1. GANNETT CO., INC. FIRST QUARTER
CONFERENCE CALL AND WEBCAST
April 21, 2008
(Edited for clarity)
________________________________________________________________________
PRESENTATION
Operator
Good day, everyone and welcome to Gannett's first-quarter 2008 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 today will be Mr. Craig Dubow, Chairman, President and CEO, and Gracia
Martore, Executive Vice President and CFO. At this time, I would like to turn the call
over to Gracia Martore. Please go ahead, ma'am.
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Welcome to our conference call and webcast to review Gannett's first-quarter 2008
results. We hope that you have had the opportunity to review our press releases this
morning, but they can also be found at www.gannett.com. Again with me today are
Craig Dubow, Chairman, President and CEO, and Jeff Heinz, Director of Investor
Relations.
At our presentation at the MEANY luncheon in mid-March, we summarized the
progress we have made with our transformation. Chris Saridakis, Senior VP and Chief
Digital Officer, discussed a critical component of that transformation -- our digital
strategy. Today, Craig will bring you up-to-date on developments since we've
presented and he will provide an overview of results for the quarter. Then I will follow
with some additional details. Craig?
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
2. Thanks, Gracia and good morning, everyone. Let me begin by talking about the
dynamic surrounding Gannett and our industry. Gannett is in the midst of a deep
transformation to meet head-on the fundamental changes in the way people consume
news and information. We are changing our culture and focusing on customers in ways
we never have before. These changes are taking hold and we are making real progress
in developing a world-class digital business while enhancing our core products.
But overlaying all this hard work is a struggling economy. As we have outlined for you
for the past couple of quarters, real estate is very challenged, particularly in some key
Gannett states and that is now dragging other segments down. That drag has spread
and the turmoil in the markets continues.
This has added a degree of difficulty to our transformation while impacting our results,
which I will discuss in a few minutes. But we don't think it should completely color our
efforts. There are solid reasons for being enthusiastic about the future of Gannett.
This is a truth that we have embraced: Advertisers need to successfully connect with
consumers no matter where they are. It is up to us to help them make that connection
and we will do it through a rich array of content. We have a strong portfolio of
traditional media assets -- our core. We are improving our publishing properties and
TV stations everyday, both in the way we gather and manage content, as well as the
ways that we distribute it. We are extending our reach in local markets through a
variety of products and platforms, digitally and in print. In short, these properties are
great local franchises tied deeply to their communities.
On the digital front, our strategy is to begin with the customer, the advertiser, find out
what they want and need and find a way to deliver it. Gannett's content is relevant and
valuable to them and we reach an impressive number of consumers monthly ---
multiple millions --- through our local publishing and TV franchises and their websites,
the USA TODAY brand and Mobile. The goal for digital is to continue to evolve that
content, develop the audience and then segment it based on who they are and where
they are. At the same time, we are creating better ways to deliver advertising to our
consumers.
We announced the creation of quadrantONE in the first quarter. This partnership with
Tribune, Hearst and The New York Times Company is a national, digital ad
distribution network with dedicated inventory to sell. Since our March presentation, we
announced the Newspaper Consortium had joined quadrantONE as affiliates, adding
138 websites to quadrantONE's reach. This means quadrantONE now has access to
more than 250 newspaper and broadcast websites and more than 70 million unique
monthly visitors. The goal is “one call, one buy” ease for our advertisers.
2
3. You may recall, The Newspaper Consortium represents 26 newspaper companies that
had formed a partnership with Yahoo!.
Within Gannett, we are working on a “one call, one buy” solution for our advertisers
through an initiative we call One Gannett. That effort focuses on two areas – the
multipurpose use for content and a strategy for advertising that allows one advertiser to
place ads across all Gannett properties and platforms. It not only provides the broad
reach across all Gannett, it also enables advertisers to connect to communities that they
are targeting.
Behind the scenes, we have been putting the infrastructure in place to offer a host of
solutions to advertisers. Work has started on the development of an ad serving platform
that will help us keep close tabs on our ad inventory and ad campaign scheduling. The
ad serving platform is a crucial component of the infrastructure, along with PointRoll's
ad portal, Planet Discover, and our affiliations on the video side as well. So, we see a
wealth of opportunities as we continue our transformation and build our ability to offer
solutions to advertisers, both locally and nationally, through a variety of platforms.
Meanwhile, in the midst of the transformation and the economy, we are continuing to
manage the Company in a way that you have come to expect from us. We are finding
new ways to achieve efficiency and change our cost structure, in some cases, through
centralization and outsourcing.
Over it all sits the economy, and our results that reflect that. The actions the Fed has
taken hopefully will lead to economic stability. As chairman Bernanke noted in his
testimony at the beginning of the month: uncertainty is quite high and risks remain to
the downside. At Gannett, we will manage what we can and are doing our utmost to
navigate the uncertain economic environment.
Now, turning to the quarter, earnings per share from continuing operations were $0.84.
Results for the quarter include a $25.5 million pretax gain on the sale of excess land
adjacent to our headquarter building here in McLean. Our earnings are within the range
that we have provided at our March presentation. Total operating revenues were $1.7
billion for the quarter. Our continuing efforts to control costs and create efficiencies
resulted in a year-over-year reduction in total operating expenses of over $100 million,
which was a decline of almost 7%. Operating cash flow was just over $395 million.
As noted, it appears the economy has slowed more in the back half of March, putting
additional pressure on an already soft advertising environment. The switch of Easter
from April last year to March this year also impacted results.
3
4. Our total operating revenues were down over 8% for the first quarter as newspaper
advertising revenues were approximately 10% lower. Retail advertising was almost 8%
lower; national advertising was unchanged; and classified finished down in the mid-
teens. For U.S. Community Publishing, classified advertising continues to be hindered
by the real estate slowdown. For the real estate and employment impacted the most in
the quarter. The divergence between the results for our properties in Arizona,
California, Florida and Nevada and those in other parts of the country continue as
classified categories were again roughly two to three times worse in those states. Auto
was soft in the quarter, but to a much lesser extent overall.
Results from our operations in the UK were stronger relative to U.S. Community
Publishing as their operating revenues were down in the mid single digits. However,
the economic slowdown in the latter half of March tempered results at Newsquest as
well, particularly the real estate and employment categories.
A bright spot was the positive revenue growth at USA TODAY and USA WEEKEND.
USA TODAY's advertising revenues were over 2% higher for the quarter as the top
advertising categories -- entertainment, travel and financial -- were all up significantly.
As expected, our Broadcasting segment revenues were 7% lower. This included about
$5.5 million in politically-related advertising, but that was not enough to overcome the
absence of the Super Bowl-related ad revenue that benefited our CBS affiliates in 2007
and softness in other categories, particularly auto. Looking ahead, there is considerable
upside potential later this year. We are well-positioned for what appears to be an
unprecedented level of advertising associated with the elections in the fourth quarter
and the Summer Olympics in Beijing will boost results in third quarter. At this point,
pacings for the second quarter of 2008 are lagging the second quarter of 2007 in the mid-
to high-single digits. But, as we have indicated in the past, pacings will be volatile,
particularly in an election year. We will keep you updated through our monthly
reports.
Digital revenues companywide contributed to results this quarter. Despite the economic
conditions, online revenues were up 6.5% overall. Our domestic online revenues
increased 3%. Online results in the U.S. were tempered by a decline in employment
advertising that masked the strong growth that we were seeing in auto, as well as retail
and national advertising. Online revenue at Newsquest was up over 32% in pounds and
Broadcasting was 11.2% higher.
In March, our domestic websites had 24.8 million unique users and reached 15.1% of the
Internet audience. In the UK, Newsquest's online audience totaled 6.6 million unique
visitors with over 94 million page impressions.
4
5. At CareerBuilder, growth in revenue and traffic continued in the quarter. North
American network revenue was up about 3% for the quarter compared to the first
quarter of 2007. Traffic for the network averaged 23.7 million unique visitors for the first
quarter, a 9% increase compared to last year. They are continuing their international
expansion as well. Together with Classified Ventures, these partnerships continue to
deliver for us and remain a key building block of our digital strategy.
Now to dive a little deeper on the results and some factors affecting them, let me turn
the call over to Gracia.
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Thanks, Craig. Before we go into detail on our quarterly results, I need to remind you,
as always, 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 excruciating detail in our SEC filings. This presentation also includes 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 website.
Now that I have that out of the way, let me start today with our publishing segment.
Advertising revenues, as Craig indicated, overall for the segment were down 10.2% for
the quarter. In the U.S., total ad revenues were about 11% lower. Our operations in the
UK fared better, although they did not escape the softening economy, particularly in
real estate. Ad revenues at Newsquest in pounds were down about 7%.
Breaking this down, let me begin with retail, which declined about 8% in the quarter.
Once again, our U.S. Community Publishing properties were more unfavorably
impacted relative to the UK. Categories such as furniture and home improvement in the
U.S. were impacted by the real estate slowdown, but financial and telecom also were
softer. Department stores, our largest retail category, were down in the mid single
digits.
Classified advertising continued to soften due to the economic slowdown, particularly
for those properties in real estate driven markets. For U.S. Community Publishing, real
estate advertising was over 30% lower for the quarter, employment was down about
26% and auto declined over 11%. Properties in the four states Craig noted -- Arizona,
California, Florida and Nevada -- comprise roughly 25% of advertising revenues for
U.S. Community Publishing; yet they drove about 40% of the ad revenue decline.
5
6. Classified advertising at Newsquest was trending the right way through most of the
quarter, but it slipped in March and was down about 9% for the full quarter, indicating
the UK is beginning to experience the same real estate issues we have in the U.S. Just
last week, one of the major house price indices in the UK reported a 2.5% decline, the
biggest monthly fall since September of 1992.
Now let me turn to expenses for a few minutes.
As Craig mentioned, total operating expenses were about 7% lower for the quarter,
reflecting a continuing concerted effort to control costs, as well as a commitment to a
more efficient cost structure in light of the revenue picture. Operating expenses in the
publishing segment declined 6.6%, due primarily to a significantly lower newsprint cost
and other cost-containment efforts. On a constant currency cash basis, segment
expenses were down 6.9%. Reported newsprint expense was 19.3% lower as usage
prices were down almost 6% and volume was over 14% lower.
One comment on newsprint before we move to some non-operating items and the
balance sheet: Market newsprint prices moved higher in the first quarter while the
outcome of increases announced for the second quarter remain uncertain. In response to
these conditions, we continue to adjust consumption by reducing press web widths and
converting to lighter basis weights, which will act to mitigate market pressures.
Producers should anticipate that rising prices will encourage greater conservation
measures by publishers.
Now turning to the Broadcasting segment, operating expenses there were also lower for
the quarter, about 5.5%, due to strong cost controls and in part to lower stock-based
compensation.
Finally, corporate expense was down significantly in the quarter, about 32%. The
decline was due in part to lower stock-based compensation, continued cost control
efforts and some operating asset sales.
Since stock options granted to our senior executives are done in the first quarter and
they are allocated among the segments and corporate, we will not see the level of
benefit in the second and third quarters as we have seen in the first quarter, both in our
corporate expense, as well as in Broadcasting.
Some other non-operating items to note. As we discussed at year-end, we changed the
presentation on the income statement and included a new line item in the non-
operating section called equity income or losses in nonconsolidated investees into
which we reclassified our equity share in the operating results of our newspaper
6
7. partnerships. These are Texas-New Mexico and the California Newspapers Partnership,
in which we hold minority investments, and the Tucson JOA. In the past, these were
reported in other operating revenue. We also reclassified our portion of the equity
earnings of our online and new business investments, including CareerBuilder,
Classified Ventures and Metromix to that same line item from other nonoperating
income. So that line item now includes our share in those partnerships and the equity
earnings in losses from our online and new technology businesses.
For the first quarter, the increase in losses for consolidated investees was due to a
variety of factors. These include weaker results for the newspaper partnerships,
particularly in the West and the addition of new digital investments that we are
ramping up this year such as Metromix. And in that case, we are investing in those
initial stages.
Another factor was the timing of promotions and other expenses for certain digital
partnerships. These marketing efforts are critical and are more timing-related. We
anticipate they will smooth out over the course of the year.
The $25.5 million pretax gain on the sale of land Craig noted is included in other non-
operating items. After tax, the gain was about $15.8 million or $0.07 per share. As you
have noted, interest expense for the quarter totaled $48.5 million, a decline of over 33%
from almost $73 million in the first quarter of '07, which was due to lower average debt
balances, as well as lower interest rates.
Touching briefly on some of our balance sheet items, total debt at quarter end stood at
$4 billion and cash was $166 million. At this point, our all-in cost of debt is
approximately 4.2% with commercial paper at about 3%. For the quarter, capital
expenditures totaled approximately $28 million.
With respect to shares outstanding, shares at the end of the quarter were 228.5 million
and the basic quarterly average was 229.2 million. We repurchased about 1.5 million
shares in the quarter. Now I will stop and Craig and I will be happy to take your
questions.
7
8. QUESTION AND ANSWER
Edward Atorino - Benchmark - Analyst
Oh, I am never first.
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Congratulations.
Edward Atorino - Benchmark - Analyst
I ought to play the lottery today. I had a question on the interest expense going
forward. If I do a quick math on 4% of $4 billion, that is $166 million roughly, which is
about $40 million a quarter versus the $48 million. What am I missing?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Well, there are a couple of factors, Ed. Number one, we have a couple of pieces of debt.
Our $500 million of fixed-rate notes coming due on June 15 we will refinance, and we
may, in the short term, refinance those in commercial paper. But we will also be
opportunistically looking at refinancing them in a longer-term fashion over the course
of the year as the credit markets permit.
The other piece is that we have $1 billion of convertible notes that, as you recall, we did
last June. Those are priced at LIBOR minus 23 basis points, which has been a fantastic
trade for us. At the time we issued those, we indicated we thought they would be put to
us at their one-year anniversary point, which is in mid July. We are assuming that is
going to happen and so we would refinance those again on the short term probably in
commercial paper, which would be a higher rate than we have right now.
So there are a variety of factors that are going to impact interest expense going forward.
As well, it will depend on our activity in the share repurchase market, and other
investment opportunities that we find. So, as you look at modeling for the rest of the
year, in the second quarter, a number slightly lower than what we achieved in the first
8
9. quarter absent additional share repurchases or other investments is probably in the
ballpark.
Paul Ginocchio - Deutsche Bank - Analyst
A question about quadrantONE. I guess 10% of the entire newspaper industry online
inventory is still relatively small. I think even Yahoo! with their number one U.S.
market position is looking to add affiliates. So I am just wondering how you position
your sort of much smaller ad network versus all the other ad networks already existing.
Thanks.
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
We are evolving this very rapidly with quadrantONE, as well as our own internal One
Gannett network. We are looking at seeing a larger percentage of growth over the
course of this year as Chris (Saridakis) noted in New York. And he is looking at that at a
fairly fast expansion as we move forward. All the site standards, the inventory…all that
is in place and now it is time that the infrastructure starts working for us.
Paul Ginocchio - Deutsche Bank - Analyst
On the USA TODAY side, it looks like March was relatively weak. Is that anything to
do with the Easter shift, or has it just been weakening since the relatively good result in
February and March? Thanks.
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Paul, I think there is some of the Easter Sunday switch that impacts it, but, as I think
Craig Moon pointed out back in mid-March, things are very volatile on the national
advertising side and ads are being placed very close to publication dates. April has
started out not dissimilar to March, but we will just have to see how the month and
quarter progress. We will keep you updated in our monthly rev and stat reports.
Michael Kupinski - Noble Financial - Analyst
I was just wondering, can you bring us up to date on the large number of alternative
papers that you launched over the past five years. How they are faring in this
environment and what have you done with the number of titles? Are they profitable,
that sort of thing?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
9
10. Right now, we are at around 900 titles domestically. What we have done over the last
couple of years – as we had a tremendous amount of launches – is we have stepped
back, taken a look at each of the titles, determined if some of them at this point don't
make good business sense. We have pared back some of those titles. Others, we have
done some things to improve their performance. However, a number of the titles are in
the broader classified arena, so they are suffering some of the same pains we are
suffering on the daily newspaper side. Nevertheless, we are very pleased with the
portfolio as it exists now. We are looking at launching a number of new products as we
continue to be very locally focused in the communities we serve, but there is a constant
process of revisiting those titles to make sure they are doing the job they were originally
intended to do.
Over in the UK, same sort of thing: The lion's share of their results come from a very
wide array of non-daily titles. They go through the same process we go through here,
which is constantly reevaluating titles, shutting some down where it makes sense or
launching them where it makes good sense to do so. It is an evolving process.
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
To take that a step further, Michael, when you take a look at Indianapolis and our
Moms project with respect to online, we have also launched a non-daily product along
with that. There are going to be opportunistic times when we look at where we can find
real advantage in how we can serve that local community. The key again is how do we
better create a broader reach within local. You will be seeing more of that as we move
forward.
Michael Kupinski - Noble Financial - Analyst
And you had mentioned in the past that the margins of those alternative papers were
in the range of 25%. Can you just give us an idea of where those margins are now and
would any movement in the titles or the number of titles account for any of the
differential in the revenue components or expense components in the quarter?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
In the past, Mike, we have indicated that margins on the non-dailies were in the high
teens to low 20s and they are probably in that range right now. In the last few quarters,
we have taken a particularly hard look at things and so you may see some impact from
the fact that we have pruned some of the titles and some of the numbers. Hopefully, we
will be doing some cycling of that. I know that is the case in Indianapolis and a few
10
11. other places where we will be cycling some of that over the next couple of quarters. A
lot will depend on how the economy fares as well as we go through '08.
Michael Kupinski - Noble Financial - Analyst
Well, pruning of those haven't accounted for say 1% of revenues or 1% of expenses or
anything like that. Are they significant enough to move the needle in the quarter?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
They are significant enough that they can move it a little bit, but I am not sure that we
would attribute a huge amount of the shortfall to that.
Michael Kupinski - Noble Financial - Analyst
Okay. And just one final question. Pacings in Broadcasting in the second quarter, can
you break out that between national and local?
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
As far as pacings, obviously the local is faring a bit better earlier in the quarter. It is still
negative as I had indicated earlier. National, due to the fact at this point of the slower
political coming in, is a little further down and that is in the high single digits as I had
mentioned earlier.
Michael Kupinski - Noble Financial - Analyst
Can you talk about headcount…what FTEs were in the quarter and how far they were
down?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Yes, overall, we probably saw another mid-single digit decline in FTEs year over year,
quarter one to quarter one.
Michael Kupinski - Noble Financial - Analyst
Okay, great. Thank you very much.
Craig Huber - Lehman Brothers - Analyst
11
12. Unless I missed it, can you give us the non-newsprint cash cost percent change in the
quarter for newspapers?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Non-newsprint cash cost for newspapers? We are digging that out for you as we speak.
On a constant currency cash basis, excluding newsprint, I think it was a little less than
5%.
Craig Huber - Lehman Brothers - Analyst
Okay, great. And then concerning the Easter effect this year, are you able to give us an
estimate of how much the impact was year over year? Was it roughly two to three
percentage points?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Craig, that is almost impossible to try to really hone in on. That is why we always
recommend that you combine March and April together and look at them in totality to
give you -- to sort of neutralize that Easter impact.
Craig Huber - Lehman Brothers - Analyst
Okay. Again, you are confirming or saying that April so far is tracking down to 12.5%
to 13%?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
No, I don't think I confirmed that. I just simply am suggesting that you combine the
two. We haven't really indicated --.
Craig Huber - Lehman Brothers - Analyst
I thought your comments before in April though were tracking similar to March?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
I said that with regard to USA TODAY.
Craig Huber - Lehman Brothers - Analyst
12
13. Oh. What about the rest of your papers, please? Do you have a sense there?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
It is varying by category and it is very, very early in the quarter for us to really have a
good sense of that. We will obviously report on that in our monthly rev and stat reports.
Craig Huber - Lehman Brothers - Analyst
Okay, and then lastly, were there any other one-time items in the quarter that you
haven't mentioned besides the gain on the asset sale?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
As I mentioned on stock-based compensation in the first quarter, we issue stock
options to our senior executives. That would have a more meaningful impact in the first
quarter, particularly on corporate expense. It also has some impact in Broadcast because
of the lower expense base that they have. There are some operating asset sales that we
do. We did some in the first quarter of last year. We have done some in the first quarter
of this year, modestly different amounts. And then there’s the land sale in Tysons
Corner.
Craig Huber - Lehman Brothers - Analyst
And lastly, if I could, you have given a $1 billion convert that will probably be put to
you, and the $500 million bond maturity coming in a few months. You mentioned using
commercial paper, short term gap. Given what is going on with the credit markets, is it
possible you guys would actually tap into your bank revolver here?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Given where the credit markets are these days, one should never rule anything out, but
as we sit here at this moment, we feel very good about how our commercial paper is
being received in the marketplace. We have had extensive conversations with our
dealers and feel very good that we will be able to place that commercial paper in the
commercial paper market. But, as you know, last year in August, there was a week
there where the credit markets melted down and virtually no one could get anything
more than overnight commercial paper done. So assuming that the market continues to
be as it is today, we anticipate we will successfully roll over our commercial paper.
Craig Huber - Lehman Brothers - Analyst
13
14. And just to be clear here, as you have told me in the past, your bank revolver: You
renegotiated that about a year, year and a half ago, so you have several more years to
go on that, right?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
No. We renegotiated it early last year and it was a five-year revolving credit agreement.
It expires in '12 at a little over $3.9 billion.
Barton Crockett - JPMorgan - Analyst
I just wanted to drill down a little bit into the equity and affiliated companies line, the
number that you reported there of the negative $12 million in the quarter. Can you
parse out a little bit what the contribution there was from the newspaper partnerships
versus Internet and -- I know there was some unusual investment in Internet here
because of ramp-up –how that kind of trends going forward through the balance of the
year? Thank you.
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Yes, what I can tell you, Barton, is that with regard to the newspaper portion of it, the
California Newspaper Partnership obviously is suffering the same kinds of difficulties
you have heard from other companies, as well as ourselves, that have a concentration of
California properties. It is a very difficult impact. Overall, the newspapers are
continuing to make money, but at a diminished rate as you are seeing across all
newspaper companies.
On the digital side, as we mentioned last year, Metromix is new in the first quarter. We
are in a ramp-up mode there, so that is a few million dollars of investment spending
there. CareerBuilder, as always, does a significant amount of promotion spending in the
first quarter. They are doing international expansion as well, so the promotional
expenses there would have hit us a little bit more than they did last year. As I said
earlier, we expect that will even out over the course of the year,. The same with
Classified Ventures, where we are doing some additional things so expenses were
higher in the first quarter. We anticipate those will smooth out over the rest of the year.
Then obviously we have the addition of quadrantONE, a small piece of the pie.
Peter Appert - Goldman Sachs - Analyst
14
15. Gracia, just expanding on that last one. Can you give any expectations in terms of what
that equity line might look like on a full-year basis?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Where we are today, and assuming no additional investments, which may or may not
in fact be the case, I think that -- and it will depend on how newspaper numbers roll out
for the rest of the year -- the dramatic change you saw in the first quarter should
mitigate over the rest of the year and be closer to last year. That’s because we would
expect that CareerBuilder and Classified Ventures, unless there is some additional
investment in Classified Ventures, would look a bit better. Metromix will continue to
have investment losses. Those numbers will get closer as the year progresses, year over
year.
Peter Appert - Goldman Sachs - Analyst
Okay. And keeping with the tradition of avoiding you or ignoring your request for one
question, just several more.
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Quite a tradition.
Peter Appert - Goldman Sachs - Analyst
The March weakening or the weaker trends you saw on the second half of March, do
you have any color in terms of -- were there specific categories, was it all classified-
related, was it more broad-based?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
On the newspaper side, and Craig you may want to comment on the Broadcast side,
but on the newspaper side, I think it was clearly on the classified side and you would
expect, on Easter Sunday, that classified is the area obviously the hardest hit and people
aren't out looking at new cars or doing real estate transactions and the like. Clearly, the
impact is on the classified side. Other areas don't jump right out at me.
Peter Appert - Goldman Sachs - Analyst
15
16. Although -- what was noteworthy I thought was that the retail was just a little bit
weaker in March than you had seen year to date. I had assumed that theoretically the
Easter effect would be a positive on the retail side.
Gracia Martore - Gannett Co., Inc. - EVP & CFO
I am not sure anymore frankly as to really what the impact is on the retail side other
than probably in the food category. Anecdotally, if one went to church, there aren't a lot
of people donning their new Easter bonnets these days and so I think that that kind of
department store spending and the like seems to be mitigated. It is really more down to
the grocery category, but I can't think much of anything more than that.
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
On the television side, Peter, the key areas of concern for the quarter have been
automotive, as we had discussed. Retail and home furnishings were difficult.
Telecommunications – and really when you look at movies and home video area as well
– we saw some decline there. Those were the key areas that would have had impact.
Peter Appert - Goldman Sachs - Analyst
Then should we expect the out-quarter share repurchase activity similar to what you
did in the first quarter?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Again, we will be opportunistic on that, Peter. One quarter's activity doesn't necessarily
mean that's what the remaining quarters will look like. We will just look at it each
quarter and it depends on what else is on the plate in a particular quarter. If there are
other investment or acquisition opportunities or, for instance, there is some debt we are
going to be repaying. We may want to forestall a few share repurchases as we get that
all lined up.
John Janedis - Wachovia - Analyst
Craig, I realize they are volatile, but given the 2Q pacings, can you expand a bit on
political? I think you did something like $9.5 million and $14 million over the prior two
election year cycles during 2Q. When do you expect it to really start to head up more
this year? Have the traditional categories pulled back to much more than you would
have expected at this point? Thanks.
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17. Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
Sure. John, just to kind of put it a little bit in perspective. When you look at the
spending right now, specifically on the Democratic side, the delayed nomination has
really pushed back some of the spending. When you look at it from a 527and a PAC
spending perspective, likely that will continue until the nomination is decided. I would
even go further that in the event this carries on to the convention, I think those dollars
would continue to get pushed back.
But having said that, what we are understanding is that the dollars exist and will likely
be spent as anticipated. It is just going to be a later spending pattern than what we
would normally have seen. To say that has any relation with auto, retail or any of the
other categories I just mentioned… There is just some softness in these categories going
on at this time. Frankly, as we move through the year -- and I will just come back to the
political for a second -- with the portfolio of stations Gannett has, you are going to see
some really great activity coming out of Cleveland, Tampa, Jacksonville, Denver, Grand
Rapids. We are ideally positioned. We are feeling very solid; it is just more of a timing
issue -- if that is responsive to your question.
John Janedis - Wachovia - Analyst
Yes, thanks. And along those lines, do you still expect double-digit increases for the
Olympics this year or is it too soon to know?
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
I would say at this point it is still a little early for the spot side and on the local side. But
I know that the team is working very hard on it. The advantage we are going to see is
because of what NBC has done with prime time and those key events. There will be
some significant and added interest due to that, but it is a little early yet to tell.
John Janedis - Wachovia - Analyst
Okay. Thanks. Peter asked my other seven questions. Thank you.
Sylvia Jasaroska - Bear Stearns - Analyst
I just had a couple of quick questions. The first, I just want a clarification. Was political
spending this quarter $4.2 million or $5.5 million?
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
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18. Political was $5.5 million net.
Sylvia Jasaroska - Bear Stearns - Analyst
And then how much in Super Bowl ad dollars was there in Q1 '07?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
I think it was in the $3 million to $4 million dollar range as I am recalling.
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
That's right, yes.
Sylvia Jasaroska - Bear Stearns - Analyst
Okay. If you could talk about the slowdown in digital advertising growth, especially
on the newspaper side, to the low to mid-single digit range? How much of that is
actually related to the classified weakness?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
A substantial portion is related to classified weakness. When we look and dissect the
numbers on the classified side, particularly in employment, there are just fewer print
ads available to be sold. On the classified side, we are under pressure. When we look at
other categories like retail, those numbers had very nice double-digit increases in retail
and in national in other in the U.S. Community Publishing side -- the U.S. side. The
weakness is on the classified side and the classified side still represents 50% to 55% of
our digital revenues. That is a diminishing percentage as we continue to increase the
retail and national and other sides of the equation.
Sylvia Jesruskin - Bear Stearns - Analyst
If I could throw one more inside. Was Newsquest profitable this quarter and if it
wasn't, --?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Absolutely profitable. Absolutely profitable.
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19. Karl Choi - Merrill Lynch - Analyst
Were there any unusual comparisons as far as severance in the quarter? And related to
that, assuming the top line is going to continue to be difficult but you will be coming up
against difficult cost comparisons in the second half, should we expect an FTE decline
to start to lessen as we get into the second half and how do you balance it against
investments? Thanks.
Gracia Martore - Gannett Co., Inc. - EVP & CFO
On the severance side, when I look at new severance in the quarter, I think that it is
roughly comparable to what we did in the first quarter of last year. As to FTEs and the
second half of the year, Karl, we are just going to have to see where business conditions
are. The one thing you can be certain of is that we are very focused on spending the
dollars and investing dollars where we see that there are good opportunities in the
medium to long term, Metromix being a very good example of that. And all the things
that we are doing on the digital side that Chris articulated at our meeting in mid-March,
really ramping up ad serving and a number of pieces, the Moms sites, etc. So
investment really is occurring where we see great opportunities to achieve revenue
growth. And on our traditional side, investing in sales resources and sales training to
make sure that we are going after every available revenue dollar in the markets that we
serve. We will just have to see how the economy and revenues play out and we will
make decisions accordingly.
Karl Choi - Merrill Lynch - Analyst
As far as newsprint is concerned, I know you're on a FIFO accounting, so presumably
whenever the second-quarter increase goes through, it should have relatively little
impact on your pricing performance in the second quarter. Is that the right assumption
to make?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Well, price increases in the first quarter will play into the second quarter. As you recall,
last year when we were in the second quarter, we had prices declining. So even though
we are on FIFO, there will be the impact of increasing prices in the first quarter that we
will have to deal with. Those comparisons will be more difficult in the second quarter.
On the usage side, as I said earlier, more focus on lightweight, more focus on web width
reductions and other conservation measures will help to mitigate some of that.
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20. Thomas Russo - Gardner Russo Gardner - Analyst
I'm wondering if you could talk a bit about Captivate and what is going on there, how
are you continuing to sell that inventory, maybe what links you might have with other
activities in the outdoor advertising section in the sector in general? What is going on
with Captivate?
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
Captivate, at this point as far as 2Q is concerned, is pacing nicely. We did see some
slowdown going through in 1Q as we had noted. However, I would suggest, with the
out-of-home area, we are still very enthusiastic. We continue the expansion that we
have had in elevators. And as we go forward, we are going to see, we hope, even more
opportunity through what we are calling the One Gannett sales effort to be able to
combine the one call, one buy prospect that will give us, I hope, even greater
opportunities. As we see it right now frankly, Thomas, it is a good situation and as I
said, pace was increasing and improving nicely for Q2.
Thomas Russo - Gardner Russo Gardner - Analyst
Great. And on the one call, one buy, do you have overlapping customers or is the
audience for Captivate a more national sort of brand marketing versus what you
typically call on? How do the target markets line up?
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
Well, the way that can work -- of course, not everyone will, but I think the key element
here is we will have the ability from a national perspective, we will have a regional
perspective and a local perspective and any combination thereof. And that is really
what we are trying to do. We can match up the impressions, if you will, with advertiser
need and be able to produce those across varying product lines and/or platforms to
give us the greatest opportunity. The initial efforts in this, we are very excited by it and
certainly with the pressure on the advertisers and everyone else at this point in time,
this concept seems to make an awful lot of sense. We are going to push it forward very
rapidly.
Thomas Russo - Gardner Russo Gardner - Analyst
And then assuming, as you said, selling the network up, as you complete the network,
you add more value I suspect over time. So the more you spend --.
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21. Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
Absolutely. And just as we have had significant luck with the consortium of 26
newspaper companies coming in just since our March meeting, with 70 million uniques,
we have a formidable network and there will be a significant amount of opportunity
from a choice perspective to really leverage that local opportunity. We are quite excited
by what these opportunities are bringing in and certainly the participation that we have
right now.
Thomas Russo - Gardner Russo Gardner - Analyst
Thank you. Then the other one is, just as you try to sell your TV ad time, how do you
deal with this C3 measurement issue that is creeping up as you are trying to track the
DVR follow-through to viewership? Does it affect you and how has it increased or
changed your ratings and audience?
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
We are moving forward on each front as the different technologies come forward. Thus
far, the impact has been negligible. We are working in the LPM markets, which
continue to be rolled out and we are very, very pleased with the results that Dave and
the Broadcast group have been able to achieve despite some of the situations with our
NBC stations. Our dominance in the market, and the goal of being number one or two,
with our news products will continue. The stations understand how absolutely
important this is. Despite whatever the technological methodology will be, they will be
there to serve those local communities in every way possible.
Gracia Martore - Gannett Co., Inc. - EVP & CFO
We just have time for one more question. We will be more diligent in enforcing the one
question per person rule next quarter, but one more question.
John Kornreich - Sandler Capital - Analyst
Yippee. Two things. Where does the Publishing headcount stand now versus 12, 15
months ago as a percent down?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
Over the last 12 months, it is down in the 8% range.
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22. John Kornreich - Sandler Capital - Analyst
Wow, and you still have voluntary plans out there for people to leave if they want to?
Gracia Martore - Gannett Co., Inc. - EVP & CFO
We have a couple of situations where that is the case.
John Kornreich - Sandler Capital - Analyst
Okay. Secondly, I want to congratulate you on being the only newspaper company
with two digits to the stock price. As a matter of fact, I did an exercise, if you total up all
the other newspaper stock prices, it doesn't quite get to yours. Anyway. Lastly, Craig,
how are you feeling?
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
I am feeling good. As we look at things, we need some help from this economy, but at
the end of the day, I have to tell you what Chris and the whole team are doing is really
moving forward. As I said in the prepared comments, from a cultural perspective, we
are moving forward. People understand the necessity of our information centers and of
the One Gannett initiative. We are very excited about where we are going overall and
feeling good about it.
John Kornreich - Sandler Capital - Analyst
Great. And your back is getting better?
Craig Dubow - Gannett Co., Inc. - Chairman, President & CEO
My back is doing fine. Day by day, it does get better and I am feeling quite good about
it.
John Kornreich - Sandler Capital - Analyst
Glad to hear it. Thanks.
Operator
That does conclude the Q&A session. I will turn it back to management for closing
remarks.
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23. Gracia Martore - Gannett Co., Inc. - EVP & CFO
Thanks very much for joining us this morning. If you have any additional questions,
please feel free to call Jeff Heinz at 703-854-6917 or me. Thanks and have a great day.
Certain statements in this transcript may be forward looking in nature or “forward looking
statements” as defined in the Private Securities Litigation Reform Act of 1995. The forward
looking statements contained in this transcript are subject to a number of risks, trends and
uncertainties that could cause actual performance to differ materially from these forward looking
statements. A number of those risks, trends and uncertainties are discussed in the company’s
SEC reports, including the company’s annual report on Form 10-K and quarterly reports on Form
10-Q. Any forward looking statements in this transcript should be evaluated in light of these
important risk factors. Gannett Co., Inc. is not responsible for updating the information contained
in this transcript beyond the published date, or for changes made to this document by wire
services or Internet service providers.
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