Slide 1
Steve Lacy
Good morning. It is always a pleasure to present at this conference, especially in a warm climate; we thank Michael Meltz and Victor Miller for inviting us.
Joining me is Suku Radia, our Chief Financial Officer. I'll provide a brief overview and discuss Publishing. Suku will review Broadcasting, provide a financial recap and give you our current outlook. Then we will address your questions.
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
For those of you who may not be familiar with Meredith, we are America's leading home and family media and marketing company. We have served the needs of American families for more than 100 years through service journalism. We operate two business groups--Publishing and Broadcasting.
We are the leading magazine publisher for women, reaching more than 75 million unduplicated American women, most between the ages of 25-55. We have some of the country's most recognized media brands such asBetter Homes and Gardens,Ladies' Home Journal,More andAmerican Baby. On July 1, 2005, we completed our most significant publishing acquisition, addingParents,Family Circle,Fitness,ChildandSer Padres magazines.
In addition, we are the country's largest Hispanic publisher, serving one-third of all adult Hispanic women in the country.
We possess an 85-million name database that is the engine behind our profitable circulation operation and is now being utilized to benefit our marketing partners as well.
In addition to our 25 subscription magazines, we publish approximately 200 special interest publications, which are sold primarily at more than one million checkout pockets.
We operate highly successful diversified publishing businesses that generate revenue from sources other than traditional advertising or circulation. These operations have grown rapidly in recent years.
In Broadcasting, we own 14 television stations throughout the U.S. Nine of our stations are in the country's top 35 markets, most in growing markets. We reach approximately 10% of U.S. households.
Slide 4
We have produced outstanding earnings growth in recent years and we are off to a strong start in fiscal 2006
Slide 5
In the first six months, revenues grew 33 percent and earnings per share increased 12 percent.
These results include our newly acquired magazines. Even without these magazines, we delivered solid results. Strong profit growth from our book, integrated marketing and interactive media operations more than offset the absence of political advertising at our television stations. As you will hear, our core Broadcasting business has also delivered solid numbers.
This strong start positions us well to deliver record results for fiscal 2006.
Slide 6
Let me discuss how were are going to continue creating value in the future.
First, we will leverage our powerful magazine portfolio. We are the leading publisher serving American women whose interests are their homes, their families and their personal development. We remain focused to increase market share, grow advertising categories, improve circulation profitability, expand multi-platform and group sales opportunities, and extend our ability to serve younger women and the Hispanic market.
Second, we will capture the margin upside in the former Gruner + Jahr magazines and in our Broadcasting group. Each business has revenues in excess of $300 million and in a few minutes, we will discuss the margin upside in more detail.
Third, we will exploit our content across media platforms. Interactive Media grew revenues more than 80 percent in the first half of fiscal 2006. We'll discuss our plans to enhance our Internet capabilities and to develop video opportunities as well.
Fourth, we will continue to grow our diversified Publishing businesses. Books and Integrated Marketing have grown rapidly in recent years. We believe both have significant growth potential in the future.
Now, let 's discuss our two operating groups in more detail, starting with Publishing.
Slide 7
Here are Publishing's growth strategies.
Slide 8
We have demonstrated a strong track record of executing our Publishing growth strategies. This graph highlights the historic operating profit margin of our legacy businesses in recent years. As you can see, we have improved the margin more than a percentage point per year.
As you would expect, fiscal 2006 will be suppressed by the addition ofParents, Family Circle, Fitness, Child andSer Padres. However, these magazines hold significant profit improvement potential, which will lead to continued margin expansion in future years.
Slide 9
We continue to believe the new magazines will generate revenues in the low $300 million range and EBITDA in the low-to-mid $30 million range in fiscal 2006.
Looking to the intermediate term, we believe that we can improve the EBITDA margin to the mid-to-high teens. The precise timing will be dependent on how quickly we can improve the circulation dynamics of the new magazines. Overall, the improvements lie within our core competencies and we are confident in our ability to attain this higher profit margin over time.
Slide 10
Meredith's magazine portfolio has never been stronger. We reach 75 million women, serving them at every major life stage from expecting and new mothers to empty nesters.
We will continue to leverage our editorial, circulation, sales and database expertise to capitalize on this strong set of assets. In particular:
- We will employ our long-term direct-to-publisher circulation strategy to generate highly profitable circulation. We are transitioning the new magazines to this model as well.
- We will continue our focus to increase market share and net yield per advertising page, to expand advertising categories and to extend advertising across multiple properties through group sales.
Slide 11
This slide highlights a great example of our success expanding multi-platform and group sales opportunities. We recently won the entire calendar 2006 parenthood category advertising budget from Gerber.
The key elements of this program include:
- Advertising pages inParents,American Baby andChildmagazines
- Internet promotions and sponsorships on AmericanBaby.com, HealthyKids.com, Child.com and our new parenthood portal--Parents.com--as well as links to Gerber.com.
- Video sponsorship on AmericanBaby.com including a streaming video segments and video commercials
- Targeted sampling programs, and
- Video on demand sponsorships
Slide 12
We believe the Hispanic market represents a significant growth opportunity. According to the Selig Center for Economic Growth, the Hispanic market is projected to grow from approximately $700 billion in spending power in 2005 to nearly $1.1 trillion in 2010.
Meredith is the leading publisher serving Hispanic women, reaching one in every three adult Hispanic women in the country.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, we reach 5 million adult Hispanic women--or more than one-third of the market--on an annual basis.
In addition to our publications, we assist our marketing partners to reach Hispanic consumers through direct mail, events, sampling and custom marketing programs. We address every key stage of a woman's life, delivering information Hispanic women need in their language and of cultural relevance.
Building on this early leadership position is an important priority for Meredith Publishing, one which will be rewarded in future years.
Slide 13
Meredith Books has also grown rapidly in recent years by expanding its creation of Meredith-branded content, licensing popular brands, extending into the children's market and publishing quality home and family related books.
Here you can see the revenue growth for Meredith Books in recent years. The group produced record operating profit in fiscal 2005and continued its momentum in the first six months of fiscal 2006, growing revenues approximately 20 percent and delivering strong profit growth.
Slide 14
Meredith Integrated Marketing has grown rapidly in recent years as well, increasing revenues in excess of 45 percent per year over the time period shown. The business continued its strong performance in the first half of fiscal 2006, increasing profit 27 percent on 6 percent revenue growth.
Historically, Integrated Marketing primarily provided custom publishing programs designed to increase brand loyalty. These were mostly printed materials.
We have expanded our service offerings, becoming more active in the front-end design and planning of strategic customer relationship marketing services. We have also broadened our Internet marketing capabilities and our ability to deliver the programs through direct mail and e-mail, along with loyalty magazines.
In addition, we continue to leverage our database expertise and our 85-million name database to provide data management and program evaluation services.
We are very focused on expanding our capabilities in these areas through adding talent and pursuing strategic acquisitions.
In summary, Meredith Publishing is performing well. We continue our focus on executing our growth strategies of leveraging our powerful magazine portfolio, capturing the margin potential of the new magazines, and expanding our diversified businesses.
Now, Suku will cover Broadcasting.
Slide 15
Suku Radia
Thanks, Steve.
As a reminder, we have a great collection of broadcasting assets. Here is a map of the Meredith Broadcasting Group. We own
- 6 CBS affiliates
- 4 FOX
- 2 WB
- 1 NBC, and 1 UPN affiliate
As Steve said, nine of our stations are in the country's top 35 markets and Las Vegas, which is 48th in terms of population, is number 28 in terms of revenue. In total, our group reaches nearly 10 percent of all U.S. households.
The majority of our stations are in fast-growing markets. The population compound annual growth rate in four of our fastest-growing markets is shown in the lower left corner of the slide. As you can see, our largest markets are growing significantly faster than the U.S. national average.
Let me add a comment with respect to the recently enacted legislation regarding digital television. Our digital conversion is complete. We are currently broadcasting in digital at all of our stations except our two low power stations--Bend and Springfield. When we turn off our analog signal, our operations will not be impacted.
Slide 16
Here are Broadcasting's growth strategies. We remain very focused on achieving our 40 percent EBITDA margin objective through
- Improving and expanding news
- Monetizing our ratings and share growth
- Managing our costs and
- Growing revenues from our Cornerstones, Internet and local sales initiatives.
We are developing a video content archive that will exploit our expert editorial content and generate new revenues. I'll discuss this in a few minutes.
Slide 17
We have produced strong EBITDA margin improvement in recent years, growing from 23 percent in fiscal 2002 to 35 percent in fiscal 2005.
Fiscal 2006 is a non-political year and we realistically expect to hold the margin flat at approximately 35 percent, which we believe would be an outstanding achievement. Fiscal 2007 is a political year and we anticipate strong political advertising revenues, which will continue to move us toward our 40 percent margin objective.
Slide 18
We continue to place special emphasis on our stations in our three largest markets because this is where the largest upside lies.
We have done an excellent job of growing EBITDA in these markets. This slide highlights the growth of collective EBITDA indexed to fiscal 2003.
Slide 19
Improving our newscast ratings and audience share is vital to the continued 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 November 2005 book with November 2001 in our six largest markets.
Slide 20
Improving ratings and audience share is important, but only if we monetize the ratings growth. We have done an impressive job of growing the top line, outpacing the industry average in 18 of the last 20 quarters, as reported by the Television Bureau of Advertising.
This table highlights our non-political advertising revenue growth for the past two and a half years.
Slide 21
Meredith Broadcasting has been very successful creating new revenue streams. Our Cornerstone programs are unique and differentiate Meredith from other local television broadcasters. We leverage our publishing brands by packaging content from our magazines with print and on-air advertising from local advertisers.
Revenues from the Cornerstones, additional market-specific promotions, and Internet sales increased from about $5 million in fiscal 2002 to more than $36 million in fiscal 2005. In the first six months of fiscal 2006, revenues from these programs grew 6 percent to nearly $20 million.
Slide 22
Increasing profit at the Meredith Broadcasting group will be driven largely by revenue growth. However, we are managing operating expenses judiciously. Same-station operating costs have been virtually flat for the last three years.
We have lowered syndicated programming expenses and invested those savings in initiatives to improve our news and our sales activities to monetize the ratings growth.
To conclude Broadcasting, we have a great collection of assets with tremendous upside potential. We will continue to focus on improving our news, gaining audience share and monetizing our ratings gains.
With that review our two operating groups, let me discuss important Internet development initiatives that we are undertaking.
Slide 23
Internet advertising and e-commerce is a large and rapidly growing market. According to the Interactive Advertising Bureau, advertising expenditures are projected to grow from $7 billion in 2001 to nearly $18 billion in 2007.
Meredith is well positioned to take advantage of this rapid growth. Today we operate more than 30 web sties and realize nearly 100 million page views and more than 8 million unique visitors per month. Additionally, we generate more than 1 million magazine subscription orders annually.
Interactive media results have grown rapidly in recent years. This graph highlights annual revenues indexed to fiscal 2003. As you can see, we have grown revenues in excess of 40 percent per year over this time period.
The business continued its strong performance in the first six months of fiscal 2006--shown here on the right--growing revenues more than 80 percent.
We believe there is significant growth potential here as consumer acceptance and marketing budgets shift to interactive over time. We are investing in initiatives to increase traffic, advertising revenues and subscription sales.
Slide 24
We will enhance and expand theBetter Homes and Gardens web site. BHG.com is a very successful site, averaging nearly 60 million page views and nearly 5 million unique visitors per month. We will augment this site by
- adding daily programming
- enhancing the consumer experience with more robust reader feedback forums, blogs and portable content
- leveraging interactive tools such as the site's recipe center and color-a-room, and
- adding video content.
Slide 25
We are also developing a parenthood portal--Parents.com-- that will leverage the strengths of theAmerican Baby,Parents andChild brands.
American Baby has been an outstanding acquisition. Today, the American Baby Group reaches 95 percent of the new parent market through its monthly magazine, Hispanic and annual publications, events, sampling, direct marketing programs, custom publications, and its web site--AmericanBaby.com. The site averages 16 million page views and 1.1 million unique visitors per month. Currently,Parents andChildcurrently have a minor Internet presence.
The portal will contain broad, deep, expert content readily accessible by age-stages and easily personalized by parents.
We believe this portal will increase advertising revenue and enhance our ability to serve younger families, including Generation X and the older members of the millenial generation.
Slide 26
Video has become and integral part of the Internet.
We have developed a strategy to generate new revenues and assist our marketing partners to reach consumers through video. We will utilize our broadcast production capabilities to produce video products and repurpose content from our existing brands. Our ultimate objective is to create a video archive that can be distributed across a variety of media platforms including cable television, web sites, video on demand, cell phones, in store displays and custom DVDs.
Our initial investment will be minor and we will expand this activity as demand and profit grows.
Now, let me provide a financial recap and our current outlook.
Slide 27
We have paid a dividend for 59 consecutive years. As you can see from this graph, we have increased the dividend for 13 consecutive years, growing the dividend at an 11 percent compound annual growth rate.
In January 2006, we raised our quarterly dividend 14 percent, which was on top of a 17 percent increase in the prior year.
We expect to sustain a dividend payout ratio ranging from 20 to 25 percent.
Slide 28
This chart highlights the dollar amount of our shares that we have repurchased in the past four and one-half 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 good value and we have continued to repurchase our shares, buying approximately 785,000 shares to date in fiscal 2006.
Slide 29
With that review of our two businesses and some financial data, let me provide our current outlook.
For the third quarter, we expect Publishing advertising revenues to increase in the low single-digits on a comparable basis. Broadcast pacings, which are a snapshot in time and change frequently, are currently up in the mid single-digits for the third quarter.
Our policy is to update our earnings guidance on our earnings conference calls. The next call will be April 25th. For now, I'll reiterate the guidance that we provided on our last conference call.
We stated at the beginning of fiscal 2006 that we expected earnings per share to grow in the mid teens in the second half of fiscal 2006. We continue to believe earnings per share will grow at this level. This would translate into earnings per share of approximately $0.80 for the third quarter and approximately $2.86 for the full year, or a 14 percent increase from the $2.50 we earned in fiscal 2005.
Slide 30
In summary, Meredith is a strong media and marketing company. We possess a very powerful portfolio of magazines, books, custom marketing operations and television stations.
We are intently focused to capture the margin upside in our acquired magazines and our Broadcast business.
We are strengthening our Internet capabilities and developing video assets.
We have an outstanding track record of executing our growth strategies and I can assure you that our excellent workforce is working diligently to ensure that we continue our strong momentum.
Michael, we are happy to address any questions at this time.