Third Quarter 2001 Earnings
Conference Call
October 18, 2001
Ruthellyn Musil, Vice President/Corporate
Relations:
Good morning, and welcome to our conference call.
As you saw in our press release, Tribune reported
third quarter earnings of 10 cents per diluted share excluding
special items, a penny ahead of First Call's current consensus..
To review these results with you, our speakers
this morning will be Don Grenesko, Senior Vice President and
CFO and Dennis FitzSimons, President and COO. Also on hand
for questions are our group CFO's: Tom Leach of broadcasting,
Jerry Agema, publishing and Brigid Kenney, interactive.
Before we start, I need to remind you that
our discussion may include forward-looking statements, which
are subject to risks and uncertainties that we discuss in
greater detail in our SEC filings. Future results could vary
materially.
Now, I'll turn the call over to Don.
Don Grenesko, Sr. Vice President/Finance
and Administration:
Thank you and good morning.
As Ruthellyn said, Tribune reported earnings
of 10 cents per diluted share before restructuring charges,
an income tax adjustment and non-operating items.
We recorded a pre-tax restructuring charge
of $131 million, or 26 cents per share this quarter. You may
recall that this relates to expenses for our Voluntary Retirement
Program and other cost reduction initiatives. So far this
year, we've eliminated 1700 full-time-equivalent positions,
or 7% of our workforce. Including the $14M charge we took
in the second quarter, the total charge is about $145 million.
These cost reductions will result in annualized savings of
about $58 million-$8 million more than we originally anticipated.
The savings will begin to take effect in Q4 and be fully implemented
at the start of 2002.
Our 3rd quarter included a one-time income
tax adjustment of $8.6 million or 3 cents per share for a
higher effective tax rate for the first half of the year.
Non-operating items relate to a 12 cents per
share writedown of our investment portfolio and a 19 cent
mark-to-market adjustment related to our AOL stock and PHONES
securities.
Turning to operating trends, like all media
companies, the current environment is reflected in our third
quarter financial performance. In the aftermath of the Sept
11 attacks, many of our advertisers reduced or cancelled their
normal schedules for the better part of two weeks. Revenue
loss was about $25 million and together with higher news and
production costs of $3-4 million, reduced EPS by 5 cents.
Excluding acquisitions, consolidated revenues
were down 9%, but importantly, cash expenses were reduced
by 2%. EBITDA was off 28%.
Excluding acquisitions and copyright royalties,
TV revenues declined by 12% while TV cash expenses, excluding
broadcast rights, fell by 5%. EBITDA was down 21%.
Excluding acquisitions, publishing group revenues
fell by 10% while cash expenses, excluding newsprint, were
down 1%. EBITDA was off 33%.
Retail advertising was down 7% in the third
quarter and down 13% in September, mainly due to weakness
in the electronic and department store categories. National
advertising fell 9% in the third quarter and 11% in September.
These declines were driven by losses in the dot.com, high
tech, travel and financial categories.
While the overall classified category has improved
somewhat, recruitment has not. We continue to see revenue
decreases in the 40-50% range. There was a distinct fall-off
in this category following the events of Sept. 11.
Interactive revenues were up 20%, primarily
on higher classified revenues. Operating cash flow losses
were down 50% to about $4 million. We're still expecting to
break-even by the end of 2002.
Looking ahead, we can expect top line weakness
to continue at least through the fourth quarter. This indicates
that we will be below the low end of analyst's estimates.
The bottom end of the range is now 22 cents for the 4th quarter.
While we wish the news was better, we remain
committed to operational excellence and we will continue to
do everything we can to control costs and manage the balance
sheet.
Now, here's Dennis.
Dennis FitzSimons, President and
Chief Operating Officer
Thanks, Don.
There's no getting around what is a very tough
environment for our advertising clients. And when their business
is difficult, so is ours.
But despite the economy, there are some positives
for us to focus on. First, in publishing, we have moved forward
on our recruitment strategy. As you know, CareerBuilder, our
online recruitment partnership with Knight Ridder, recently
agreed to acquire Headhunter. That is going to improve our
online market share ad create backroom efficiencies. The acquisition
is on track and we expect it to close in the 4th quarter.
We are also going to take advantage of our ability to offer
advertisers an integrated print and online solution. On Sept
30 we launched our CareerBuilder-branded Sunday help wanted
sections in Tribune and Knight Ridder newspapers. We've had
excellent response from our employment advertisers; they like
the new format and the new front-page ads. Now we just need
them to have jobs to advertise. Reader response has also been
positive. The front pages are in color and they're a draw,
as are the extra features such as interview advice. The whole
package is designed to attract the passive job seeker as well
as those on an active search.
Our new sales division, Tribune Media Net,
continues to make progress. Despite the challenging environment,
we should do about $30M in new revenue this year through TMN.
So far this year, in addition to using our
strength at the LA Times and Chicago Tribune to drive national
business to our other papers, TMN has sold 60 cross-media
packages in the 4 markets where we have both newspapers and
TV. That's about triple what we did last year. Most of those
deals we did last year were in Chicago.
Turning to broadcasting, the new season has
brought us some very positive rating stories. After 3 weeks,
"Everybody Loves Raymond" has emerged as a strong
performer. We own the syndication rights to "Raymond"
in 16 of our 20 TV markets, and it's the top rated, new off-
network program in syndication. "Raymond" has performed
particularly well in the top 3 markets, and has successfully
replaced "Seinfeld" in NY and LA.
We believe that "Raymond's" performance
will continue to improve, just as "Friends" did
when it premiered on Tribune stations. What normally happens
around this time of year is that ratings for new sitcoms grow
slowly until the change back to standard time. At that point,
it gets dark earlier, sets in use rise in early evening and
audiences settle in to consistent viewing routines.
There's been a consistent theme in our program
buying and that's financial discipline. We elected not to
renew "Seinfeld" in New York and LA because license
fees were going to triple from what we paid in the first six
years we owned the show. Believe it or not, for one half-hour
in those two markets, the rate would have been about $165
million. "Raymond's" rating performance in New York
and LA comes at less than a third of the cost we would have
paid to renew "Seinfeld." We recently renewed Friends
in many of our markets through 2010 for significantly less
than our license fees for the first six years.
On the network front, season-to-date ratings
for The WB have been great, especially in light of the disruptions
to network schedules from breaking news coverage and special
programs.
Monday, Wednesday and Thursday nights, each
anchored by a returning show -- 7th Heaven, Dawson's Creek
and Charmed, respectively -- all premiered with strong ratings,
especially in the key younger demos.
The WB's sitcom lineup on Friday has also performed
exceptionally well. And what is particularly bright here is
the new sitcom starring Reba McEntire.
As you know, The WB elected not to renew "Buffy"
at $2.3 million per episode. It was a price that did not make
sense for the network. It was the right call in this advertising
environment and especially since last week's premiere, and
this Tuesday's episode, of "Gilmore Girls" on The
WB outrated "Buffy" head to head. We got more good
news from The WB on Tuesday with the premiere of "Smallville."
That generated the best Tuesday WB ratings we've had in several
years. And actually in Loa Angeles, it was the number one
rated show. It did an 11 ratings, a couple of points ahead
of the nearest network and more than doubled the "Buffy"
rating on UPN.
These kinds of ratings will position us to
increase our share of revenues as the advertising market recovers.
I mentioned earlier the value consumers place
on trust and credibility in media outlets. While our readers,
viewers and listeners turned to us for information and analysis
back in September, they also responded to our appeals to help
victims of the September 11 attacks. We established the Tribune
Disaster Relief Fund. We had an initial goal of $5 million
from the public which we were going to match with an additional
$2.5 million from the McCormick Foundation. To date, the Fund
has raised over $15 million, plus the $2.5M match from the
Foundation, which also absorbed the administrative costs.
That connection with our local audiences is
just one of the things that sets Tribune apart. Let me summarize
because a lot has changed in the media environment and some
things haven't.
We have great local franchises in great markets.
Growth will come back. And in the meantime, we will focus
on aggressively controlling costs, driving efficiencies and
creating new revenue opportunities.
We're uniquely positioned with cross media
and we're optimistic about further deregulation and the opportunities
it will bring.
And even in the worst advertising downturn
ever, Tribune continues to generate solid free cash flow.
We have a balance sheet that gives us
financial flexibility to grow and make the most of what is
a challenging environment. And that's exactly what we did
coming out of the last recession.
:: :: ::
This document contains certain comments
or forward-looking statements that are based largely on the
company's current expectations and are subject to certain
risks, trends and uncertainties. Such comments and statements
should be understood in the context of Tribune's publicly
available reports filed with the SEC, including the most current
annual report, 10-K and 10-Q, which contain a discussion of
various factors that may affect the company's business. These
factors could cause actual future performance to differ materially
from current expectations. Tribune Company is not responsible
for updating the information contained in this press release
beyond the published date, or for changes made to this document
by wire services or Internet service providers. |
