Fourth Quarter and Full Year 2003
Earnings Conference Call
January 28, 2004
Ruthellyn Musil, Vice-president/Corporate Relations
Good morning everyone. Welcome to our conference call to
review 2003 fourth quarter and full year results. As usual,
we'll keep our call to about 45 minutes. Opening remarks
will be brief and we'll try to get to all your questions.
Our speakers this morning are Dennis FitzSimons, Tribune's
chairman, president and CEO, and Don Grenesko, our senior
vice president and chief financial officer, publishing group
president Jack Fuller and Pat Mullen, president of our broadcast
group. Several others are also with us as we wrap up 2003.
As reported in our press release, Tribune's fourth quarter
diluted EPS of $1.00 on a GAAP basis included a 34 cents
gain associated with non-operating items. For the full year,
we reported diluted EPS of $2.61 on a GAAP basis, which includes
a net non-operating gain of 52 cents. These operating results
are within the range of analyst estimates on First Call and
our release contains the information needed to make a making
a meaningful comparison.
Now before turning the call over to Dennis, I need remind
you that our discussion may include some forward-looking
statements that are covered in greater detail in our SEC
filings. Now here's Dennis.
Dennis FitzSimons, Chairman, President and CEO
Thanks, Ruthellyn. As you saw in our press release, we ended
the year on a positive note and 2003 set another record for
EPS and that's excluding the impact of non-operating items.
We achieved these results despite a continuing uncertain
advertising environment and thanks to the efforts of our
employees throughout the company.
Operating cash flow grew 6% to $1.6
billion. More than half of that -- about $850 million --
converted to free cash flow. Revenues grew 3.9 %.
Our focus on expenses paid off. Overall we came in better
than anticipated despite a more than $30 million reduction
in our pension credit. Consolidated cash expenses were up
just 3.1% and that's on the heels of a 3% decrease in expenses
in 2002.
Margins again improved in both newspapers and television
on a full year basis. Television cash flow margins increased
more than 1 percentage point, while publishing margins increased
slightly despite continued weakness in help wanted, decreased
pension credit and higher newsprint prices.
Now, before I turn things over to Don to talk about the
fourth quarter specifically, let me mention some significant
accomplishments in 2003.
Quality of our journalism was underscored in that our newspapers
won a total of five Pulitzer prizes, more than any other
media company.
New state-of-the-art preprint facilities in Chicago and
L.A. came fully online and both markets increased their share
of the preprint market.
Baltimore Sun reached a fair and favorable contract settlement
with the Newspaper Guild avoiding the work stoppage, but
giving us the flexibility to operate the business for long-term
success.
CareerBuilder had a terrific year, carries a lot of momentum
in 2004. Earlier this year we became the clear number one
player in terms of job listings, passing Monster by a significant
amount. Revenue story here is also strong. The CareerBuilder
network was up 48% for the year to $160 million as CareerBuilder
continued to gain significant online revenue share.
Part of this CareerBuilder growth story is the successful
rollout of FlexAds in all Tribune markets last year. Now
more than half of all our recruitment ads use this integrated
print and online product.
We also launched several new products aimed at-targeted
audiences. Our investment in amNew York, a Monday- Friday
tabloid in Manhattan and aimed 18- to 34- year olds, debuted
in October and it's already grown to 170,000 in daily circulation.
In December, we launched Hoy into the
fast growing Hispanic market in Chicago, that’s building
on the success of our New York edition of Hoy. Hoy here
in Chicago already has paid circulation of 17,000 and have
revenues far exceeding our expectations and in March 4
it will roll out in Los Angeles, the largest Hispanic market
in the U.S.
On the sales front, Tribune Media Net continued to build
momentum in 2003 TMN booked $70 million in incremental revenue.
Moving over to TV, we completed the acquisition
of two WB affiliates in St Louis and Portland. We also reached
a multilevel agreement with Comcast, the dominant cable provider
in the Chicago area. And this deal included the launch of
a new regional sports network next September, in partnership
with the other professional sports teams here in Chicago.
We'll receive significant rights fees
for the 72 Cub games that will air on the channel plus
a percentage of the network’s
profits.
Also included in this agreement, we sold our
interest in the Golf Channel to Comcast for $100 million.
Comcast has agreed to substantially increase the number of
Superstation WGN homes on their cable systems across the
country.
Last but not least, probably our most visible subsidiary
area had a great year. The Cubs took the National League
Central Division title and excitement is high for 2004. We
just had 15,000 fans in the Cubs Convention here on a snowy
day in January, so we know our fans are ready for spring
training. On that note, I'll hand it over to Don.
Donald Grenesko, Sr. Vice-President/Finance and Administration
Thanks Dennis. And good morning, everyone. Our fourth quarter
earnings of 66 cents per share also set a record, excluding
the impact of non-operating items. Consolidated revenues
grew 2.8%, while cash expenses decreased slightly primarily
due to a decline in programming expenses at our broadcasting
group.
Publishing's revenues increased 2.3% in the quarter and
the group's cash expenses increased less than 1% from the
fourth quarter of 2002 despite a lower pension credit and
higher newsprint prices. The full $50 per ton newsprint price
increase announced in August has not been fully realized.
Suppliers have announced another increase for February, although
newsprint consumption in North America is up only slightly.
Our 2004 plan calls for a high-single to low-double-digit
increase in newsprint expense.
Television revenues increased 4.1% in the quarter while
TV cash expenses decreased 2.2% reflecting lower programming
costs. And our top three markets, revenues, operating cash
flow, and margins all improved at both our newspapers and
TV stations.
Taking a look at our newspapers, in Chicago, ad revenues
were up 5% in the quarter with especially strong preprint
performance up 8%. National increased in most categories,
particularly high-tech.
At Newsday, ad revenues increased 4% in the quarter driven
by strength in auto and real estate classified. National
rose because of movies and high-tech.
In L.A., ad revenues were up 1% in the quarter. Retail was
under pressure due to the impact of the ongoing grocer's
strike and spending cutbacks at some of the department stores.
National was strong driven by a surge in movie releases.
In TV, revenues grew in all three markets driven by the
strength in the retail category as local continued to perform
well. And all three markets have had great success with their
morning news. Since its debut four years ago, WPIX's ratings
in New York continued to rise, consistently beating the CBS
early show.
KTLA has long been a leader where it continues to be very
competitive against the networks. And for the first time
ever, WGN's morning news in Chicago was number one in all
key demographics from 6:00- to 9:00- a.m. in the November
sweeps, beating all three network competitors. Building on
this success, we recently added another half hour to the
a.m. show.
Turning to the equity line, investment results were in the
black for the fourth quarter and the full year.
On the non-operating line, we had a couple of positives
including our gain on the sale of the Golf Channel, which
was approximately $45 million.
We also had insurance proceeds and a favorable settlement
of certain state and federal tax issues.
Debt declined $750 million in 2003, the $2 billion at year
end. Bringing our debt to cash flow ratio to 1.25 times.
Capital expenditures totaled $90 million in the fourth quarter,
which puts us at $194 million for the full year.
That brings me to ROIC, return on invested capital, which
is a key performance measure for us. It's improved each year
since the Times Mirror acquisition and the 2001 recession,
and we expect our returns to continue to improve by growing
cash flow, focusing on high value capital projects and maintaining
our disciplined approach to acquisitions.
In closing, a couple of points about 2004. Our plan calls
for consolidated revenue growth of about 6%. Consolidated
cash expenses are expected to increase about 5.5%, with 2
percentage points of the increase due to higher retirement
plan expense, and a double digit increase in medical expense.
Importantly, our pension plans are over-funded by $150 million.
We won't be forced to make cash contribution to our pension
plan like many other companies will have to do. Also, our
pension plan assets had an excellent 25% investment return
in 2003.
We expect 2004's equity income to increase somewhat over
2003, with improved results of TV Food Network on the WB,
partially offset by increased promotional spending at Classified
Ventures. And we expect 2004 capital spending to be around
$220 million and our debt to drop to the $1.8 billion range.
Finally, we expect to generate nearly $1.7 billion in operating
cash flow this year, converting about $900 million to free
cash flow. We expect low double-digit growth in our EPS,
excluding non-operating items, which is within the current
range of analyst estimates.
Now back to Dennis.
Dennis FitzSimons
Thanks, Don. Just looking to this year, to give you a sense
of what's going on, newspaper advertising is up slightly
year-over-year for the first four weeks. Help-wanted started
off slow but it seems to be moving strongly in the right
direction. Certainly help-wanted for us is an important growth
opportunity in 2004. We fully expect print to come back and
certainly we expect to continue to pick up online share.
We're already getting a big lift in
CareerBuilder sales as customers see the benefit of our
new AOL and Microsoft Network partnerships, which began
at year-end. Although we won't see January's publicly reported
audit numbers for a few weeks, our internal tracking shows
a big move up in CareerBuilder’s
audience and audience share.
In television, January pacing is positive although a little
softer than we had hoped for. We're optimistic that quarter
will end strong and March comps are a little easier due to
the Iraq war last year.
As you can tell, we're focused on accelerating revenue growth
in 2004. It should be another strong year for Tribune, because
local mass media and major markets will prove to be more
valuable than ever in today's fragmenting environment. Now
we would be happy to take your questions.
:: :: ::
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. |
