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EXHIBIT 99.1
Dow Jones & Company
Fourth Quarter 2000 Earnings and 2001 Outlook
Conference Call Prepared Remarks
Thursday January 25, 2001
Conference Call Operator: "Welcome Ladies and Gentlemen to the Dow
Jones Fourth Quarter Earnings Conference Call. All participants are
currently in a listen-only mode. As a reminder, this call is being
recorded Thursday January 25, 2001. Let me introduce your host for
this call, Dow Jones' Vice President of Investor Relations, Jerry
Leshne."
Jerry Leshne: "Good morning. Welcome to this call and webcast at
dj.com. On our call today are Jerry Bailey, Chief Financial Officer;
Dick Tofel, Vice President of Corporate Communications; Ray
Baumkirchner, Vice President of Finance and Chris Vieth, Corporate
Controller.
"For your benefit, a transcript of today's prepared remarks will be on
our web site shortly after the conclusion of this call. Also, this
teleconference call will be available by replay starting at noon
Eastern Time today, and ending at 6 p.m. on January 30th. To access
audio replay, please call 402-220-9088. No pass code is needed.
Finally, should you have any questions after the call, please feel free
to telephone Investor Relations at 212-416-2679.
"As we begin our call, let me remind you that we will make certain
forward-looking statements in an effort to assist you in understanding
the company and its results, but our actual results may materially
differ from those presented here. Additional information concerning
risk factors that could cause such a difference can be found in the
Company's documents filed with the Securities & Exchange Commission
from time to time.
"Turning to our operating results for the fourth quarter.
"At $.83 per share before special items, results were in line with the
$.83-$.86 range indicated at the beginning of December. At a high
level, the quarter showed the effects of operating in a slowing, more
cautious economy, that contrasts with conditions a year ago. We think
that the quarter's operating results, in this new environment, also
speak to the abiding strength of our franchise, and continued solid
operating controls and disciplines. And nothing in the quarter should
obscure the fact that for the full year, comparable earnings per share
grew 36% on top of 27% growth in the prior year.
"It is now my pleasure to turn our call over to our CFO, Jerry Bailey."
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Jerry Bailey: "Thanks, Jerry.
"I will start with a somewhat briefer than usual review of the 4th
quarter, which will be followed by some detailed guidance on our
expectations for 2001. Before getting to 4th quarter operating
results, however, a few words on Bridge.
"You may note that our earnings release is labeled as preliminary. The
reason for that is because we are continuing to evaluate the accounting
and business aspects pertaining to our guarantee of payments from
Bridge to Cantor Fitzgerald in regard to Cantor data made available on
Telerate terminals. If we should conclude that a reserve is needed,
it would represent an additional one-time charge in the fourth quarter.
In order to reach a conclusion, we need to see what events transpire at
Bridge over the next several weeks. We should also note that we do
regard the underlying data that Bridge is receiving from Cantor as
having considerable value. Our write-off of our remaining investment
in Bridge is something we considered to be prudent in light of the
continued difficulties they have experienced.
"Moving on to 4th quarter operating results - operating EPS of $.83 in
the 4th quarter was down $.02 from the 4th quarter of 1999. The three
most significant factors that contributed to the net $.02 decline were:
- - 1st - Lower Print Publishing results, driven by the decline in
Journal linage, which hurt EPS by $.14
- - 2nd - Substantially improved results in Electronic Publishing
benefited EPS by $.05.
- - Finally, A significant reduction in Corporate Expenses benefited EPS
by $.06. This reduction was due to lower professional service fees and
reduced expense on our stock based incentive plans.
Moving on to operating results by segment (on pages 9 and 10 of the
press release).
Print publishing revenues of $379 million in the 4th quarter were down
3% from a year ago. This reflected a 6% decline in U.S. revenues,
partially offset by strong revenue growth in International print.
Wall Street Journal advertising linage for the quarter was down 9% on a
per issue basis, reflecting both the general economic uncertainty, and
the challenging comparisons to the 4th quarter of 1999, when linage was
up 36% per issue. For the quarter, general advertising linage was down
9%; financial linage was down 19%; and classified and other linage was
up 3%. The mix of advertising linage for the quarter was 64% general,
25% financial and 11% classified and other.
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December linage reflected our most challenging monthly comparison of
the year. We were up against a 52% increase a year ago and we had two
fewer issues this year. We also had to deal with a sharp fall-off in
tombstone/IPO and B to C "dot.com" advertising, and some slowing in
general corporate advertising symptomatic of the overall economy. As a
result, Journal linage was down 31% in December or 24% per issue.
In total - and one would adjust these numbers upward by about 7
percentage points for the per-issue comparison - but in total for the
month of December, the General category was down 32%, against a 44%
increase a year ago; Financial was down 40%, compared with a 98%
increase a year ago; while Classified and Other advertising was flat,
compared with a 16% increase in December of 1999. Technology linage in
December was down 35%, somewhat more than all other General categories
taken as a whole. Strength in computer software helped to offset
declines in other technology areas.
Getting back to the full fourth quarter numbers, in General linage the
biggest swing factors were no surprise: B to C and other consumer-
targeted e-commerce advertising. There was also a pullback in general
corporate advertising, as we experienced the effects of tighter
corporate expense budgets compared to a year ago.
Technology linage was up 9% in the quarter. Technology was 37% of
General and 23% of total linage. We are defining technology linage the
same way we did at this time last year, to include PC's and other
computer hardware, software, and B to B electronic commerce
advertising. This is a somewhat narrower definition than we actually
applied in the past two quarters, when other categories were
inadvertently included. These other categories represented
approximately 5% of total linage. Technology was up 77% for the full
year, and for the year, was 40% of General and 25% of Total linage. It
was our largest category in 2000.
Turning to the Financial category, the biggest driver of the 4th
quarter decline was tombstone/IPO linage, which was down 36%.
Excluding tombstone linage, Financial was down 11%. The growth in
Classified and other advertising was balanced across most categories.
One final point on linage - for the full year 2000, linage was up 14%,
with growth in all major categories and improved market share.
Turning to our International Print activities; advertising linage at
The Asian Wall Street Journal was up 16% per issue, on top of 13% per
issue a year ago. At The Wall Street Journal Europe, linage declined
1% per issue, against an increase of 43% per issue in the fourth
quarter of 1999. The strong growth a year ago was bolstered by the
Geneva Telecom show, which takes place once every four years, and
drives considerable advertising. The strength of the dollar against the
Euro also limited demand, from a competitive standpoint, as we bill
advertising in dollars.
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Our Print Publishing EBITDA margin declined to 28.1% for the quarter,
but still showed roughly 2.5% of margin improvement for the full year.
Excluding newsprint and AmericaEconomia (which was in the equity line
in 1999), Print Publishing expenses were down 1% for the quarter.
Total newsprint expense in the quarter (across both Print Publishing
and Community Newspapers) was up $6.6 million, or 16%. This reflects
higher average prices, offset by a 2% decline in volume. Average
newsprint cost per ton was $592 in the quarter, compared to $500 a year
ago. For the full year, average cost was $551 compared to $503.
Moving on to Electronic Publishing, the most relevant numbers to focus
on are the numbers at the bottom of page 9, which include our 50% share
of the Factiva joint venture. EBITDA of $18.5 million in the 4th
quarter more than tripled from a year ago. To be fair, we should note
that roughly 1/3 of the improvement in EBITDA reflected the sale of IDD
and migration of dowjones.com into work.com. We should also note
that, if one excludes IDD and dowjones.com from the 4th quarter of
1999, then total Electronic Publishing revenues in the 4th quarter of
2000 were up 15% from the prior year.
Dow Jones Newswires revenues for the quarter were $60 million, up 9%
from the 4th quarter of 1999, despite a one-time revenue pick-up of
$1.2 million in the year-ago period. North American revenues were up 8%
and International revenues grew by 20%. The rate of growth
internationally in this business increased every quarter in 2000, from
a decline in the first quarter to progressively higher rates of growth
in the second, third, and now the fourth quarter.
"Our 50% share of Factiva generated revenues of $31 million during the
4th quarter, up 9% from the 4th quarter of 1999. The growth came from
major new accounts, such as General Motors, Sprint and Proctor &
Gamble, and higher revenue from existing customers. Strength of the
U.S. dollar versus the British pound and Euro had a dampening effect on
reported revenue growth. At constant exchange rates, total revenues
would have grown 14%. Factiva was EBITDA positive for the quarter and
has now reached a sustainable break-even point at the operating income
line."
WSJ.com had revenues of $14 million in the quarter, up 27% from the 4th
quarter of 1999, reflecting balanced growth between advertising and
subscription revenues. The mix of advertising versus subscription
revenues for the quarter was 65% advertising - 35% subscription. The
number of subscribers at year-end was 535,000, compared to 500,000 at
September 30th. Average unique visitors per business day were 100,000
in the 4th quarter compared to 90,000 in the 3rd quarter, and page
views per unique visitor per month were 122, as compared to 149 in the
3rd quarter.
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Dow Jones Indexes revenues increased by 30% to $4.3 million in the 4th
quarter, helped by one-time revenue from a contract termination fee.
Normalized for this fee, Indexes revenues would have increased 12%.
Moving on to the equity lines (on page 8 of the press release). Equity
losses from Work.com, SmartMoney and Factiva were $4.7 million in the
4th quarter. Excluding Factiva, which we have already talked to in
segment results, the equity loss from Work.com and SmartMoney was $5.2
million, as compared to $2.0 million in the 4th quarter of 1999 (which
was prior to the creation of Work.com). The other equity investment
line, which is largely comprised of our interests in the Soucy
newsprint operation, CNBC in Asia and Europe, and our share of
Handelsblatt, improved from a loss of $4.3 million in the 4th quarter
of 1999 to a gain of $1.7 million this quarter.
Finally, turning to Community Newspapers, Ottaway had yet another
excellent quarter, with revenues up 5% to $93 million and an EBITDA
margin of 32.5% for the quarter. Advertising linage at Ottaway rose
0.5% for the quarter, with help from political advertising and an extra
Sunday in the quarter.
In summary, it is fair to say that our full year results demonstrate
continued progress in building The Wall Street Journal franchise, the
Dow Jones brand, and our company as a whole. We clearly found
ourselves operating in a more cautious environment toward the end of
the fourth quarter. This slower environment is still with us, which is
a good segue to a discussion of the forward outlook.
Given the current level of economic uncertainty, we would plan to share
with you two forward scenarios and provide an EPS estimate for both.
That will result in a wider band for our guidance than we would like,
but that's the reality right now.
Both of our scenarios assume no recession or major market collapse.
The difference between the two scenarios has to do with how long the
period of economic uncertainty lasts and how dramatic the recovery is.
In our favorable case scenario, we assume the uncertainty starts to
lift by the end of the first quarter and we achieve a fairly strong
recovery commencing toward the end of the second quarter. In the less
favorable case scenario, we assume the uncertainty persists through the
second quarter and the recovery is weaker. In both scenarios we are
assuming a constant level of international performance, driven off of
continued modest growth in Europe and Asia, excluding Japan. The more
favorable economic scenario is dampened somewhat by the assumption that
the $50 March 1 increase in newsprint prices sticks; the less favorable
economic scenario is ameliorated somewhat by the assumption that such a
price increase doesn't stick. Obviously, in either scenario, we face
tougher first half advertising comparisons. As an aside, on newsprint
prices, while we have used an all or none price increase assumption in
our two scenarios - in order to keep things simple - the most realistic
view right now would be that some level of price increase, but not the
full $50, will likely occur in both scenarios.
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We are continuing to target flat linage at The Wall Street Journal in
the more favorable scenario. We continue to view this as realistic,
even though January linage, on a per issue basis, will be down slightly
more than December - we will come back to that in a minute. In the
less favorable scenario we think full year linage could be down roughly
5%. We are using the same range for Barron's. At Ottaway Community
Newspapers the range is flat to down 3%. Electronic Publishing
revenues are obviously less sensitive to short-term economic changes so
we would see the revenue growth variance between the two scenarios as
being roughly 2%.
The headline is that, in the more favorable case scenario, that is
assuming flat linage at The Wall Street Journal, we would expect to
achieve mid single digit percentage EPS growth for the year. In the
less favorable case scenario, we would expect EPS to decline by mid
single digits. Before going any further, we would like to take a few
minutes to talk to the current advertising environment.
As noted earlier, we would expect January linage, on a per issue basis,
to be down slightly more than the 24% decline we saw in December. As
was the case in December, we face a very tough comparable; January 2000
linage was up 38% on a per issue basis; so while the decline may sound
bad, this would still be our second-best January ever.
In January of last year we were benefiting from a surge in
tombstone/IPO and B2C dotcom related advertising, which is what helped
produce the record result. This January, both of these categories have
essentially disappeared. To illustrate the impact, if we were to
adjust the prior year numbers to exclude the Tombstone and B2C
categories, then we would be down at a high single digit percentage
level.
The remaining high single digit decline reflects a pull back from some
of our technology advertisers and weakness in the domestic automobile
category. However, it's worth noting that most of our long-term
advertisers, including many in software, telecommunications and
financial services, have moved ahead with scheduled campaigns this
month. Consumer-category commitments in Weekend Journal have also
held up. In other words, we are not seeing the sort of across-the-
board continuing uncertainty or delay by advertisers that would signal
a sustained slide.
For the first quarter, our best estimate at this time would be that we
are down in a range of 15 to 20% in linage. Both ends of this range
assume no B2C and minimal IPO for the quarter and that we continue to
see some pullback from technology clients and the domestic auto sector.
The down 20% scenario assumes the uncertainty over the economy
continues and worsens a bit, causing advertisers to push spending to
later in the year.
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At Ottaway, we expect January linage to be down roughly 2.5%. The
economic slowdown is hurting auto and help wanted classified linage;
and retail display is continuing to feel the impact of store closings.
We also have one less Sunday edition this January. For the first
quarter, our best estimate at this time would be that we are down 1%
from last year.
Getting back to EPS growth; the key reasons why we are confident in our
ability to produce at least mid single digit growth in the more
favorable case scenario are:
1st - The advertising rate increase at The Wall Street Journal, which
will average around 5%, means that there will be some level of revenue
growth even on flat linage.
2nd -The fact that the business transition at Factiva is complete,
combined with the continued progress we are making at Newswires and
WSJ.com means we are very confident about producing double digit
revenue growth and enhanced margins across our Electronic Publishing
businesses in 2001; and
3rd - A significant reduction in equity losses and continued benefits
from share buyback. These two items alone will add 4.5% to our 2001
EPS growth rate. However, that benefit will be reduced to 3% due to an
increase in our tax rate, which we will come back to later.
Now, on to more detail, starting with revenues. Note that, with all of
this detail, we will be referencing the favorable case scenario; at the
end we will bridge the numbers back to the less favorable case.
1. Flat linage at The Wall Street Journal should translate into total
print publishing revenue growth of 4 to 5%, reflecting the rate
increase at The Wall Street Journal, some continued decline in
circulation revenues, and double digit International growth.
2. 4% revenue growth at Ottaway Community Newspapers and solid double-
digit growth in our Electronic Publishing revenues should lead to total
Dow Jones 2001 revenue growth of roughly 6%.
In terms of expenses, as noted earlier, in the favorable case scenario,
we are budgeting a further $50 increase in newsprint costs, effective
March 1, 2001, which would bring average 2001 costs to $637 per ton, as
compared to $551 per ton in 2000. In other words, assuming flat
linage, our newsprint expenses, which represent just over 10% of our
total cost base, will be up close to 17% this year.
Excluding newsprint, we will hold expense growth in our print
publishing and community newspaper businesses to under 5%. When
factoring in newsprint, this means we would be targeting margin levels
that are down marginally - by this we mean less then 1% in both
segments.
In Electronic Publishing, we would expect our full year 2001 margin,
including our share of Factiva, to be up roughly 2%, with a much higher
margin level in the 4th quarter of 2001 - but one that frankly does
leave us still short from our prior 27% target.
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There will also be some other areas contributing to EPS growth:
1. Excluding Factiva, we would expect our equity losses to be under $10
million next year, as compared to the full year 2000 loss of $22
million. This would reflect continued improvement in international TV
and Soucy, as well as substantial improvement at SmartMoney. That
pretax swing of at least $12 million will benefit our 2001 EPS growth
rate by 2.5%.
2. We would expect our continued share buyback program to lead to a
roughly 2% net decline in average diluted shares outstanding in 2001 as
compared to 2000, which is not far below the level of impact we saw in
2000. Our basic shares outstanding as of 12/31/00 were down to 86.8
million. That compares to 96.7 million at the end of 1997.
There will, however, be one area that hurts growth, which is a slightly
higher tax rate. This is due to a growing excess foreign tax credit
position resulting from the growth in our international activities.
What this means that we are not able to fully offset our foreign taxes
against our U.S. tax on foreign source income, which serves to push up
our consolidated tax rate. We are working on a solution, but the end
result is that we are budgeting under an assumption that our 2001 tax
rate will increase to 40%, from 39.2% in 2000. This .8% increase will
hurt 2001 EPS by just under 5 cents and our 2001 EPS growth rate by
1.5%.
One final point on the advertising environment: It is not out of the
question that the environment for all of 2001 turns out to be more
favorable than our favorable case. Conversely, the environment could
also be worse than our less favorable case. The two points here are:
1st, we clearly have more volatility in quarterly linage than was once
the case, but that is not a new theme; and 2nd, our bottom line
objective is to continue to build market share, whatever the
environment - which is also not a new theme.
Now, we would like to bridge everything we have said to the less
favorable case assumptions and then turn to expectations for the first
quarter. First of all, an updated rule of thumb - we had once said, at
least to some of you, that each 1% change in Journal linage, with
everything else constant, would impact EPS by roughly $.04. Due to
increased advertising rates, a higher base of advertising, and less
shares outstanding, that relationship is now $.05. In other words, a
5% swing in Journal linage, ignoring the impact of the related shift in
environment on other businesses, would be expected to impact EPS by
roughly $.25. A similar swing at Barron's, combined with a 3% swing at
Ottaway Community Newspapers, and a 2% reduction in our growth rate for
Electronic Publishing revenues would impact EPS by an additional $.15.
We then need to reduce all of this by a $.05 benefit from not
envisioning the newsprint price increase to stick in this scenario,
which produces a net delta off of the favorable case of $.35. That
delta would take us from a mid single digit increase in EPS to a mid
single digit decline - which range then represents the best guidance we
can provide you with at this point in the year and in an environment
that continues to have a lot of uncertainty.
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As noted earlier, we expect first quarter linage at The Wall Street
Journal to be down 15 to 20% and at Ottaway Community Newspapers to be
down roughly 1%. This would produce a first quarter EPS number of
between $.55 and $.61, which would be down roughly anywhere from 30 to
40% from the first quarter of 2000. While a 30 to 40% decline is
significant to make up, we do not view it as unrealistic to still
produce mid-single digit growth for the year, assuming the economic
uncertainty starts to lift by the end of the first quarter. You have
seen, over the last two years, the sort of linage and earnings growth
performance we can deliver in good environments.
You should also be assured that we are carefully managing what is an
already modest level of expense growth to gear as much of it as
possible for the second half, so as to preserve flexibility should the
first half environment be worse than either of our scenarios.
One final point on the forward outlook. One question that may be on
your minds is how could developments at Bridge affect the Dow Jones
Newswires business, and what impact would that have on the 2001 outlook
we have just talked to. First of all we should emphasize that, as with
other terminal vendors, for the most part, we directly bill the end
user customer for our services. Second, we have no reason to believe
that Bridge will be unable to serve its customers. However, should
such an unlikely case occur at some point, we would not see any long
term adverse impact on Dow Jones Newswires, but there would clearly be
some one time transitional impact. In addition to our direct customer
relationships, we also presently receive just under $3 million a
quarter in revenues directly from Bridge, related to wholesale
agreements. In the long term, if Bridge failed to perform under these
agreements, we would sell the news covered by these agreements directly
to the end users. In the near term though this would be another area
of transitional impact. The bottom line is that over any particular
12-month period, the aggregate transitional impact would mean that
instead of being able to target double-digit revenue growth, we would
have revenue growth at the mid-single digit rate. This has not been
factored into the guidance we have provided you.
Before we turn to questions, I simply can't finish without a few
comments on valuation, especially given that this is my last
opportunity to talk to my favorite subject.
- - Assuming mid single digit EPS growth in 2001, we would expect 2001
EBITDA to grow by roughly 5% to just under $650 million, off of a base
of $617 million this year.
- - Given our continued share buyback program, we would also expect basic
shares to be down to 84.5 million by the end of 2001. We use basic
shares for valuation analysis purposes, as we are quite confident that
our continued share buyback program will more than offset the dilutive
impact of employee option exercise.
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- - All of this means that, at $58 per share, we are trading at 7.5 times
our 2001 EBITDA, after also taking into account this year's share
buyback program. This also assumes no value is given to our various
equity investments, excluding Factiva. (Our share of Factiva is
already included in the EBITDA and other numbers we have already spoken
to).
- - As one looks at relative valuation, it is also important to recognize
our low level of debt, so if one is making the peer group comparison
one might want to first of all deduct net interest expense and then
look at the ratios or otherwise add debt into market cap.
- - On whichever basis you choose to use, we think our valuation is very
low, especially given the reacceleration in EPS growth that we expect
in the second half of this year, building further in 2002, as the color
print expansion project comes online, and as we achieve continued
success with building Electronic Publishing revenues and margins. As
one turns to 2002, also keep in mind that our capital expenditures will
decline significantly, meaning more cash available for our share
buyback program and other strategic investments. For 2001 we would
expect total capital expenditures of $200 million, including $65
million to complete the color print expansion program.
With that, we would welcome your questions.
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Information Relating To Forward-Looking Statements
These remarks contain forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from
those anticipated. Such risks and uncertainties include, but are not
limited to, the extent to which the company is called upon to perform
under the guarantee to Cantor Fitzgerald Securities and Market Data
Corporation, and the extent to which Bridge would perform under its
agreement to indemnify the company in that event; with respect to
Newswires, the extent and impact of delays and difficulties that would
be encountered in a migration process if Bridge was unable to serve its
customers; global business, economic and stock market conditions, and
the negative impact of economic downturns on advertising sales, in
particular, and on sales of the company's products and services; the
intense competition the company's products and services face in the
markets for financial news and information and advertising revenues
from newspapers, specialized magazines, free and paid Internet
publications and services, financial television programming and other
new media; economic conditions that are influencing the rate and volume
of advertising linage, in particular IPO and dotcom advertising, and
the resulting impact on the company's advertising revenues; the
company's ability to increase its circulation and advertising revenues
from its international print publications, given competition from local
publications and from other international publications; with respect to
Newswires, the rate of addition of new subscribers, particularly,
outside the U.S., and cancellations of Telerate and Bridge terminals;
the company's ability to achieve and maintain a diversified advertising
base for its print publications; increased competition in the market
for electronic business information and research services and Factiva's
ability to increase its market share and revenues in the face of
competition from local providers with more local content and from other
international providers; wsj.com's ability to increase its revenues in
light of its paid subscription model; the company's ability to leverage
its brands and develop new and enhanced "vertical" Internet sites and
to generate advertising and other revenues from these sites; the amount
of user traffic on the company's Internet sites and the pricing of
advertising on Internet sites generally; the difficult comparisons the
company will face in 2001 in light of the high level of advertising
sales revenue achieved at The Wall Street Journal in the past year; the
company's ability to manage expense growth; adverse developments
relating to the company's commitments, contingencies and equity
investments; potential delays in expanding the company's newspaper page
and color printing capacity; potential increased regulation of on-line
businesses; the cost of newsprint; and such other risk factors as may
have been or may be included from time to time in the company's reports
filed with the Securities and Exchange Commission.