Gray Media, Inc. (GTN) Q2 2008 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Meredith Corporation Second Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mike Lovell. Please go ahead.

Good morning, everyone. I am Mike Lovell, Director of Investor Relations for Meredith Corporation. Before our Chief Executive Officer, Steve Lacy begins our presentation I will take care of a few housekeeping items. In our remarks, we will include statements that are considered forward-looking within the meaning of Federal Securities Laws. The forward-looking statements are based on management's current knowledge and expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. A description of certain of those risks and uncertainties can be found in our earnings release issued today and in certain of our SEC filings. The company undertakes no obligation to update any forward-looking statements. We will refer to non-GAAP measures, which in combination with GAAP results provide additional analytic tools to understand our operations. Tables that reconcile non-GAAP measures to GAAP results are posted on Meredith's website. A transcript of this call will be posted to our website as well. And with that, Steve will begin the presentation.

Thank you very much, Mike and good morning, everyone. Participating with me this morning are Publishing Group President, Jack Griffin; Broadcasting Group President, Paul Karpowicz, along with our Chief Financial Officer Suku Radia. I'll begin with an overview of our key accomplishments, discuss performance in our Publishing and Broadcasting Groups and conclude by updating our current earnings outlook. Then we will be happy to answer any questions that you might have. We are very pleased with our second-quarter performance. Earnings per share were $0.75, up 4% from a year ago. We achieved this growth despite the dual challenge of a significant increase in postal rates along with an off-political year at our television stations, where net political revenues were $22 million less than in the prior-year quarter. Publishing advertising revenues grew 8% on a strong increase in net per advertising page. Circulation contribution and margin increased in the quarter. Circulation revenues declined due primarily to the ongoing transition of Parents, Family Circle and Fitness magazines to the Meredith direct-to-publisher model. Broadcasting non-political ad revenues rose 6%. Meredith Integrated Marketing continued its strong performance with revenues up 50% and operating profits climbing more than 60%. Additionally, in the second quarter we generated more than $40 million in free cash flow, repurchased 490,000 shares and retired $40 million in debt. Finally, we are pleased that two of our largest magazines received industry accolades during the quarter. Better Homes and Gardens, our flagship property, was named Magazine of the Year by Advertising Age and More magazine, which was the 2006 Magazine of the Year was runner-up. For the first half of the fiscal year, earnings per share rose 7% and net earnings rose 6%. Publishing Group advertising revenues grew 11%, Broadcasting Group, non-political advertising revenues grew 4%, and we continue to exercise disciplined expense management across the enterprise. Our fiscal 2008 performance reflects the strength that had made Meredith one of America's top-performing media and marketing companies over time. We combine a tremendous base of traditional publishing, broadcasting and marketing assets along with a growing and profitable array of online, digital and video initiatives. This enables us to reach approximately 85 million unduplicated American women every month with content delivered how and when she chooses to receive it. Now, let me turn to our Publishing Group performance for the second quarter. Publishing operating profit increased nearly 30% over the prior-year quarter to $45 million and operating profit margin increased nearly 3 percentage points. Revenues rose 5% to $309 million. Strong growth in magazines and our custom marketing activities was partially offset by continued weakness at Meredith Books. To strengthen Book results we're combining our Special Interest Media, Newsstand, and Book operation into one business unit now called Meredith Retail. We're implementing our retail marketplace strategy that allows us to take full advantage of the strength and capabilities we possess in the areas including content creation, brand management and extension along with sales and marketing. Our consumer magazines continue to demonstrate powerful and enduring consumer appeal. According to recently released data from Mediamark Research and Intelligence, readership across Meredith's large subscription magazines is nearly 100 million consumers, equal to levels five years ago. This is in sharp contrast to trends in the print industry, particularly newspapers and news weekly magazines which have experienced significant readership declines in recent years. Our strong readership drives advertising revenue growth that is particularly evident at four of our key brands including Parents, More, Family Circle, and our flagship Better Homes and Gardens. Parents have strengthened its leadership position in the parenthood field. Advertising revenues increased 17% in the quarter and net revenues per advertising page grew 18%. In July, we launched our new parenthood portal, Parents.com along with Parents TV, our new broadband video channel. In December, Parents TV launched across the 12 million household Comcast cable systems as a new video-on-demand outlet. More continues to be a major creative and financial success. Advertising revenues grew 30% in the quarter and net revenues per advertising page grew 13%. We raised More's rate base to 1.2 million with the February 2008 issue, which is on newsstands now. Family Circle continue to flourish under Meredith's ownership. Its advertising revenues increased 8% in the quarter and net revenues per advertising page grew 5%. It's now the Number 2 book in the women’s service field behind Better Homes and Gardens. When we acquired the title in 2005, it was Number 5 in a six-titled field. Better Homes and Gardens continued its strong performance driven by new creative and sales leadership. Advertising revenues increased 9% and net revenues per advertising page increased 5% in the quarter. Additionally our Hispanic business, while still an emerging category, continues to experience strong growth. Our Spanish language women’s lifestyle title Siempre Mujer increased advertising revenues more than 70% in the quarter and 40% in the first-half of fiscal 2008. We recently combined our two Spanish language parenthood brands, Ser Padres and Healthy Kids en Espanol under the Ser Padres banner. We increased the frequency of the new Ser Padres to eight times a year and boosted its rate base 40% to 700,000. Looking more closely at advertising across the group, the categories of food and beverage, direct-to-consumer pharmaceuticals, direct response and toiletries and cosmetics were particularly strong. They accounted for approximately 55% of magazine ad revenues in the quarter. Weaker categories included, non direct-to-consumer remedies, consumer electronics and media and entertainment. A key factor to our advertising success is an increased emphasis on developing multi-platform advertising and marketing programs for our clients. We secured a series of new business wins in the quarter with programs expanding several Meredith media platforms. For DreamWorks we created a campaign to promote the release of Shrek 3 on DVD. It included ads in our October issue, and a mock cover for our November issue of Parents magazine, a billboard in Times Square, pod cast promotions on the web and iTunes.com and a national PR effort. For Discover Card, we created a parents banded campaign that runs across the magazine, Parents.com and Parents TV. Aimed at providing timesaving tips for busy parents, the campaign seeks to generate new customers for Discover. In November, we created a Family Circle holiday television network special that was sponsored by Dodge and hosted by Food Network personality Sandra Lee. It was featured across the magazine, Internet and Better.tv. Meredith's Integrated Marketing had an outstanding quarter as revenues rose more than 50% and operating profit increased more than 60%. Results included the increased contribution from three marketing acquisitions over the last year; Genex, New Media Strategies and Directive. On a comparable basis, revenues and operating profit each rose 15% reflecting strong performance by our legacy business and from online marketer O'Grady Meyers. Let me share just a few Integrated Marketing highlights. During the quarter, we were awarded new business by Wal-Mart Stores. We'll produce two versions of an idea book, one that will be mailed directly to 3.7 million homes and another that will be inserted in more than 11 million copies of our largest magazine, including Better Homes and Gardens, Midwest Living and Country Home. We renewed our business with of Nestlé’s Good Start line of infant nutrition products. We were also awarded new interactive and customer relationship management business from Gerber. We were also awarded additional database marketing and analytics work from Suzuki. Over the past two years we transformed Meredith Integrated Marketing from a pure custom publisher to a full marketer of service providing. Our added capabilities are further strengthening our competitive position and our relationship with key corporate clients allowing us to more successfully compete for a win, multi-platform customer relationship marketing program. Revenues at Meredith Interactive Media rose more than 25% during the quarter, benefiting from the recent redesigns of BHG.com and Parents.com along with strong performance across the company niche enthusiast sites. The number of unique visitors averaged 10 million and page views averaged nearly 150 million per month during the quarter. The average time spent on the site per visitor grew 5% to 12 minutes. The total number of videos viewed rose 75% to 2.7 million. Among sales successes, we launched a product called Recipes-To-Go that delivers Better Homes and Gardens food recipes to Motorola's Q9 cell phones. We also created a program for AT&T's Places campaign that reaches consumers in a holiday shopping mindset through advertising focused on holiday, food and entertaining across several of our interactive properties. It is a multi-million dollar program, the largest ever sold in Meredith Interactive Media's history. Turning to broadcasting, operating profit declined to $28 million from $40 million and revenues did decrease 16% to $88 million in the second quarter. For the first six months, operating profit declined to $41 million from $58 million and revenues decreased 13% to $162 million. These results reflect a cyclical decline in political advertising. Net political revenues were $22 million less than the prior year quarter and $30 million less than the prior year fiscal first half. Non-political advertising revenues grew 6% in the second quarter and 4% in the first six months of fiscal '08. Looking more closely at advertising, the categories of professional services, furnishing and entertainment were particularly strong. They account for nearly 25% of total broadcasting revenue. In addition to political, weaker categories included movies and automotive, which was down 4% as growth in import advertising partially offset the decline in domestic automotive spending. Among second quarter highlight, broadcasting continued to strengthen its news position in the November rating book. Our CBS affiliate in Hartford and our Fox affiliate in Portland, Oregon were both the top-rated station across all time periods. Additionally, our Fox affiliates in Greenville, Las Vegas and Portland posted strong growth in morning news, which is the fastest-growing day-part in terms of viewers and ad revenues. Morning news now accounts for one-third of news revenue across the broadcasting group, up from about 25% three years ago. Broadcasting online revenues rose 50%. The number of average unique visitors rose six fold to 3 million per month reflecting our ongoing investments in technology, contents, promotion and sales in related activities. The number of video streamed on our broadcasting sites nearly doubled to 1.5 million per month. Better, our daily lifestyle television program that runs across our station group and is in syndication to three non-Meredith stations is off to a strong start. If one is time period in Hartford and has strong ratings in both Greenville and Portland, content from the Better show is also available online at www.better.tv and parents.tv, Meredith broadband video channel. Last month, Meredith parenthood content launched across Comcast cable systems on a new video-on-demand channel branded Parents TV that reaches more than 12 million households. Meredith and Comcast share in the advertising revenue. Turning now to full Company financial metrics, our total debt at the end of the quarter was $420 million and our weighted average interest rate was 5%. As I noted earlier, we generated more than $40 million in free cash flow in the quarter. We repurchased approximately 490 million [ph] shares. We repurchased 1.4 million shares in the first half of fiscal 2008, compared to 1.1 million shares in all of fiscal 2007. We've repurchased an additional 200,000 shares since the end of the fiscal second quarter. As a result, to date in fiscal '08, we repurchased approximately 1.6 million shares. Additionally, during the second quarter, we reduced our debt by $40 million. Our overall effective tax rate for fiscal 2008 is expected to be 38.9% with some quarter-to-quarter variance due to the adoption of FIN 48. We expect our effective tax rate in the third and fourth quarters of fiscal '08 to be 36.6% and 39.3% respectively. With that review of our business operation, let's turn to our expectation for the fiscal third quarter and full fiscal 2008. At this early point in the year, the outlook for advertising in calendar 2008 remains unclear for both of our major businesses. Advertisers continue to make decisions later resulting in uneven spending patterns and continued period-to-period volatility. In publishing, after an extremely strong calendar 2007 where our advertising revenues grew 8% calendar 2008 is off to slower start, whereas continued strong growth at our industry leading parenthood titles, but our women service field titles are down in early calendar 2008. Over the past five years, our publishing advertising revenues have grown in the low-to-mid single digit range on average. We see no reason to believe that this trend will change as we look to the future. In broadcasting, local advertising, which accounts for almost two-thirds of the group’s non-political ad revenue remain strong. However, national advertising is not as robust. The real wildcard at this point is the timing and amount of early political advertising. In addition, we continue to absorb an annualized postal rate increase of more than $13 million in our fiscal 2008. For the fiscal third quarter, Publishing advertising revenues and Broadcasting pacings are currently down slightly compared to the prior year quarter. We expect to report earnings per share of approximately $0.98 in the third quarter of fiscal 2008. We continue to expect full-year fiscal 2008 earnings per share to range from $3.50 to $3.55. This guidance is consistent with what we have provided since the beginning of the fiscal year. A number of uncertainties remain that may affect our outlook as stated in the press release for our results in the third quarter and the full fiscal year. These include overall advertising volatility, the performance of the company's retail businesses, the amount of political advertising revenues generated at the company's broadcast television station and paper prices and postal rates. These and other uncertainties are referenced under the Safe Harbor and in certain of our company’s SEC filings. To conclude this morning, I am very pleased to report another strong quarter and first half for our shareholders. As we look ahead, we continue to focus on five key areas. Strengthening and growing our publishing business and brands, strengthening our retail operations, integrating and expanding our custom marketing capabilities, maximizing the margin opportunity in our broadcasting business and expanding our online and video platforms. In addition, we continue to exercise disciplined expense management across the enterprise. Now we'll be happy to answer any questions that you might have this morning. Question and Answer

[Operator Instructions]. Your first question comes from the line of Barton Crockett from JP Morgan. Please go ahead.

Okay. Great. Thank you for taking the question. I wanted to ask two questions. One, on the maintenance of your full year guidance, despite ramping up kind of recession fears in the markets and despite kind of weakish ad environment in the March quarter. What kind of ad assumptions are going into that $3.53 or $3.55 guidance? And do you have any visibility into anything going into the June quarter or is it really just too early for that? Thanks.

Barton, hi this is Steve. Thank you very much for your questions. I'm going to start a bit in reverse. We really have very little visibility into the last fiscal quarter. We are in the process now and have not yet closed the April issues of the magazine, then that would be the third set of issues for our third quarter. And that's... that we're in the process of, but obviously we have a sense of the full [ph] quarter results and so that's where the guidance comes from for the third quarter. And on the broadcasting side, obviously we watch as you know pacing every week and we have about 70% of the revenue booked for the quarter, which is not that different than where we are on the magazine side with the April issues yet to go. And obviously on the broadcast side, there's always the opportunity for cancellations and that sort of thing, although we have not experienced a great deal of that. On the flip side, we continue to get help in delivering our results from our custom marketing operation and of course the interactive businesses really across the group and then as we head not into the fourth quarter but into next fiscal year, we'll get some help from the new licensing activities. And so that's really kind of where we are from an overall point of view from an advertising and a full year guidance.

Okay. Well if I can just try and parse out a little bit more precisely, I mean do you have any sense of by month within the March-ending quarter, it looked like the February dated issues were maybe a bit weaker than your full quarter guidance. Do you have any sense of things improving as you go over the next couple of series of magazines?

Well, once again we are in the process of closing the April issues and Suku can give you some data I believe on what we have to date if you’ve got February and March handy?

Yeah. February is down in the mid single and March is [inaudible]. And in the broadcasting side, the... January was down in the low single, February was down in the highs... running down in the high single and March is earning up low single. And that collectively gets us down in the low single digits with our guidance.

So to be clear, I heard you that March is a bit of a rebound on the magazine side up mid singles is what you are saying?

Yeah, thus far.

Okay. All right. I will leave it there. Thanks a lot.

Okay. Thanks Barton.

Your next question comes from the line of Karl Choi from Merrill Lynch. Please go ahead.

Hi, good morning. Just drill down a little bit deeper on the cost side, is anything unusual that we should be aware of, shift of timing of direct marketing campaign or eliminating the book losses and/or just in general, sort of what do you think sort of how the major component should do in the next couple of quarters in terms of cost?

I will start with that. There isn't anything Karl, any shift or anything from a consumer marketing point of view. We're continuing to execute our campaigns just as we had planned and budgeted. That is still very important from maintenance of the rate basis and the very, very high quality circulation without relying on agent sources. We have experienced in the fall a paper price increase and there is discussion of another one, which for us would be in February although not resolved at this point and I think as everyone knows the way our paper contracts work is that they reset quarterly and our prices are the results of the negotiation of the five largest customers of each of our paper suppliers. And so, that really kind of remain to be seen. But nothing really else on the cost side that I would say is material and I will ask Suku if he would add anything to that.

Sure. Karl for modeling purposes, if you look at the various segments, for Publishing the cost story for the back half of the year would be low to mid single digits up, Broadcasting would be up in the mid-single digits and for modeling purposes Corporate would run between $6.5 million and $7 million each quarter. [inaudible].

Yeah, that is very helpful.

Okay.

Just a couple more questions. Second question is your full-year guidance, just want to clarify, does that include the $0.02 contribution from discontinued operations in the quarter or that does not?

No, it does not.

Karl it does not, okay.

Okay. And lastly, postal spending, how was it coming along so far and, for example, in South Carolina have you been... or did you manage to benefit from the raises there?

It's really very small thus far, but I'd ask Paul if you want to add any color to what you are hearing from the GMs on political at this point?

Yeah, virtually every day, particularly in those Super Tuesday states, Arizona, Georgia, we are starting to see more significant dollars come in. Unfortunately, with South Carolina there just hasn't been enough time and the time between when they finished in Iowa, New Hampshire to South Carolina didn't allow us to really capitalize on our presence in South Carolina. But we've been seeing some money in Arizona that that's been there for a few weeks now and we just started to see some money in Georgia. So, we think the Super Tuesday states will start to see a little bit more activity.

Great. Thank you.

Your next question comes from the line of Catriona Fallon from Citi. Please go ahead.

Hi. Good morning. It’s Catriona Fallon from Citi.

How are you?

Great. How are you doing?

Just fine.

Great. Great. I thought maybe I'd dig into the margins just a bit. Suku, you've said previously that publishing over time could get back to kind of a 19.5% to 20% EBITDA margin?

Yes.

And you've thought that perhaps that could happen in '08. Are your thoughts different now or do you think still that we might be able to get back to kind of a... that kind of level by '08 or are we thinking more by '09?

No I think that… I think the... generally speaking we speak about the operating profit margin.

Yeah.

As opposed to EBITDA in Publishing. And I think somewhere in that 18% plus range is the right operating profit margin to look at for this year.

And there is only about a point different, Catriona, between operating and EBITDA in Publishing.

You are right. In Publishing...

You don't have as many non-cash...

Not too much in ’08 guidance.

Right. Right. Okay. Great. And then the same then kind of on... sorry then EBITDA margin for broadcasting then 35%, 36%?

Yes, 35% and change is probably a reasonable EBITDA margin for the full fiscal year.

Okay. Great. Okay. And then if I could ask kind of just a big picture question. I mean, you've lived through downturns before and you've lived through kind of the whole Internet boom bust. I'm just wondering how does this anticipated recession compared to what we saw last time. And how might... how might advertising dollars in circulation be affected kind of in your view this time around with a recession?

I really appreciate the fact that you asked that question because we have been through a number of these ups and downs over time and I'll kind of start with a little bit in reverse. At the time of the last major Internet boom, we were very, very focused on doing things that created over the long haul a profitable business and we did not become too exuberant about what was going on in that space when actually we got a lot of pressure to spin our Internet activities out and do all kinds of things that I would call financial engineering. And as a result of that when the Internet went bust, we in fact continued on our strategy and now thank goodness have created a quite large business and it actually operates with one of the highest operating margins we have in the company, really save our individual broadcast television station. From an advertising point of view, obviously, if I was smart enough to really predict where all that was headed, I might be doing something else for living. But our philosophy is very, very simple that we are not really in a position, Catriona, to make a market. But in fact, we have consistently, in both of our businesses, outperformed the market. And if you study as an example in magazine advertising, our results for calendar 2007, we paced a couple of points ahead of what the industry did and what was a really strong and robust environment. And we would plan to and continue to deliver performances better than the marketplace in a less robust environment. And that's really the way that for long many years we've run this business. We will be exceedingly transparent with the Street about what we understand is going on in the markets and generally if you track our performance, we'll outperform. And that's a long-standing philosophy that I can't claim credit for, but the current management team embraces.

Okay. And then just one last question on circulation. I mean, you mentioned that circulation was down due to the switch towards the direct-to-publisher model. And I assume that some of the decline in circulation is also due to the fact that we have discontinued operations. But I am wondering how much of that has already worked through the model and how should we be thinking about the circulation number this year versus last year?

Well, as we mentioned, we focus mostly on circulation contribution and circulation profit, which was up in the quarter. And we probably have in terms of the revenue and a transitional point of view because we're finding the opportunity really to increase the direct-to-publisher component of the acquired titles more than we had anticipated. That will run out probably for another year in terms of the transition to the direct-to-publisher from agent sources. But it continues to be a very profitable part of our enterprise and once again that's a long-standing philosophy.

Okay, so, essentially the circulation number will come down, but the contribution from that circulation is expected to increase?

Yes, that's correct.

Great, thank you.

Your next question comes from the line of Paul Ginocchio from Deutsche Bank. Please go ahead.

Yes, thank you. Just a couple of questions. First is, Suku or Steve, what does your guidance assume about the three titles that were lost from the Wal-Mart racks? And then second, I know you’ve talked a little about what’s the outlook for '08. Is there anything particularly that advertisers are saying particularly some of your bigger advertisers, your bigger categories, they have made any comments positively or negatively that you felt are material? And then again let's go back to that cost question. This does seem like your, in the current quarter, your cost trends are going to significantly improve, is there anything... am I reading that wrong or is there something else we should be picking up from sort of the trends from first half to the second half? Thanks.

And are you, in your last question, when you talked about cost trends, are you referring to the upcoming Q3?

Correct.

Okay, all right. Jack, I'm going to ask you to provide an update on the Wal-Mart situation to answer the first question.

I will be happy to do that. My sense is that what you're probably referring to Paul is a report in the New York Post last weak. They talked about Wal-Mart's activities in the newsstands single copy sales arena. And what I can tell you is that as it... as that article pertains to Meredith the information is not accurate. We have a very strong partnership with Wal-Mart, particularly with Better Homes and Gardens. Two companies, we share the same customer for all intents and purposes and Better Homes and Gardens, as you know has a big new relationship with Wal-Mart in the home arena and we expect sales of Better Homes and Gardens magazine in fact to increase and the merchandising of it to be more pervasive around the store and we are working on that with Wal-Mart. So, we don't expect... if you go into Wal-Mart today you'll find our magazines sold and we expect that to continue and we expect the Better Homes and Gardens relationship to become much more substantial as we develop this partnership.

Yes [inaudible] that you did mention Ladies' Home Journal and Fitness?

Paul, if you go into Wal-Mart today you will find Ladies' Home Journal and Fitness in the store.

Okay.

And we expect that to continue.

Great. Thank you.

Okay.

Jack, I am going to ask you to continue because you really haven't had the opportunity to provide on the call your thoughts about '08 advertising and you might speak a bit in your own way to how you see the issues pacing from a monthly point of view and then I'll ask Paul to give his color on advertising as well.

Sure, and I would like to do that with reference back to what Barton was inquiring about and try to provide some... a little bit more precision around it as it relates to Meredith's third fiscal quarter which are February, March and April issues. As Steve has said, we are still working on the April issue and they are disproportionate share of the quarter. So, our guidance in terms of being down low single digits in revenue is a function of the April performance, which is still being finalized. However, you all have had access to page... public page information with respect to our February issue, down about 7%. When you see the March numbers, you will see them down in pages a bit more than 7%. What you won't see in any of the public data is the very strong performance that we are achieving on the pricing side. And you only see that when we talk about revenue and when you look at pages for March, the revenue decline will be not nearly as significant as the paging decline. So, as we... and I think what you will see in April but you won't see that for another month or six weeks is pages will probably be down a little bit, not quite as much as March, but again what you won't see is that pricing will be very strong. So, we will have a quarter in magazines where the revenue will be down slightly we expect, pages will be down more in the 6% to 7% range. So, you can just do the math and figure out what we're doing on the pricing front and delivering margin contribution from the net of the activity. We're seeing particularly good performance in the quarter, the third fiscal quarter in the Parenthood category. Steve made reference to this in his remarks about Parents and its leadership position and the quarter performance for Parents, which is from a revenue and profit standpoint our second most important title very, very strong. And Steve also made reference to our strong performance in the area of integrated and cross platform sales with corporate sales in Meredith 360 and our Interactive and Digital offering. So, we have a lot of confidence that in the current environment, we're doing everything possible to deliver strong financial results for the Magazine Group and for Meredith overall. Our performance in '07 as Steve said out delivered the market. And our emphasis and focus on the women's platform and creation of content for advertisers, we think in this market is a terrific combination, and I think you'll see it in the results for the quarter. As we look to the fourth fiscal quarter, there's very little visibility. And what we know so far from third quarter activity is the food categories continue to be very strong for us. Retail is strong, even though it's not that big a category for us. As you might expect we're seeing some weaknesses is in direct-to-consumers pharmaceutical in the New Year, and all you have to do is read the newspapers to see what kind of challenges the big pharmaceutical companies are encountering. And the Home category is weak as well and that's something that obliviously makes sense relative to the macroeconomic environment.

And I think, Jack's comment just to interject here for a second on the strong paging, answers a portion of the question on the cost side because obviously, we don't space off pages that we don't need to print. And that's very... there is nothing as powerful the magazine business as pricing up.

So, Barton are you clear on what I said with respect to trending the quarter?

He's not on Jack at the moment.

Okay.

But I think it's very clear. And Paul, why don't you add your sense from an advertising point?

Okay. Very quickly, what we're seeing is in our third fiscal quarter, March has certainly come out as the strongest month of the three. And we're looking at that thinking that that still has some upside potential. As Jack indicated, visibility for our fourth fiscal is still very, very tough to register. However, what the positives that we're seeing is that, automotive while it's down a little bit, down a tick is being offset by the stronger import market. So, in total, automotive which as you know is a very big category for us, I think it's going to be fine in the fourth quarter. So, we're still, I guess the wildcard that we've talked about is where political will end up for this year. And we're still not quite sure how these races will develop, how strong the Super Tuesday event will be and then following Super Tuesday what the impact will be as we go into next year. So, we're still cautiously optimistic as we always are with political. And as I indicated before, we are starting to see money come into some of our stations that have greater upside opportunity like Phoenix and Atlanta.

Paul, does that answer your question?

I guess the final question, I think Publishing revenue or Publishing costs which have been running up sort of 6%, the first quarter; 2%, the second, are going to be roughly flattish in the third, just wondering if there is anything to read into that or where are you getting the better cost trends in the third quarter relative to the first half?

Paul.

For the back half that will be, I'm talking about the full six months, that will be up low to mid single digits in Publishing.

Okay. It just seems that's a better trend the first half, is there anything we should... what's the difference?

For the first half paper prices were down slightly from the first half of the year and subscription, acquisition costs were down, of course we also, on a comparable basis did have the booked bankruptcy charge last year. So those were kind of the three main things in the first half of the... in the second quarter rather.

Okay, guys. I will follow up with you, Suku. Thanks.

Okay.

Your next question comes from the line of Ed Atorino from Benchmark.

Hi, good morning.

Hi, Ed.

Could you sort of breakout if you look at the Publishing business and where the Integrated Marketing is, sort of what percent of Publishing is Integrated Marketing and if you took that number could you sort of divide it into traditional and new media? And where is... Books still in that group or has it been moved from a reporting point of view somewhere else since you are reorganizing and exactly what's the future of your book business?

While they are digging out the answer to your first question, let me speak about the book activity and then I'm going to ask Jack to speak a little bit more from a strategic point of view. But there… it hasn't been anywhere, Ed, it's being reported in fact where it always was.

Okay.

And what we have really found happen over time, especially as certain of the retail outlets become more challenged is that we have to be very, very strategic with the quantity and of course the quality of the product that we put into the marketplace. And in some cases I feel that we probably cannibalized ourselves by some of the product that was created almost in some ways by having two retail operations that may have in fact in certain circumstances competed with themselves and actually called on the same retailers. So, that really is the reason for putting this together and Jack maybe you can talk a bit about some of the benefits that we see as this plays out. But once again, Ed, there is no change in what is being reported.

Okay.

Ed, the Integrated Marketing business is about 12% of the business in the second quarter on a revenue standpoint as compared to 8% a year-ago. And keeping in mind that as Steve pointed out earlier, we had growth both in the legacy business and of course then you have the four acquisitions.

And what about new media? Do you break out sort of new media or is that sort of the amulet [ph] so to speak?

Are you talking about the new...

Oh, I see. You are talking about the acquisitions?

Yeah.

Yeah, okay.

And is there... are there any licensing revenues in there yet?

No.

No.

No, not in Integrated Marketing. We have licensing in the other category but in Integrated Marketing there are separate components of other.

Gotcha.

The numbers I gave you don’t include licensing.

Okay.

Then if you take a look at the legacy Integrated Marketing business, what we used to refer to as the custom publishing business.

Right.

There would be about two-thirds and the new businesses would be about one-third.

And what would licensing have been? Since we are breaking out numbers here.

Our licensing is currently about $15 million business, on an annualized basis there.

And that’s…. so the traditional new media in licensing. So you can sort of have three lines, is that correct?

Well, in the other category we would have booked, we would have Integrated Marketing which includes the legacy and the olden online businesses, and when I say online, we're talking about the acquisitions.

Got you.

It does not include interactive media, which would be up above in advertising.

Okay. Thanks much.

And we have licensing and a proved advantage in a few other ancillary businesses in the other category.

Thanks much.

Okay.

Your next question comes from the line of Michael Meltz from Bear Stearns. Please go ahead. Michael Meltz - Bear, Stearns & Co.: Hi, thank you. I think I have three questions to wrap it up here, on... Suku, you almost got there on M&A contribution in the quarter from Genex and those things, what was the revenue contribution in the December quarter please? And then I have two follow-ups.

Okay. The revenue contribution was just north of $8 million in the quarter. Michael Meltz - Bear, Stearns & Co.: Okay.

And the operating profit contribution was about $2 million, Michael, and that's in the quarter. Michael Meltz - Bear, Stearns & Co.: Okay. Steve, your initial comment on local versus national TV, the pacings, I hear what you're saying, but the pacings do seem a bit weak in this March quarter. What was the variance between local and national in the December quarter?

Hold on just a second. Local was up 9% and national was down a buck in the mid-single digits. Michael Meltz - Bear, Stearns & Co.: That's on the whole or is that...?

That is non-political only Michael. Michael Meltz - Bear, Stearns & Co.: Okay. Okay. And then what you're seeing in the March quarter can you clarify that a bit?

I may have to call you back on that, let me see if we have the local national breakdowns handy. I beg your pardon we do, yes,... okay, local in the March quarter both of them are down slightly. Michael Meltz - Bear, Stearns & Co.: Okay. And you have the Super Bowl comp, right?

Yes, that is correct, this year it's FOX and then it was CBS last year. Michael Meltz - Bear, Stearns & Co.: Okay.

We had more... we had a bigger play in that last year because of our CBS rights.

Yes, I guess I would add that we have more CBS stations and the CBS contribution to the Super Bowl was bigger than the FOX contribution would be. Michael Meltz - Bear, Stearns & Co.: I circle in up for you there.

Thank you. Michael Meltz - Bear, Stearns & Co.: One last question, just so I understand your guidance, I think Karl or Barton asked on this before, your corporate expense number looks… seems like you've tightened things up there, you've been aggressive it sounds less far on buyback. You've already told us what you're thinking on margins for the full year, are you... does your guidance imply magazine ad revenues are going to get better in the June quarter, better than down 1% to 2% or whatever your guidance is implying for the March quarter?

I think there is really two variables that's at play there that make it difficult, Michael, for me to answer that as crisply as I would like. We've got two paper price increase opportunities and of course an awful lot of advertising to sell. So we do hold variation of calculation sort of high, low and midpoint between those factors and of course they are against very, very big numbers. Then we sort of net out and that's how we really come up with that range. I guess, what I would say is that we are not anticipating that advertising revenue would look like it did in the fourth calendar quarter for magazine or anything like that. But it's somewhere in the range of what we are experiencing now, up a little, down a little. I mean that depends on how aggressive the paper prices are. And when that all comes together then we will end up, we believe somewhere within that range. And that's really the best we can do at this point in time. Michael Meltz - Bear, Stearns & Co.: Okay. And sorry, a last question from me. What was paper pricing… paper price was up in the quarter. I am sorry Suku, if you already said that.

They were down in the low-to-mid single digit in the quarter, Michael. Michael Meltz - Bear, Stearns & Co.: Prices were down low-to-mid?

Year-over-year, Michael.

Year-over-year. Michael Meltz - Bear, Stearns & Co.: What were costs?

The mid... yes, that's right. Yes. Michael Meltz - Bear, Stearns & Co.: And Suku what does that mean for paper cost for you?

What do you mean, Michael, by paper cost? Michael Meltz - Bear, Stearns & Co.: That's prices, I am wondering your usage, what was your expense from paper?

The expense for paper was down slightly. Michael Meltz - Bear, Stearns & Co.: Okay. All right, that's helpful.

What we... to be very clear on this, what we were saying about that earlier is that as a result of the increase that we received in the fall, which was about a 6% increase. We know that they will be up some in the back half of the year. The question then is what happens in February and what happens in May in terms of the order of magnitude. Michael Meltz - Bear, Stearns & Co.: I think you'd be happy with 6%. No comment there?

You know it's always interesting in terms of what's proposed and what actually sticks [ph] and sometimes, I am surprised in both directions. Michael Meltz - Bear, Stearns & Co.: Fair enough. Thank you Steve, have a good day.

Thank you.

And you have a follow-up from Barton Crockett. Please go ahead.

Okay, great, thanks. I don't want to belabor the magazine stuff along we have some questions offline. I did want to ask about the Wal-Mart licensing relationship, if you just give us an update on where you are in the process there and if you have any incremental or new information on in terms of what to think in terms of the P&L and revenue impact? Thanks.

At this point in time, and then I am going to ask Jack to add in here, we really don't still know exactly what months it will go live next year and exactly how many SKUs and how it will build and that's really what is causing us not to be able to be more firm about the favorable impact in '09. I can tell you that the activities to get ready for the fall launch are in full boom, but the calculation still is a little ways off. And Jack anything you would like to add to that would be great.

Sure, Steve. Steve was referencing the activities to get ready for the launch, Wal-Mart has assigned a full team to this. And our team is working assiduously with the Wal-Mart team on designs and layouts and merchandising plans and product selection and how we are going to source. And we believe, as Wal-Mart does, that this opportunity has enormous potential. And we are thinking hundreds of SKUs to launch that the number isn't precise yet. But as you know, we've had a thriving relationship with Wal-Mart in the gardening category. And when this program launches sometime in late calendar 2008, you will walk into a Wal-Mart store and the presence the Better Homes and Gardens from the products in the home area to products in the gardening area to the magazine being merchandised around the store, Better Homes and Gardens, you'll know that Better Homes and Gardens is an important component of Wal-Mart's consumer strategy.

Okay. That's great, helpful. Thank you.

You have a follow-up from Ed Atorino. Please go ahead.

Hi, in view of the share buyback, will there be much of a change in the shares outstanding for the next couple of quarters?

No, Ed, I think...

Okay.

Yeah, not really because I think when we get [inaudible].

Got you. Thanks a lot.

Okay. Thank you Ed.

And at this time, there are no further questions.

Thank you for all participating this morning and for your questions and inputs, which we appreciate a great deal. And as always, Suku and his team are available for any follow-on questions that are needed. Thank you very much.

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