Media General, Inc. (MEG)
Q2 2008 Earnings Call
July 17, 2008 11:00 am ET
Lou Anne Nabhan - Vice President
Marshall N. Morton - President & Chief Executive Officer
O. Reid Ashe Jr. - Chief Operating Officer
John A. Schauss - Chief Financial Officer
Edward Atorino - Benchmark Capital
Richard Tullo - Sidoti & Co.
Barry Lucas - Gabelli & Co.
Previous Statements by MEG
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Lou Anne Nabhan
Welcome to Media General’s conference call and webcast. Earlier today we announced second quarter 2008 results and June 2008 revenues. Both press releases have been posted on our website. The comments from today’s conference call will be posted immediately following the call.
Today’s presentation does contain forward-looking statements which are subject to various risks and uncertainties. They should be understood in the context of the company’s publicly available reports filed with the SEC. Media General’s future performance could differ materially from its current expectations.
Our speakers today will be Marshall Morton, President and Chief Executive Officer; Reid Ashe, Executive Vice President and Chief Operating Officer; and John Schauss, Vice President-Finance and Chief Financial Officer. Marshall will be our first speaker.
Marshall N. Morton
For the second quarter, we reported earnings from continuing operations of $0.08 per share, not including severance costs of $0.14 per share. This result is consistent with the guidance we provided on June 10.
The results we reported today for the second quarter are preliminary only because we are completing impairment testing of goodwill and other intangible assets. We expect to record a non-cash impairment charge in the range of $500 million to $550 million after tax. We will report the final amount when we file our Form 10-Q, on or before August 8. The charge will reduce the book value of goodwill, FCC license, and network affiliation intangibles, and certain other assets.
We determined that, in view of the continued economic slowdown, along with the market’s perception of media industry equity valuations, that this was the appropriate time to undertake impairment testing. The charge, of course, is non-cash and will not impact our ability to operate, reduce debt, or move forward with our ongoing transition to the digital world.
Looking at the quarter on the basis of continuing operations, our performance was primarily attributable to decreased publishing segment profit. Partially mitigating the year-over-year drop in divisional profits was lower interest expense and an additional gain related to last year’s fire at our Richmond printing plant. Total operating costs in the second quarter, excluding severance, decreased 6% compared with the prior year, reflecting the benefit of the aggressive actions we have taken to reduce our workforce and cut other costs.
We have taken significant action to reduce costs since the beginning of 2007. Once the last details of our plans are executed in the third quarter, we will have reduced FTEs by 750 from the 6,900 that were in the place at the beginning of 2007. Importantly, we will have removed approximately $40 million of annualized cost. We began to see some of these savings in 2007, expect to net about 40% of that amount for the full-year 2008, and will benefit fully from these actions in 2009. All of the associated severance expense has been accounted for.
Moving on to asset sales, we were pleased to complete the sale this week of the second and third of five stations we are divesting. Late Tuesday, we closed on the sale of our stations in Panama City, Florida, and Alexandria, Louisiana, to Hoak Media. We continue to expect to realize total proceeds from the sales of all five stations of $100 million to $105 million. The proceeds have been and will be used to reduce debt. The total reduction is expected to be $60 million to $65 million after tax.
Now I’ll ask Reid to provide more details on the performance of our three operating divisions in the second quarter.
O. Reid Ashe Jr.
For the second quarter, publishing division profits of $6.8 million compared with profits of $22.6 million a year ago. Revenues declined from $133 million to $114 million. Classified, down 29.5%, drove the bulk of the loss. The largest shortfall occurred in Florida, followed by Richmond. Retail revenue decreased 6.3%, mostly in Florida. National revenue declined 19.2%, again mainly in Florida. Publishing expenses in the quarter decreased 7.2%, not including severance charges. The largest operating expense savings were in other departmental expenses, newsprint, salaries, and benefits.
Newsprint expense declined 12.3% as a result of reduced consumption partially offset by higher average prices, up $49 per ton. All of our newspapers are significantly reducing newsprint consumption. Many have re-designed or combined sections and eliminated less-essential content. The Bristol Herald Courier trimmed its page width to 11 inches this week and several others are queued up to follow. Overall we expect to cut newsprint expense 5% this year, despite a 15% increase in price.
We closed our printing facility in Charlottesville, Virginia, earlier this month. We now print the Charlottesville Daily Progress in our Richmond plant and The Waynesboro News Virginian, formerly printed in Charlottesville, in our new Lynchburg plant. Our ongoing consolidation program has reduced print sites from 25 to 13, saving both operating and capital expense.
Turning now to the broadcast division, profit of $14.9 million compared with $18 million in last year’s second quarter. Time sales declined 5% due to decreased local and national advertising that more than offset an increase in political advertising. Political revenues in the quarter totaled $2.8 million. The automotive, furniture and entertainment categories showed the largest declines in the quarter.