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Original Source: FD (FAIR DISCLOSURE) WIRE
. Elaine Lintecum, The McClatchy Company, Treasurer . Gary Pruitt, The McClatchy Company, Chairman, CEO . Peter Appert, Goldman Sachs, Analyst . Christa Quarles, Thomas Weisel Partners, Analyst . Pat Talamantes, The McClatchy Company, CFO, VP-Fin. . Chris Hendricks, The McClatchy Company, VP, Interactive Media . William Bird, Citigroup, Analyst . Frank Whittaker, The McClatchy Company, VP, Operations California . Douglas Arthur, Morgan Stanley, Analyst . John Janedis, Banc of America Securities, Analyst . Lauren Fine, Merrill Lynch, Analyst . Bob Weil, The McClatchy Company, VP, Operations . Steven Barlow, Prudential, Analyst . Amanda Sigland, Lehman Brothers, Analyst
. Thomas Russo, Garner Russo, Analyst . Gary Santino, Standard & Poor's, Analyst . David Clark, Deutsche Bank, Analyst . Jeff Matthews, RAM Partners, Analyst
Co. reported 3Q05 revenues were $292.6m with earnings of $38.6m, or $0.82 per share. Co. expects 4Q05 earnings to range between $0.98-1.00 per share. Full year guidance was given at $3.44-3.46 per share.
A. Key Data From Call 1. 3Q05 revenues = $292.6m. 2. 3Q05 earnings = $38.6m. 3. 3Q05 EPS = $0.82. 4. End of 3Q05 debt = $189.4m. 5. Full year EPS guidance = $3.44-3.46. 6. 4Q05 EPS guidance = $0.98-1.00.
S1. 3Q05 Financial Details and 4Q05 and FY05 Outlook (G.P.) 1. 3Q05 Summary: 1. 3Q05 earnings were $38.6m, or $0.82 per share.
1. Earnings included expenses related to lawsuit filed against co. 1. Alleging Star Tribune overstated circulation figures. 2. Excluding these costs, earnings were $39.3m or $0.84 per share. 2. 3Q04 earnings were $39.1m or $0.83 per share. 2. 3Q05 revenues totaled $292.6m, up 2.1% from revenues in '04. 1. Advertising up 3.2% 2. Circulation down 3.8%. 3. Consolidated retail advertising declined 0.9%. 4. Classified increased 6.7% on reported basis. 5. 3Q05 segment results include reclassification of revenues
between retail and classifieds and zoned edition of Fresno
Bee. 1. Apple to apples basis, retail would have been down only 0.1% and classifieds would have been up 5.9% if segments consistently reported. 2. Classifieds: 1. Employment up 15.1%. 2. Automotive declined 11.1%. 3. Real Estate grew 20.6%. 4. National advertising up 0.9% from '04. 5. Sept. stronger month, total advertising revenues up 4.2%. 1. Consolidated retail advertising declined 1.8%.
2. National grew 11.8%. 3. Classified grew 7.0%. 1. Employment up 10.3%. 2. Real Estate up 25.5%. 3. Automotive declined 10.5%.
3. California Region: 1. 38% of 3Q revenues. 2. Advertising revenues increased 6.7%. 3. Total revenues increased 5.3%. 4. Advertising categories: 1. Retail decreased 5.6%. 2. National up 0.4%. 3. Classified grew 18.7%. 1. Employment up 21.8%. 2. Automotive rose 2.0%. 3. Real estate increased 46.6%.
5. 3Q retail would have declined 3.4% vs. reported 5.6% ignoring
segment reclassification at Fresno Bee. 1. Classified would have grown 16.4% vs. reported 18.7%. 4. Minneapolis Region:
1. Largest newspaper Star Tribune contributed 32% of 3Q05
revenues. 2. Advertising revenues increased 1.0%. 3. Total revenues increased 0.2%. 4. Retail advertising increased 2.8%.
5. National up 6.4%. 6. Classified up 0.4%. 1. Employment advertising increased 9.7%. 2. Automotive declined 22.6%.
3. Real Estate up 13.2% over last year. 7. Sept. was healthier at Star Tribune with advertising up 2.4% in total. 1. Up 4.1% in retail advertising. 5. Carolinas Region: 1. Newspapers contributed 16% to 3Q advertising revenues. 2. Advertising revenues up 0.6%. 3. Total revenues in region declined 0.5%. 4. Retail declined 0.8% for quarter. 1. Aug. was only month with lower revenues, as co. cycled against grand opening advertising for Saks in Raleigh last year. 5. National advertising down 15.7%. 6. Classified declined 1.9%. 1. Employment increased 13.4%.
2. Automotive decreased 17.3%. 3. Real Estate declined 1.3%. 7. New program in Durham continued to drive strong results in direct marketing category. 1. Up 104.7%, or $1.2m.
6. Northwest Region: 1. Smallest region. 2. Contributed 14% 3Q revenues. 3. Advertising revenues up 1.7%. 4. Total revenues grew 0.7%. 5. Retail advertising increased 3.2%. 6. National grew 2.9%. 7. Classified advertising flat. 1. Employment grew 13.2%. 2. Automotive down 16.7%. 3. Real Estate increased 1.8%. 7. Total Direct Marketing Revenues: 1. Grew 9.6% in quarter to $14.5m, up 8.3% through first nine months to $41.8m. 2. Internet advertising revenues grew 39.8% in 3Q05 to $15m. 1. Included in total advertising revenues discussed. 2. Represents 6.1% of total advertising revenues. 3. Strongest growth area in Internet business is still in classified revenues. 1. Beginning to see some traction in retail area. 4. Through first nine months Internet advertising totaled $41.7m, up 38.7% from '04. 8. Circulation: 1. Through Sept. daily circulation volume down 0.7%, Sunday down 3.0%. 2. Revenues decreased 3.8% in 3Q05 to $40m, down 2.1% YTD. 9. Expenses: 1. Operating expenses increased 3.4%. 1. Primarily reflecting higher compensation related costs in quarter. 2. Star Tribune's litigation costs. 2. Excluding litigation costs, total operating costs rose 2.9%. 3. Compensation costs up 4.4%. 1. Salaries up 2.1%. 2. Fringe costs up 13.9%. 4. Newsprint and supplement expense was flat for quarter. 1. Lower usage offset cost of higher newsprint prices.
5. Other expenses increased 5.3%, up only 3.3% excluding litigation costs. 1. Reflect among others, higher postage costs related to expansion of direct mail business and higher energy costs.
6. Deprecation and amortization costs declined 2.2%. 7. Interest expense for quarter $1.8m, up 21.7% from '04. 1. All-in effective interest rate for quarter 3.8%. 1. Costs increased primarily due to higher short term interest rates which affect co.'s borrowing costs under its commercial paper program. 8. Debt at 3Q05 end $189.4m, $77.8m below year-end '04 level. 9. Lower tax provision contributed to 3Q05 earnings increase. 1. Co. filed '04 tax return last month.
2. Completed final reconciliation for '04 tax liability and '04
tax provision. 3. Full year expected tax rate fell to 39.3% from previously estimated annual rate of 39.8% as result of reconciliation.
4. Recorded favorable adjustment in 3Q05, resulting 3Q tax rate
was 38.4%. 10. 4Q05 Outlook: 1. See continued sluggishness in retail and automotive categories. 2. Seeing good growth in employment at most papers. 3. Strong real estate growth at Minneapolis and California papers. 4. Expect online and direct mail revenues to continue to show good momentum. 5. Co. expects advertising revenue growth similar to 3Q05. 1. Will be vigilant managing expenses. 6. Expect 4Q05 earnings of $0.98-1.00 per share.
1. Expenses related to circulation lawsuit not anticipated to
be material in 4Q05. 7. Expect full year earnings of $3.44-3.46 per share, including litigation expenses incurred in 3Q05.
1. Excluding these expenses, co. expects full year earnings of
$3.45-3.47 per share. 2. 2004 earnings were $3.33 per share and included charge equal to $0.05 per share for costs related to co.'s debt refinancing. 11. 3Q05 Noteworthy Events: 1. Share repurchase program announced earlier this quarter 1. First in co.'s history. 2. Co. has previously used excess cash flow to buy newspapers in growth markets and integrate them into co. using strategy of: 1. Producing quality newspapers, 2. Offering compelling online products, 3. Expanding reach through direct marketing programs.
3. Co. has strong track record of using this strategy to return
value to shareholders, but only willing to pursue compelling acquisition opportunities. 1. Co. standards do not fall with debt balance.
4. Since buying Merced newspapers in Jan. '04, co. has not seen
any opportunities to make acquisitions that meet criteria. 5. Given lack of acquisition opportunities, co. believes share repurchase program is next best use of cash flow and is right way to return value to shareholders at this time. 2. Update on Star Tribune Litigation:
1. Co. disclosed results of investigation into circulation practices of Star Tribune in Oct. 18 press release. 2. Examination came as response to lawsuit filed June 28 by four employment agencies in Minneapolis. 1. Alleging Star Tribune inflated circulation figures.
3. Star Tribune had earlier sued Duane Hendrickson, an executive of Masterson Personnel one of the plaintiffs in the circulation action, and his wife for delinquent payments totaling approximately $60,000 from their days as newspaper distributors for the Star Tribune. 1. Suit was …