Slide 1
Bill Kerr
Good morning. Welcome to our annual investor conference. We look forward to this opportunity to share some insight on Meredith and the value we offer investors as we begin fiscal 2006.
Let me introduce my Meredith colleagues with us today:
Steve Lacy, President and Chief Operating Officer
Jack Griffin, President of our Publishing Group
Paul Karpowicz, President of our Broadcasting Group
Suku Radia, Chief Financial Officer
Jim Jacobson, Director of Investor Relations
Slide 2
This presentation contains forward-looking statements. I won't read the text of this slide, but it is important to remind you there are a number of factors that may affect our business and results.
This presentation includes references to non-GAAP financial measures such as EBITDA. Financial statements and tables that reconcile GAAP results and non-GAAP measures are posted on our web site.
Slide 3
This slide highlights today's agenda. I will kick it off by reviewing the current business environment for each of our business groups and our overall strategic view. Then Steve will discuss our operating strategies in more detail. Jack will present Publishing, focusing in particular on the integration of our new magazines.
We'll take a ten minute break.
When we return, Paul will present Broadcasting and Suku will provide a financial recap, including our current outlook. We'll conclude our formal presentation and then open the floor to questions.
While we have prepared remarks, our real purpose today is to take questions from you. Please feel free to jump in at any time with questions. We want to keep this meeting informal. I know you are not a bashful group.
One housekeeping item--restrooms are in the main hallway with the ladies room on this side of the reception area and the men's room on the other side.
Slide 4
Fiscal 2005 was an outstanding year for Meredith. We produced the best earnings in our 103-year history, growing earnings per share 25 percent.
Both of our operating units continued to improve their margins. Publishing's operating profit margin rose to 19.2 percent from 18.1 percent. Broadcasting's EBITDA margin increased to 35.2 percent from 31.8 percent.
On July 1, 2005, we completed our most significant Publishing transaction in our 103-year history. This acquisition is a major opportunity for us and we are highly confident in our ability to integrate the new titles and improve their financial performance.
Additionally, we expanded our consumer reach, extended our marketing services and book capabilities and grew audience share at our television stations.
All of these actions enhance our ability to sustain strong earnings growth in the long run.
Slide 5
We are off to a strong start to fiscal 2006, despite it being a non-political year.
In Publishing, advertising revenues are expected to grow in the low-to-mid single digits in our first fiscal quarter. We have seen strength in the food, pharmaceutical, cosmetics and direct response categories.
The acquisition ofParents,Child,Fitness,Family Circle andSer Padres is a major opportunity for us. The early stages of integration are proceeding well. Jack will provide you some color on this during his remarks.
We expect our book and integrated marketing operations to continue to perform well, helping to continue to diversify our Publishing business beyond magazine advertising and circulation. As a reminder, books produced record operating profit in fiscal 2005 and integrated marketing increased profit more than 40 percent.
In Broadcasting, first quarter pacings are down slightly. Our pacings reflect the absence of political advertising, continued weakness in national advertising, offset by strength in local advertising. National advertising has been particularly weak at all broadcasters.
We face the challenge of replacing significant political advertising revenues. We generated $6.4 million and $12.2 million in political advertising, respectively, in the first and second quarters of fiscal 2005.
Slide 6
Putting all of this together:
For the first quarter, we believe the current First Call mean estimate of $0.51 per share is achievable. In the first quarter of fiscal 2006, we earned $0.46 per share.
At this time it is premature to modify the full year outlook. Let me reiterate the outlook we provided on our conference call in late July. We expect earnings per share to approximate $2.80 in fiscal 2006. We will comment further when we release first quarter results in late October.
Slide 7
One of the key issues on which we are focused is to continue our strong growth and momentum.
We believe that traditional advertising will likely track GDP. This growth by itself will not fuel the long-term earnings objectives that we have set forth. We believe that we will grow earnings per share in the high teens in political years and in the low double digits in non-political years.
Consequently, our strategies and key initiatives are focused on ensuring we maintain our momentum and continue our superior growth.
Slide 8
Our strategies to achieve this growth are very straightforward.
We will work to aggressively take a disproportionate share in our core businesses.
We will serve new markets.
We will serve our markets through additional means.
Let me provide more detail beginning with Publishing.
Slide 9
Here is a good look at our Publishing businesses and customer reach in 2002.
We had developedBetter Homes and Gardens into a very strong brand, expanding beyond the magazine to special interest publications, books, the Internet and through licensing arrangements.
We also had a strong presence in the home category withCountry Home,Traditional Home andMidwest Living,and with women throughLadies' Home Journal andMore.
Slide 10
This slide highlights how we have expanded our Publishing footprint during the past three years. We have significantly increased our reach to new customers and through additional mediums.
The acquisitions ofAmerican Baby,Parents,Child,Fitness,Family Circle andSer Padres has established Meredith as a powerhouse serving women at major life stages through multiple means.
In addition, we have
Extended theBetter Homes and Gardens brand through several licensing deals (1. China 2. Home Interiors for a line of home décor products 3. Roman Inc. for a line of holiday decorations 4. QF Industries for a line of home décor fabrics)
Furthered our editorial reach through our Cornerstone and market-specific programs in our television markets and a syndication deal with The New York Times
Established an early leadership position serving Hispanic women throughSer Padres, theAmerican BabyHispanic publications and the launch ofSiempre Mujer.
ExtendedMore magazine through theMore Model Search and theMore Marathon.
Beyond our magazines, we have extended our Publishing footprint as well:
Our book operation has licensing arrangements with many leading companies, brands and personalities including Ortho, Scott's, Miracle Gro, DC Comics, Marvel, Discovery Communications, Trading Spaces, HGTV and the Food Network, Sandra Lee, Leeza Gibbons, Paige Davis and Lynette Jennings.
.Integrated marketing has extended its services and added key talent. We'll talk more about this in a moment.
Slide 11
As a result, we have expanded our reach. We serve 64 million women readers with our core magazines and special interest publications. We added 11 million women readers with the newly acquired magazines.
We have established a leading presence in the rapidly growing Hispanic market with an annual reach to approximately 5 million adult Hispanic women in the U.S.
We have also expanded our reach to capture more of the $6 billion marketing services market and $2 billion children's book market.
We are very excited to build on this expanded footprint and will continue to look for additional avenues to extend our reach and drive future growth.
Slide 12
Now, let's look at Broadcasting. In 2002, we served our markets primarily with traditional advertising. Our Cornerstone programs were in their infancy.
Slide 13
In the past three years, we have significantly expanded our reach and service offerings.
Our Cornerstone, Internet and other market-specific programs have grown from virtually nothing to more than $36 million. This is the equivalent of adding another television station.
We have established a news culture and increased the number of news hours dramatically. As a result, we have increased ratings and audience share significantly. On average we increased the audience share for our late news 35 percent in our eight largest markets, comparing the May 2005 ratings book with May 2002.
We have added new stations intelligently. We formed a duopoly in Portland. We entered into a joint sales agreement with the WB affiliate in Kansas City, which complements our CBS station. In Saginaw, which is not a growth market, we added an AM radio station to leverage our market-leading television news. We started a new CBS affiliate in Springfield, which has been profitable from the first month.
As a result of these activities, our Broadcasting Group has increased its EBITDA margin from approximately 23 percent in fiscal 2002 to more than 35 percent in fiscal 2005. We will continue to improve audience share, focusing on local news and creating new revenue streams.
Slide 14
Before I turn it to Steve, let me remind you that we believe our stock is undervalued. This slide highlights the forward PE and EBITDA multiple for our stock as of the beginning of September dating back to 2002. As you can see, we are currently trading at the lowest multiple and at a significant discount to our average valuation during this time period.
Recent broadcasting transactions at 15-16 multiples underscore this undervaluation.
Not only do we recognize the value in our shares, but we have acted on this belief. In fiscal 2005, we repurchased approximately 1.96 million shares as part of our repurchase plan, compared with 750,000 in all of fiscal 2004.We have continued the share repurchase activity into the current fiscal year.
Now, Steve will discuss our operating strategies in more detail.
Slide 15
Steve Lacy
Thanks, Bill. It is a pleasure to see all of you today and I welcome you.
As you know , we operate two business groups, each serving a different audience. Publishing--through our magazines, custom publications and web sites--has a national focus, while Broadcasting serves local markets.
Both groups, however, provide consumers with valuable information and our marketing partners with efficient means to reach consumers.
Slide 16
As a company, we possess some important strengths.
InBetter Homes and Gardens,Ladies' Home Journal,Family Circle andParents, we have four of the most recognized brands in the industry. Many of our other titles have tremendous potential, especiallyMore,American Baby andFitness.
We are the leading magazine publisher serving women in the United States and have expanded our strong footprint in the home and family market. We can deliver our expert content across a wide range of platforms--magazines, books, special interest publications, web sites and custom marketing programs.
We have expanded our marketing services to capture more corporate marketing dollars and help our clients reach their target audiences more effectively.
Our 80-million name database is a vital component of our long-term direct-to-publisher circulation model. It is also a valuable asset in our marketing services business; we are beginning to monetize that asset.
We have a great collection of local television stations, largely in growth markets.
We possess one of, if not the strongest management teams in the media industry.
Slide 17
Here is a look at Publishing's growth strategies.
We're going to spend most of our time today discussing how we have broadened our magazine portfolio and grown our non-magazine operations.
Slide 18
These are Broadcasting's growth strategies.
We have made significant progress in the turnaround of our broadcasting operations and are on track to achieve our 40 percent EBITDA margin objective.
Paul will discuss our action plans to capture the tremendous upside in our top three markets--Atlanta, Phoenix and Portland.
Slide 19
Let met start with a review of the overall strategy for our recent acquisition ofParents,Child,Fitness,Family Circle andSer Padres. This transaction is our most significant Publishing acquisition in our 103-year history.
As we have discussed on numerous occasions, one of our growth strategies has been to broaden our magazine portfolio to reach younger women and the rapidly growing Hispanic market. This slide shows that our traditional portfolio was primarily focused on women age 40 and over.
About 36 to 48 months ago, we identified a target list of magazines that would broaden our portfolio to reach women at earlier life stages. Titles focused on health, parenting and personal development were high on our priority list.
Slide 20
In December 2002, we added the American Baby Group, which gave us an anchor at the younger end of the spectrum.American Baby serves about 2 million expecting and new mothers each year, of which about half are first-time mothers. Most of those women are not ready for our traditional titles.
American Baby was a great acquisition and we felt comfortable pursuing the strategy of further filling the gap.
Slide 21
On July 1, 2005, we completed the acquisition ofParents,Child,Fitness, Family Circle andSer Padres magazines for $350 million.
Now, we are in a position to offer advertisers the ability to reach women at major life stages, from expecting and new mothers to empty nesters. Our expanded portfolio provides unparalleled understanding into the power and influence of women in today's marketplace. This knowledge will be critical for us as we execute new programs for our marketing partners.
Slide 22
There are a number of reasons we are excited about the acquisition.
It increases our reach and scale.
It furthers our strategy to reach younger women.
It strengthens our core and targeted advertising categories.
It adds to our Hispanic operations.
It extends our retail presence, adding approximately 250,000 newsstand pockets.Family Circle has an extensive retail presence. We now have over 1 million checkout pockets across the country.
It will be accretive to earnings.
Jack will provide more details about the operational and integration aspects of this acquisition. Let me provide some color around the financial impact.
Slide 23
As we said when we announced the deal, we expect the transaction will increase the Publishing Group's revenues by approximately $300 million to more than $1.2 billion and to generate EBITDA in the low-to-mid $30 million range in fiscal 2006. We anticipate it will be modestly accretive to earnings.
From a quarterly perspective, these titles will have quite a bit of bounce due to frequency, seasonality and circulation investment. For example, our current expectation is some accretion in the first quarter followed by some dilution in the second quarter.
The new magazines have significant profit improvement potential. Looking to the intermediate term (3 years), we believe that we can improve the operating profit margin of the new titles as a group to the mid teens. This is comparable to the rest of our magazines withoutBetter Homes and Gardens.The precise timing will be dependent on how quickly we can improve the circulation dynamics of the magazines.
Overall, these titles will benefit from Meredith's proven editorial, circulation, sales, database and brand-building expertise. We have the unique skills and resources needed--particularly in the circulation area--to help the magazines reach their potential.
Now, I'll turn it to Jack to discuss the Publishing Group.
Slide 24
Jack Griffin
Thanks Steve. It's great to have this opportunity to discuss Meredith Publishing.
As Steve said, the acquisition increases our reach, particularly to younger women; strengthens our advertising categories, adds to our Hispanic operations, and extends our retail presence.
I'll start with a brief review of these benefits and then I'll discuss the integration of the new magazines.
Slide 25
Our titles now have a combined circulation approaching 30 million, making us the second-largest magazine publisher in the United States. Meredith is the leading women's magazine publisher, speaking to more than 75 million women.
Slide 26
Beyond the strategic implication of broadening our portfolio, having a strong presence with younger women is important because many advertisers focus on reaching younger readers.
This graph highlights our magazines that are targeted to younger women (age 25-39). As you can see over the last five years, advertising revenues in these magazines has grown at a faster rate than the overall magazine industry growth of 6 percent.
Slide 27
The acquisition furthers our strategy to serve the rapidly growing Hispanic market.Parents' Spanish-language title,Ser Padres is an established publication with a distribution of 500,000. Combined withAmerican Baby's Hispanic titles andSiempre Mujer, our new women's lifestyle magazine, Meredith is the leading magazine company serving Hispanic women.
On an annual basis, we reach 5 million adult Hispanic women; that's more than one-third of the market.
We address every key stage of a woman's life, delivering information Hispanic women need to navigate their world--in their language and of cultural relevance.
Slide 28
Broadly speaking, we were fully aware of some weaknesses that had contributed to the deterioration of the performance of these titles. These magazines are well-known brands, but they had experienced some weakness recently, primarily due to leadership and circulation issues, which impacted advertising sales. Our action plan to improve and enhance our new titles in is full swing. We are focused on four specific areas:
First, we are conducting extensive reader research to improve and fine tune the content.
Second, we are implementing strategies to regain more than our fair share of advertising dollars.
Third, we are taking short and long-term actions to build stronger circulation.
Fourth, we are creating a superior leadership team.
Now, let's take a closer look at the specific action plan.
Slide 29
In the two and a half months that we have owned the magazines, we have improved the leadership, replacing three publishers and one editor-in-chief. We've overhauled our group sales function, adding a new VP as well as a new marketing director for the Meredith Publishing Group.
We also have taken swift action to restore credibility with advertisers. We met with most of the top advertising clients, explaining the benefits of the new Meredith magazine portfolio. The response from our clients has been very positive.
Before I discuss our longer-term actions, let me mention something that you may have seen in the press. As you know, ABC has disallowed subscriptions from certain agent sources. From our diligence, we knew Gruner + Jahr had done business with these agents in the past, and for the most part, had stopped using this type of agent source. As a result of the recent ABC ruling,Parents,ChildandFamily Circle will miss rate base according to the ABC audits for the first and second half of calendar 2004--a period when they were owned by G+J.
These actions do not impact Meredith's core titles. Gruner + Jahr is responsible to the advertisers for rebates. We have not included orders from these agents in our paid circulation. These actions will not impact Meredith going forward.
Over a longer-term
We will transition the circulation of the new titles to our direct-to-publisher model, which has proven to be very effective in generating highly-profitable circulation. This move also enhances our credibility with advertisers and is very similar to the actions we took when we acquiredLadies' Home Journal in the mid 1980s.
We are improving advertising sales by continuing to listen to clients and creating strong packages that leverage our leading presence in the parenthood and women's service field.
We are conducting consumer research to understand the readers' viewpoint of the new titles and refresh the editorial content accordingly.
These challenges are being overcome and they are clearly within our core competencies
Now, let's take a look at the specifics of the three largest titles,Family Circle,Parents andFitness.
Slide 30
Here is our action plan forFamily Circle:
With regard to personnel, we have changed leadership. We replaced the editor-in-chief and the publisher. In particular, Jim Carr was named publisher. He had been the publisher ofMidwest Living for the past four years, a period of tremendous growth. Ad pages, per PIB, grew 42 and we increased the rate base 14 percent.
In terms of editorial, we are taking a fresh look at the magazine by conducting consumer research to measure where the brand stands with consumers and then begin to introduce a more contemporary design and layout. At this early stage, we believe there is opportunity to leverage the focus on family and food.
With respect to sales, we are creating advertising bundles that combineFamily Circle withBetter Homes and Gardens andLadies' Home Journal. We will be very disciplined with our pricing strategy to realize acceptable yields.
Turning to circulation, we have lowered the rate base to 3.8 million. This move enhances circulation profitability and is not related to ABC's actions. Our decision reflects the rate base at which we believe we can optimize the magazine's circulation contribution.
In terms of marketing and research, we are conducting research to determine a baseline of the current status of the brand in the eyes of advertisers and consumers. Once we know these results, we will reposition the brand to both advertisers and consumers.
And now, let's look atParents.
Slide 31
In terms of people, we have a strong leadership team in place. Sally Lee has been the editor-in-chief for 6 years and Jan Studin has been the magazine's publisher for the past three years. Both are strong and experienced magazine leaders.
From an editorial perspective, the magazine is well-edited and well-positioned. We are using the magazine's strong editorial to help support circulation initiatives.
In terms of sales, we are working closely withAmerican Baby andChildto form the strongest parenthood group in the industry. We plan to work closely withBetter Homes,Ladies' Home Journal andFamily Circle as well to capitalize on women's service-related opportunities.
On the circulation front, we are leveraging theAmerican Baby file. We are testing various subscription and renewal offers and will adjust accordingly. We have no reason to change the rate base of this title.
From a marketing and research perspective, we will capitalize onParents' leadership position and develop the brand into the nextBetter Homes and Gardens.
Slide 32
Here is the action plan forFitness.
From a personnel perspective, we have named one of our rising stars, Lauren Buerger, as publisher. She had been Associate Publisher ofMore magazine, leading its sales performance to record heights.
From an editorial standpoint, we retained a top-flight editorial consultant and will position the magazine distinctively in the marketplace.
From a circulation perspective, we are developing direct-to-publisher sources and building the magazine's newsstand presence. We do not see a need to change the rate base of the title.
Looking at sales and advertising, rebuilding the advertising base and establishing acceptable pricing are the critical tasks for calendar 2006.Fitness will finish calendar 2005 with approximately 750 ad pages. With our sales expertise, we know we can improve the advertising performance of a a monthly magazine with the fundamentals ofFitness. It will take some time, but doing so will pay handsome dividends in both financial performance and from a strategic perspective.
Slide 33
To recap, we're dealing with some strong, established brands, that were neglected for a variety of reasons. We have taken immediate action to improve the leadership and restore credibility with advertisers.
Over the long-term, we will leverage our circulation, sales, database and editorial expertise to grow these businesses. I am confident that we will restore the performance at each title.
Slide 34
Now, let's look at our interactive media operations.
Revenues from interactive operations increased more than 30 percent in fiscal 2005 and we generated profit contribution as well.
We realize nearly 100 million page views per month across our sites and a generate nearly one million magazine subscription orders each year through the Internet.
We believe there is significant growth potential here as consumer acceptance and marketing budgets shift to interactive over time.
Slide 35
As Bill and Steve mentioned earlier, creating new revenue streams is an important growth strategy. In addition to our powerful magazines, we operate businesses that generate revenues from sources other than advertising or circulation.
Our book and integrated marketing businesses have grown rapidly in recent years, helping to diversify our Publishing revenues beyond magazine advertising and circulation.
As this graph highlights, the percent of total Publishing revenues from sources other than advertising or circulation has increased from 20 percent in fiscal 2002 to 26 percent in fiscal 2005.
Slide 36
Meredith Integrated Marketing produced strong revenue and profit growth in fiscal 2005. Larger programs included established business with DIRECTV, Chrysler and Carnival Cruise Lines, as well as newer programs for Nestlé and Hyundai.
As Steve said, we expanded our offerings in fiscal 2005, which I will explain in more detail momentarily.
Let me mention two new business wins that will enhance integrated marketing's ability to continue its strong growth.
We recently won additional business from Procter & Gamble. We were awarded Direct Marketing Agency of Record for P&G's North American Scale Marketing Group. We will now be responsible for the strategic development and creative execution of multi-brand, targeted customer relationship management efforts to a number of high-value consumer segments. Previously, our integrated marketing group was creating content for the Hispanic consumer segment.
Integrated Marketing also won new business with PepsiCo to support the beverage company's North American customer communications with the Hispanic market.
Slide 37
And now, let me explain the expansion in our offerings, which enhance our ability to capture more corporate marketing dollars. Historically, integrated marketing primarily provided delivery of custom publishing programs designed to increase brand loyalty. These were mostly printed materials.
We have expanded our offerings, becoming more active in the front-end design and planning of strategic customer relationship management services and marketing programs. We have also broadened our capability to deliver the programs through the Internet, direct mail and e-mail, along with loyalty magazines. We are "delivery agnostic."
In addition, we continue to leverage our database expertise and our 80-million name database to provide data management and program evaluation services.
Our comprehensive custom marketing program for Hyundai is an excellent example our ability to provide all of these service. For other clients, such as Procter and Gamble, Nestlé and Carnival Cruise Lines, we are providing broader services than traditional loyalty publications.
We are very focused on expanding our capabilities in these areas. About six months ago we hired Wendy Riches as Executive Vice President of Meredith Integrated Marketing. She had worked as a consultant and played a key role in establishing the Hyundai relationship. Prior to that, She was executive creative director and managing director of Ogilvy & Mather Direct and president, chairman and CEO of Ogilvy One North America. She has also served as president of e-commerce for Hasbro and a director of the Direct Marketing Association.
Slide 38
Meredith Books produced record operating profit in fiscal 2005.
As Bill said, serving new markets is important. Our book business expanded significantly into the children's marketplace in fiscal 2005, publishing more than 60 children's books compared with less than 10 in the prior year.
Looking forward, the pipeline remains strong for the first half of fiscal 2006. We expect several cooking titles to be top sellers. In particular, we will publish a limited edition "Pink-Plaid"Better Homes and Gardens New Cook Book that will support the Susan G. Komen Breast Cancer Foundation; three titles based on the popular Food Network host, Sandra Lee; andToday's Kitchen Cookbook, which includes top chefs featured on theToday show.
Let me discuss the cross-platform promotion activities that we are executing to increase the sell through of key books at retail. We are promoting our books in our magazines, special interest publications, television stations, web sites and events. For example the Today show cook book will be featured with editorial content in the October issue ofLadies' Home Journal,two special interest publications, the November issue ofTraditional Home and the December issue ofParents. We also are hosting a launch party tomorrow night with the Today show staff.
We are levering our assets to support the Pink Plaid Cook Book and the Sandra Lee's books in a similar manner as well.
In summary, our Publishing Group has been performing well and is in solid shape. We will continue our momentum by growing our current businesses, integrating our new magazines to serve younger readers and the Hispanic market, expanding our brand franchises and growing our non-magazine businesses.
Now, we'll take a ten minute break before Paul presents Broadcasting.
Slide 39
Steve Lacy
We'll resume with a discussion of Broadcasting.
Let me introduce Paul Karpowicz. For those of you who do not know him, Paul joined Meredith in mid-February as President of the Broadcasting Group. He has worked in television broadcasting his entire career. Prior to joining Meredith, he was Vice President and Director with LIN Television, where he oversaw LIN's 23 properties in 14 markets. He is a strong addition to our management team.
Paul Karpowicz
Thanks, Steve. I'm really excited to have the opportunity of meeting all of you and to discuss Meredith Broadcasting.
Slide 40
We have a great collection of broadcasting assets. Here is a map of the Meredith Broadcasting Group. We own or operate
6 CBS affiliates
4 FOX
2 WB
1 NBC, and UPN affiliate
Eight of our stations are in the country's top 35 markets. Las Vegas is 48th in terms of population and is number 28 in terms of revenue. In total, our group reaches nearly 10 percent of all U.S. households.
Slide 41
The majority of our stations are in fast-growing markets. This chart highlights the compound annual growth rate of population for each of our markets compared with the U.S. average. As you can see, most of our markets have grown faster than the national average over this time.
Slide 42
We remain on track to achieve our 40 percent EBITDA margin objective. We have produced strong improvement in recent years. In fiscal 2002, we were an underperformer with an EBITDA margin of 23 percent. We ended fiscal 2005 above 35 percent.
Fiscal 2006 is a non-political year and we do not expect meaningful margin improvement this year. We expect to produce a 40 percent EBITDA margin on a sustainable basis beginning in fiscal 2007.
Slide 43
As we move forward, our strategies will not change dramatically.
We will continue to improve our news ratings and grow audience share.
We will add newscasts intelligently in certain markets and work aggressively to monetize our ratings growth.
In particular, we will focus on our top three markets--Atlanta, Phoenix and Portland.
Additionally, we will take a more aggressive approach to the Internet to create sales opportunities on the web. As Bill said, serving our markets through additional means is important. The Internet is a key component to diversify our revenues beyond traditional advertising.
Slide 44
Improving our newscast ratings and audience share is vital to the growth of our Broadcasting Group. We have produced strong gains at most of our stations. This slide highlights the audience share of our late news, comparing the May 2005 book with May 2002 in our eight largest markets.
Let me share a few highlights from the May 2005 book for late news the key adult 25-54 demographic group:
In Atlanta and Phoenix--our two largest markets--we grew audience share 40 and 29 percent, respectively, compared with the prior year.
In Kansas City, KCTV grew share 42 percent.
In Greenville, our FOX station grew share nearly 60 percent.
In Phoenix, KPTV, our FOX affiliate, continues to produce strong news ratings. On many nights, the station is the number one primetime newscast in the country and its morning news consistently beats the Today Show and Good Morning America.
Slide 45
While some broadcasters are cutting back on their local news, we have expanded our news presence significantly. We have gone from about 150 hours per week in 1998 to approximately 250 hours currently. We expect to be at 310 hours in early 2006.
We will add news this year in markets and time periods that will improve the respective station's bottom line. For example
In Portland, we are looking at several options to build upon our strong morning and late news. I'll provide more detail in a few minutes.
In Greenville, we are considering adding morning news.
In Springfield and Bend we will launch local news.
News contributes 35 to 40 percent of a station's revenue and is the most profitable part of the business. It also allows us to reduce our dependence on syndicated programming and further reduce our film costs. News is what distinguishes broadcasters in the local markets. No one else can produce daily news with a local focus and combine video and audio. If there is a big, local story, radio and cable can not cover it as well as we can.
Slide 46
As you saw on the last two slides, we have made great strides improving our local news presence. However, as you can see here, we have a tremendous amount of upside yet to capture.
This slide highlights our sign-on to sign-off audience share in our eight largest markets. As you can see, we were number one or two in only four markets in the May book.
The real growth potential is in our top three markets. In Atlanta and Phoenix in particular, we are underperforming compared with a typical CBS affiliate. I'll discuss each of these markets in more detail in a few moments.
Slide 47
Improving ratings and audience share is important, but only if you monetize the ratings. This graph highlights our spot advertising growth compared with the industry average since the start of calendar 2003.
We have done an impressive job of growing the top line. Meredith Broadcasting has outpaced the industry average in 16 of the last 18 quarters, as reported by TVB.
Over the past three years, we have grown revenues more than any other publicly-traded broadcaster.
Slide 48
While we have done an impressive job outpacing the industry, we can do better.
One of the most important action steps that I have taken has been to initiate quarterly revenue entitlement meetings. I meet with each station's general manager, general sales manager, and national and local sales managers. We thoroughly review each station's past results and future expectations. These meetings create accountability for sales results. The objective of these meetings is to ensure each station's revenue share is equal to, or exceeds its audience share.
One of the particular topics on which we focus is generating new business, or revenue from businesses that have never spent advertising dollars on television. In each of our markets, there are hundreds of local businesses that have not advertised on television. Our goal is to understand these businesses and develop plans utilizing TV advertising to help these companies grow.
I have conducted these types of meetings throughout my career and I know they result in significant revenue improvement over time. In the first two sets of meetings at Meredith, we have measured the success of each station and developed plans to improve underperformers. I am confident these meetings will be very effective at Meredith.
Slide 49
Today, I will focus on our three largest markets and help you understand what we are doing to capture the significant upside potential of these markets. I'll start with our action plan for Atlanta.
We will continue to improve our late news, focusing on the fundamentals to give viewers what they want in a late local newscast.
From a sales perspective, we want to emphasize new business--revenue from those advertisers who have never spent dollars on television. In fiscal 2005, approximately 9 percent of the station's revenues were from new business. We can improve this performance.
We want to take advantage of the market improvement and regain national advertisers. We are one of the lowest-rated stations in the market. When times are tight, national advertisers cancel lower-rated stations. As the market improves, we want to be the first to be added back to the advertising schedules. We are seeing this effect. Overall, our Atlanta station is performing better than the Meredith Group in terms of national advertising.
We want to strengthen our Internet and web presence. Recently, our station in Atlanta introduced a new service that allows viewers to get news, weather, sports, finance and other important information on their mobile devices. The service has been well received with 20,000 hits in the first week alone. A local car dealer bought the exclusive ad package.
We are looking to get the best economic deal for a show to fill the 7:30 p.m. primetime lead-in for the fall of 2006.
We also will leverage the CBS primetime and sports programming as a promotional platform to attract viewers. In particular, we must make the most of the local interest in the University of Georgia and the Southeastern Conference football games this fall. For example, we will air post game shows when practical.
Slide 50
In Phoenix, we have made great strides in our late news. As I showed you a few slides ago, we have improved the audience share for late news 50 percent in the last three years.
Future growth will result from continuing to improve ratings and our ability to monetize the ratings. In particular, we will focus on our late news first, primetime programming second, early news third and then our morning news.
From a sales perspective, we want to focus on new business as well. In fiscal 2005, about 7 percent of our revenues were from new business. We have tremendous potential for improvement.
Much of the national business for our station in Phoenix comes from Los Angeles. In the past, we went after that business mostly over the phone. Now, we have our National Sales Manager in Los Angeles at least every other week to meet with our representative and advertisers directly.
We are looking to purchase a cost-effective 4 p.m. show. We must also leverage the CBS primetime lineup and our popular news anchor.
Slide 51
I am very proud of our news success in Portland. We have one of the highest rated late newscasts in the market and country.
Going forward, we must maintain our strong ratings for our newscasts. We are also looking at several day-parts in which to expand news. In particular, we plan to begin newscasts in the next few months on weekend mornings and from 9 to 10 a.m. on weekdays.
From a sales perspective, our first priority is to hire a strong, sales-oriented General Manager who can lead the sales team and grow revenues significantly.
We have also added a three-person team whose sole job is to find new business. Our Hartford station has done this with great success and we believe this focus on new business development is a wise investment.
Looking at programming, we are considering transitioning our FOX affiliate's access programming to first run so that we will not compete for programming with our UPN affiliate.
Slide 52
Meredith Broadcasting has been very successful adding new revenue streams. Our Cornerstone programs are unique and differentiate Meredith from other television broadcasters. We leverage our publishing brands by packaging content from our magazines with print ads from local advertisers. The result is a customized mini-magazine delivered to targeted customers in our local television markets.
Revenues from the Cornerstones, additional market-specific promotions, and Internet sales increased from about $3 million in fiscal 2001 to more than $36 million in fiscal 2005.
Going forward, we will be much more aggressive in developing compelling content for our web sites and creating sales opportunities for our clients as well. For example, all the stations have sold a desktop weather product that users can download onto their computer to receive up-to-the-second weather information. The weather application is branded with our station's logo and includes sponsorships from local advertisers.
To conclude the Broadcasting section, let me reiterate that we have a great collection of assets with upside potential. We will continue to focus on improving our news products, growing our audience share and monetizing our ratings. I am confident that we will achieve our margin objective.
Now, I'll turn it to Suku for a financial recap and our outlook.
Slide 53
Suku Radia
Thanks, Paul. It is great seeing all of you and we appreciate your attendance.
We are committed to building shareholder value and will return excess cash to our shareholders when appropriate. We have a strong track record of paying dividends and repurchasing our shares.
Slide 54
We have paid a dividend for 58 consecutive years. As you can see from this graph, we have increased the dividend for 12 consecutive years, growing the dividend at an 11 percent compound annual growth rate.
Earlier this year, we raised our quarterly dividend 17 percent, which was on top of a 26 percent increase in the prior year.
Traditionally, the Board has set the dividend at its January meeting. We expect to continue at a dividend payout ratio of 20 to 25 percent.
Slide 55
This chart highlights the cumulative dollar amount of our shares that we have repurchased in the past six fiscal years. In fiscal 2005, we repurchased approximately 2 million of our shares, compared with about 750,000 in fiscal 2004.
At current levels we feel our stock is a value and we have repurchased more than 145,000 shares to date in fiscal 2006.
As you will see in a moment, we are very comfortably leveraged and will continue with our dividend and share buyback programs.
Slide 56
Currently, we have approximately $580 million in total debt, which is comprised of $475 million in private placement debt and $105 million outstanding on our asset-backed commercial paper facility and our bank revolver. As you can also see, we have locked in some favorable fixed rate financing.
This slide provides you a debt repayment schedule. We expect to be out of debt by July 1, 2010, but we hope several good acquisition opportunities present themselves before then.
Slide 57
Here is a look at our capital expenditures for the last four years. I will note that our digital build-out at our television stations is complete.
Going forward, you should expect maintenance capex in the mid $20 million range, mostly related to Broadcasting. Publishing requires little capital investment.
The only additional item to consider is the construction of a new television station in Hartford. We expect this investment to approximate a total of $22 million, which will fall in fiscal 2006 and 2007.
Slide 58
Now let me provide you with our current financial outlook.
For the first quarter of fiscal 2006, we believe the current First Call mean estimate of $0.51 per share is achievable. On a comparable basis, excluding the newly-acquired magazines, Publishing advertising revenues are anticipated to grow in the low-to-mid single digits. Total Publishing advertising revenues are expected to increase significantly primarily due to the addition of the new titles. Broadcast pacings, which are a snapshot in time and change frequently, are currently down slightly, primarily due to the absence of political advertising and continued weakness in national advertising, offset by strength in local advertising.
Let me reiterate the outlook we provided on our conference call in late July. We expect earnings per share to approximate $2.80 in fiscal 2006. We will comment further when we release first quarter results in late October. As Bill said, it is premature to modify the full year outlook.
Now, I'll turn it back to Bill for final comments.
Slide 59
Bill Kerr
To conclude, let me highlight the six key points to remember from our presentation today:
First, Meredith has a strong track record of earnings growth and cash flow generation.
Second, we believe our shares are undervalued and have been aggressively buying our stock.
Third, the acquisition ofParents,Child,Fitness,Family Circle andSer Padres is an important, strategic transaction that will help continue our strong growth and enhance shareholder value.
Fourth, our integrated marketing and book operations have grown rapidly in recent years, helping to diversify our revenue streams.
Fifth, Meredith Broadcasting remains on track to achieve its long-term 40 percent EBITDA margin objective.
Sixth, fiscal 2006 is a non-political year; we face significantly higher paper prices and postage rates, yet we anticipate earnings per share will increase in the low double digits, consistent with our long-term financial objectives for a non-political year.