producers would support a stable environment for both industries.

Looking to the fourth quarter, we expect fourth-quarter newsprint usage prices will be higher than a year ago, but consumption is expected to be lower once again. Expense reductions again outpaced the revenue decline in publishing. As a result operating income excluding special items was about 4% better in the third quarter this year versus the third quarter last year. Operating cash flow on the same basis totaled about $173 million for the quarter.

So despite a decline in revenue of about $48 million, the profit margin and cash flow margin both improved. Profitability by just about all measures was stronger in our broadcasting segment as substantial revenue gains were achieved. Operating revenue growth was very strong, up over 22% as our television stations benefited from our best-in-class ratings and an extremely good political footprint.

Strength in our core television business continued as several key categories, including auto, a significant contributor to revenue growth, as well as telecom, media and banking and finance, all had solid double digit growth in the quarter. As expected, politically-related ad demand also ramped in the quarter and totaled $21.3 million.

Growth in core advertising of about $16.7 million was almost matched by a $16.3 million increase in political spending. We're particularly pleased to see that strength in core as well as in political. The profitability of our broadcasting segment improved with the significant revenue growth. Excluding special items, operating income and operating cash flow increased 49% and 42% respectively.

Similarly, the profit margin for the third quarter was approximately 41%, an increase of over 700 basis points, and the cash flow margin was over 600 basis points higher from the third quarter last year, equaling almost 45%. At this point we expect the percentage increase in television advertising revenues to be in the mid to high 20s for the fourth quarter of 2010 compared to the fourth quarter last year, again that's TV ad revenues, not total revenues.

As has been the case in the past, the build up to the elections will be frenetic and the political spending as a result can be quite volatile. We fully expect to gain from our footprint and the value of our local TV franchises as we close in on election day.

Turning to digital, excluding special items revenue and profitability were higher again in this segment this quarter. CareerBuilder's revenue growth was up in the very high single digits, improving on the revenue growth in the second quarter. PointRoll also generated double-digit revenue growth in the quarter. Operating cash flow excluding special items totaled over $36 million, up about 8%. Operating income on the same basis was over 16% higher, reaching almost $29 million.

And before I turn to the balance sheet, with respect to our tax rate, our effective tax rate was 33.5% for the quarter versus 34% last year. The better tax rate added about $900,000 or so to net earnings. On the equity income line results were about $2 million better than last year. However, on the non-operating income line, those results were about $1 million less. So if you put all of those factors together they had a favorable impact on our EPS of less than 1 penny for the quarter.

Turning to the balance sheet, in addition to another meaningful reduction in our overall debt level, after the quarter closed we successfully completed a bond financing and a bank facility extension, as Craig mentioned and as we foreshadowed last quarter. Let me highlight some of the more important points of each transaction.

The bond financing was a $500 million private placement in two $250 million tranches maturing in 2015 and 2018. The coupons were 6-3/8 for the notes due in 2015 and 7-1/8 for the notes due in 2018. These are among the very lowest yields for any issuer with comparable ratings this year and clearly illustrate that the fixed income investing community recognized the significant progress that Gannett has made and how well-positioned we are for the future.

We also extended our revolving credit facilities. That extension was accomplished with very minimal impact on the cost of the facilities and we are pleased with the confidence again shown in us by our strong bank group. Together the transactions further strengthen our balance sheet, improve the structure of our debt maturities and provide us with significant financial capacity to invest in opportunities that will drive our future growth.

Long-term debt at the end of the quarter was $2.4 billion as we reduced debt by $210 million in the quarter. Cash at the end of the quarter totaled $172 million. At this point our all-in cost of debt is approximately 6.5% including the impact of our new long-term financings. Our debt to EBITDA covenant was 1.93 times.

Finally, capital expenditures were about $17 million in the quarter bringing the year-to-date total to approximately $37 million. We now expect CapEx to be between $65 million and $75 million for the full year.

So in summary, we closed the revenue gap, we improved our profitability overall, and we achieved continued sequential improvement despite a mixed economy and increased uncertainty around the economy beginning in the summer months. There were several bright spots in terms of revenue in the quarter, not the least of which was continued growth in our digital revenues and our strong performance, particularly in the core in our television business.

We progressed on several strategic fronts, as Craig noted, and look forward to putting what we are learning about the consumer to work in many arenas. The strength of our balance sheet, as well as a greater understanding of the consumer, the advertiser and their interaction in the emerging media landscape, have positioned Gannett as well as possible as we look to the future. Now I'll stop there and Craig and I will be delighted to take your questions.

(Operator Instructions). Craig Huber, Access 342.

Yes, good morning. Just a couple things if I could. Can you comment, Gracia, if you would, on how the fourth-quarter newspaper ad revenue trends are looking here early in the quarter? And also, how did the month of September go for newspaper ad revenues?

Sure, Craig. With regard to the fourth quarter, frankly we're only a couple of weeks into the quarter. And as you may recall in last year's fourth quarter, there was a good build up and December closed out the quarter on a particularly strong note. So it's a little difficult to be sitting here on October 15 looking out, particularly with that -- with the strength that we closed the year last year and that continued into the first quarter.

But I'd say overall that on the Newsquest side I think they are seeing a little bit better advertising numbers just in these -- again, very early couple of weeks of the quarter. As you can see on the broadcasting side, we're anticipating that ad revenues on television are going to be up in the mid to high 20s, which is certainly even stronger than what we achieved in the third quarter.

And then on the digital side, what we are hearing from PointRoll and our other businesses is that, after a little bit of a lull in activity in the summer months, that they are seeing a good pickup in the backlog, and so they're anticipating good strength continuing into the fourth quarter. And on the US Community Publishing side it's really too early to say. I think it depends on category by category and we're just going to have to see how that plays out as we get closer to the holiday season.

Craig, one other --.

Gracia, earlier in the year you thought you could be up by the time you got to the fourth quarter in your newspaper advertising; do you think that's possible at this stage?

I think, Craig, that we're never positive when we might be up in print advertising. I think what we said was that if the economy is stronger than what we were anticipating, then we could foresee a scenario where that would be the case. As we all know, based on I guess Mr. Bernanke's testimony this morning as well as various mixed indicators we're seen on the economy, certainly through the summer months and leading into now the economy has not performed as well as I think many prognosticators were hoping that it would.

So, we'll have to see how the numbers play out. But obviously, to the extent that we can get additional help from the economy, we would be well on the way to reporting positive numbers. But I would say that as you can see, in total for the Company on a constant currency basis revenues were up 1%.

And, Craig --.

What was your daily and Sunday circulation volume percent change in US, Gracia?

Craig, I think --.

Craig, let me just finish what we're trying to say here. And that is on the broadcast side in addition to, as you know, the very, very strong numbers that we have coming in politically, I made the comment that our core is extraordinarily strong in several of the key categories. And let me be very specific there. Auto has been really, really doing well for us. We have done well in the telecommunications area, as well we have done well in media and banking and finance.

And I can only say that it is very, very early here for Q4. But to have that kind of core strength at this time really bodes well for what Dave Lougee and his team are doing. And the reason to say this is because we all know that when that election ends those dollars are gone and it is very, very reassuring to have strong core strength behind that. I just wanted really to emphasize this because this will be a big key factor for us in Q4.

And, Craig, to your question on circulation. For the quarter total daily circulation, which includes obviously evening, was down about 4.6% in the quarter and Sunday was down 3.3%. But I'd like to drill a little bit into that. I think the good news that we've been talking about is the fact that in US Community Publishing we have placed considerable focus on Sunday home delivery circulation because that is obviously a very important part of our circulation base for advertisers. And as we all know, Sunday is an extremely important advertising day.

And we're very pleased to see that the investment that we made in the last half of last year and continuing through this year has borne fruit for us. I think when the numbers come out for the six months ended September 30 that you will see that 21 of our top 31 markets had growth in home delivery Sunday volume above last year.

You'll also see that 11 of our smaller sites will show year-over-year home delivery Sunday gains. And when I look at on a Sunday -- if I just extract out our US Community Publishing not including Detroit -- in fact, Sunday circulation is down just a little over 2%. So we're extremely pleased with the progress that we are making in that very, very key area.

And, Craig, the key here -- Gracia referred to the 31, those are the only 31 that we had done this experiment in and to see those kinds of results is extraordinary. So, we're very pleased with what Bob Dickey and group has been able to bring together here.

Thanks, Craig.

Thank you, guys.

Alexia Quadrani, JP Morgan Chase.

Thank you. Gracia, when you look at your broader portfolio of newspaper assets do you feel that you're generally comfortable with everything that you have in it right now or do you think we might see some further divestitures? And specifically talking about Newsquest in the UK, is that still very much a core part of your franchise?

I think, Alexia, I would answer it the same way we've always answered it which is that we very much appreciate the strong job that is being done both in our domestic publishing as well as at Newsquest. Despite some difficult economic backdrops, both Paul Davidson and Bob Dickey have done an extraordinary job in not only being focused on the expense side, but more importantly looking at significant initiatives to drive revenue growth into the future such as our alliance with Yahoo! and our customer solutions groups and other various initiatives that we are working on.

We feel very good about the performance of all of these assets. Now from time to time, as we did with Honolulu where obviously there was an opportunity because someone offered us a price that we felt was extremely attractive, then those are the kinds of situations where we would take that to the Board. But we are very pleased with the performance that our folks are generating in both of those divisions.

Alexia, let me be just real clear on that. Our divestitures at any point -- as you know, nothing has changed in the way we are looking at it. We evaluate these assets on a continuous basis. We are always looking. But as you know, from time to time people come to us with things and we'll always take a look at it. Despite rumors that have been out there and so on we are very happy with the position that we have.

Okay, and just quickly on USA TODAY -- I apologize if I missed this. I got the USA TODAY digital revenues in the quarter. Did you give us the print advertising revenues in the quarter or the total revenues? And if you can also give us the circulation at USA TODAY.

Yes, USA TODAY print revenues alone were down a couple of percent in the quarter, I think continuing to reflect the fact that we continue to have the travel and associated categories continuing to struggle just a little bit there.

On the USA TODAY side, I think they're seeing some very good progress with regard to the hotel side of the equation. A number of the hotels that were experimenting with a variety of different things related to print products, they're seeing some follow through with those companies and are seeing improved results as a result of consumer requests and consumer demand.

On the USA TODAY circulation front, I think what we're seeing is that in the third quarter USA TODAY's circulation down in the 1.7% range. So a significant improvement over what we have been experiencing. And hopefully as travel continues to come back and hotels continue to come back we will see even better results.

Great, thank you very much.

John Janedis, UBS.

Good morning, thank you. Your TV ad revenues have had obviously a very strong year. And I know you've talked to 4Q up in the mid to high 20s. And I'm just wondering, understanding [pacings] can be volatile, can you help us think about the quarter maybe pre- and post-political? So meaning, is October up maybe in the 30s plus and December up in the teens or is it fairly consistent throughout the quarter? Thanks.

I would say this, that October is up significantly more than what you've just suggested. As well at this point December is as well. However, when you put it all -- you've got to be careful, John, as you know. It is so early in the quarter and so much continues to develop here that the good news and why I just think it's incredibly important to understand this, the core itself is very solid and with the kind of percent change that we're showing we feel very good.

And that is particularly in the auto area, particularly in telecommunications, particularly in medical and dental media and banking and finance are all very solid categories. So, at this point, as Gracia had commented earlier, we believe the mid to high 20s is a very fair representation of where we are. Obviously we'll keep you posted. But I think when you just track the ability of those key areas by segment that I laid out you'll begin to see that progress in Q4.

Okay. And just maybe switching to print or national print, I think it was up the first time in several quarters. And I'm just wondering, do you think any of that strength was from crowding out in broadcast? And do you expect that underlying trend to continue into the fourth quarter -- understanding that some of the comps you talked about are in October, November, December of last year? Thanks.

You know, I don't get the sense that it's crowding out in broadcast yet because our core in broadcast continued to be very, very strong. So that's where you'd probably see the first hints of the crowd out. Now obviously as we hit October and into the first few days of November that crowd out is going to be much more significant.

But I think that what USA TODAY saw was just some very attractive opportunities that they provided with -- to certain advertisers that looked at USA TODAY as a very significant place for them to get their message out there, particularly on the auto side and in some other categories that we highlighted.

Thank you very much.

Edward Atorino, Benchmark Capital.

Good morning. Just -- did you say the restated adjustment would be $24 million in the third quarter?

Yes, as indicated in the press release, the discontinued operations were about $24.4 million.

I'm looking at the cost of 2010 4Q and then if you want to look at the crystal ball for 2011, what flexibility do you have to keep costs under pressure or possibly trim costs a little bit in 2011 if necessary?

Ed, I think it's the same level of cost discipline that we have always exercised. We'll be very focused on the expense side of the equation. But I think more importantly, we're very focused on and in this quarter invested in a number of initiatives that we think will bode well for us from a topline perspective.

So I think our story is not just one of expense discipline, which you can always expect from us, but I think that you'll see that some of the things that we've been doing, particularly in US Community Publishing and on the digital side, will bear significant fruit for us in the coming year upon the topline.

Did you give a growth rate for Newsquest in dollars? I mean, the amount of dollars you gave -- I think you gave the numbers on Newsquest.

We give it to you on a constant currency basis. What I can tell you is that in the third quarter the currency rate averaged $155 million and last year it averaged $165 million. So, we probably lost a few million dollars off the bottom line as the result of currency.

Yes, okey-doke. Thanks.

Doug Arthur, Evercore.

Yes, just a quick question on Newsquest. I mean, the Newsquest sequential numbers look a little -- clearly are disappointing in the third quarter. I guess the question is, are you still making money there? And it sounds like things are turning around a little bit in the fourth quarter, but are there more cost actions expected there if they don't turn around? And then, Craig, given the strength in core TV, any comments on what you think core may do in early 2011 as a result of the strength you're seeing right now?

Let me start by -- with your question about Newsquest. And let me once and for all dispel the myth that Newsquest doesn't make money. Newsquest makes a lot of money. In fact, their margin, as I have said a couple of times, is consistent with the margin that our local US Community Publishing operations generate. So their margins are in the high teens to low 20s. And they have consistently made money throughout the years, even in a year like last year when revenues were under as much pressure as they were.

As I said earlier, clearly the progress at Newsquest stalled a bit in the third quarter. If you follow any of the economic and political backdrop in the UK you would know -- or you'd note that it's more difficult in the UK I believe than here in the states as they have had a lot of conversations and the current leadership there, government leadership there has indicated that on October 20 they're going to be announcing final significant spending cuts across the country.

As a result of that public spending has virtually come to a halt in that country and consumer confidence has weakened as a result of that. So, I think there are some micro-political and economic issues that Newsquest is contending with. But I would say that the UK seems to be addressing its problems early and dramatically. And so I hope that that will bode well for them coming out of the economic malaise that all of us are seeing more quickly than perhaps other countries in Europe or even the US.

And just to add, I have to say Paul Davidson and his team over there have done, I think as you have seen by history here, a fabulous job on that front. And I would say, as Gracia was commenting here, as soon as all of these government changes are recognized we'll be in front of that, as we have been, and we will continue to do that as we go forward.

Let me, Doug, comment with your question in regard to core. As you know, right now with Q4 it's awfully early. Dave Lougee is very, very confident at this point on a couple of the key categories that we have and we are feeling good about that. To say at this point that that's going to continue, I don't know to that degree at this time. But I don't see anything at this time that's going to change what we're seeing. We can only hope that, as Gracia commented earlier, we must have the improvement from the economy, we've had questions on it. But that's really as far as I can comment there, Doug.

Great, thank you.

Mike Kupinski, Noble Financial.

Thanks for taking the questions. You mentioned newsprint prices are expected to be up in the fourth quarter. Did you put a number around that, Gracia?

I think as we look at newsprint prices being up, and we also look at usage probably being down, that the impact, the likelihood of an increase in expense is -- will be there, but we anticipate that it will be modest in the fourth quarter.

You're talking in terms of total newsprint --.

In total newsprint, right.

But in terms of newsprint prices do you have a thought about how much that will be up?

I don't want to comment on that at this point. We are in negotiations as you can appreciate.

Okay. And then of the roughly $7 million in severance expenses, I would imagine that most of that was at USA TODAY, is that right?

Certainly the lion's share of that would be associated with some of the work that is being done at USA TODAY.

Are there any other -- are you contemplating any other significant severance costs in the fourth quarter?

Not at this present time.

And then SG&A expenses were a little lower than I expected. Would that be a good run rate as we go into the fourth quarter?

Well, obviously the fourth quarter is our biggest quarter. So from the standpoint of (multiple speakers).

Just a percentage of revenues.

(multiple speakers). Yes, it will depend on the mix of revenue and the rest. But we feel good about where that's trending.

You bet.

Okay. And then in digital revenues, you kind of hinted that -- hopefully I characterize this correctly -- that obviously it was strong in the third quarter. You didn't sound like it was going to see much acceleration from the third quarter. Is that right, did I characterize that right?

No, I think it's going to continue. We see positive opportunity -- again this is going to be economic based. Take CareerBuilder, if we have any hint we will capture it. And we feel very good about where we're sitting right now, Mike. It's a solid position.

Yes, and I think as I alluded to, Mike, at PointRoll and ShopLocal, the sense that they had was that after a little bit of a slowdown in a few of the summer months, they are entering the fourth quarter with a backlog that is better than what they were seeing in the third quarter. So they are cautiously optimistic that the fourth quarter should be a good one for them.

Okay, perfect. Thank you.

Bishop Cheen, Wells Fargo.

Hi, everyone, thanks for taking the question. Gracia, I'm not going to bug you about your balance sheet; you did what you said you were going to do and you didn't wait to explain it on this quarter. But the $210 million pay down, when you look at Q4 do you anticipate the same magnitude because, just to put it in context, I think you paid down about $170 million in Q2. So, you paid down more in Q3 and as you look at Q4, should we think about that?

We're going to continue to do a good job on that front. Obviously a lot will depend on if there are some investment opportunities that we think are worthy to look at, that would certainly play into it. We also have different dynamics in the fourth quarter with some of our cash requirements. So we'll just have to see how that plays out, we'll give a little bit more guidance on that in early December when we present at the conferences.

Okay. All right, thank you.

Barry Lucas, Gabelli & Company.

Thank you and good morning. Just a couple of quick items. Maybe you could touch on regional variances, Craig or Gracia, particularly in those weak housing markets, what's better or worse around the country?

Yes, I can tell you this, at this point as we look at Florida is probably our most challenged area. As you know, the other key areas of challenge would be California, Nevada and Arizona. And we are seeing still lots of concern in that area. But I hope that's clear.

Just to throw a little more detail on it. Real estate is a little worse in those four states than it is in the rest of Gannett because I think they've fallen very far very fast.

And fast.

But importantly, on the automotive side, while those states continue to be impacted, we are seeing very strong growth across the rest of the Company. And on the employment side, while employment is up in the mid single digits in those four states, employment across the rest of the US -- our US properties, is up double that. So, still some regional variation in some of those classified categories.

Great, that's helpful. Switching gears to the digital side. What don't you have in digital, what are you covered, what would you really like? I'm in thinking (multiple speakers) some of the excitement that seems to be focused on things like Groupon and other areas. So what might be of real interest?

Well, I mean the good news is that from a local innovation standpoint we are testing a number of local innovations along the lines of a Groupon and some other things out there that are interesting. If I told you I coveted something there would go my negotiating power. So let's just say that I think there are probably some things that we could add to our digital portfolio that would further strengthen it, at the right price as always.

Yes, Barry, I think you know we have tried very hard with extreme focuses on local. What do we do best? We know it's a local and we went to further differentiate where we are at all times by better serving our local communities. And as I had mentioned on the broadcast side, they also with the opportunities locally, with what we have accomplished there in the local -- hyper local area you're going to see more of that developing into the markets. But at the end of the day we're very positive on where we are digitally and anticipate that's going to continue to grow for us in the proper ways and we're very happy with that.

Well, we are very pleased that all of you joined us today for our call. And if you have any further questions you know you can reach Jeff Heinz or me after the call. Jeff can be reached at 703-854-6917. Thank you very much for joining us and have a terrific day.

Bye-bye, now.

And that does conclude today's conference. Thank you for your participation.