EXHIBIT 99.1
Dow Jones & Company
First Quarter 2001 Earnings Conference Call
April 12, 2001
Conference Call Operator: Welcome ladies and gentlemen to the Dow Jones
First Quarter Earnings Conference Call. All participants are currently in
a listen-only mode. As a reminder, this call is being recorded Thursday,
April 12, 2001. Let me introduce your host for this call, Dow Jones' Vice
President of Investor Relations, Jerry Leshne.
Jerry Leshne: Good morning. Welcome to our call and webcast at dj.com.
On our call today are Peter Kann, our Chairman and Chief Executive Officer;
Rich Zannino, our Chief Financial Officer; Gordon Crovitz, Senior Vice
President, Electronic Publishing; Dick Tofel, Vice President of Corporate
Communications; and Chris Vieth, Vice President of Finance and 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 5 p.m. on April 18. To access audio replay,
please call 402-220-0307. 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.
With that, it is pleasure to turn our call over to Peter Kann.
Peter Kann
Good morning. Thank you for joining us today.
By now you've seen our press release on first quarter earnings.
Earnings of $ 0.17 per share before special charges and gains were in line
with the $0.16 -$0.20 range we indicated in early March. Our quarter's
results reflect the soft advertising environment - which, in fact,
continues in April.
-1-
The slowdown in advertising revenues has been felt at all advertising-
dependent companies. But there is no question that the financial and
technology sectors, were we enjoy dominant advertising franchises, have
been especially soft in the current economic slowdown. Conversely, these
categories remain uniquely well-positioned for long-term growth in an
improved economy. In other words, while they are cyclically soft, we still
think the secular trend in them is strong. In short, I'd rather have these
national and global technology and financial franchises we've built than
any others I can think of.
For now, as we have discussed previously, last year's first quarter posed
particularly challenging comparisons for us.
This was especially true at The Wall Street Journal, which had
unprecedented advertising volume gains of 38% per issue in last year's
first quarter, fueled by robust gains in technology and financial linage.
In the quarter just concluded, per issue advertising volume declined 30.9%
at the Journal, and the strongest fall-off was in those same technology and
finance categories.
The overall contours of March results were very much the same as in January
and February.
We are clearly seeing the downside of last year's technology boom, with the
greatest declines from a year ago in the B-to-B dot-com category. And we
still have another two months of extraordinary comparisons to work through.
We are also seeing the impact of an IPO market that has all but
disappeared.
The current softness is not entirely limited to the B-to-B dot-com and
finance sectors. But a good number of our blue-chip clients are
advertising at levels comparable to levels of previous years. There
continues to be a need for strong advertising in software, computer
hardware, upscale auto and consulting. This is evident among the
traditional market leaders in most categories.
Elsewhere in our businesses, we experienced a modest 3% decline in our
international print revenues, a 3% increase in our electronic publishing
revenues and a 1% decline in our community newspapers group. Each of these
businesses provides an important element of diversification to the heavy
dependence on U.S. national advertising revenue.
In this climate we took aggressive steps - some of them painful, but all of
them necessary - to cut costs.
When we spoke with you in early March about the current advertising
climate, we said we were moving aggressively to review all of our spending,
and targeting significant reductions, on the order of $55 to $60 million.
We have delivered on that commitment and, in fact, exceeded those targets.
-2-
Regrettably, this has meant some layoffs. Approximately 202 employees have
been laid off. We voluntarily retired some employees and closed another
300 open positions.
While layoffs have been the most painful, and in some ways most visible,
part of the process, they have not been the largest source of savings.
These came from non-personnel actions - from finding more effective ways of
getting our work done.
We also closed our Work.com joint venture. Work.com was struggling in the
current environment -- with dim prospects for a near-term return on our
investment.
The steps we have taken have preserved our core businesses and functions
while eliminating costs. And we have continued to invest in the future
growth of Dow Jones.
For example, we have talked in the past about our pagination project -
building the technology platform to automate the daily composition of the
Journal, including the advertising layouts, both reducing costs and adding
speed to the process.
Journal pagination is now complete, and we are adding a new "4-star"
Journal edition, beginning Monday, May 7th. As a consequence 80% of our
readers will get a paper with later news.
Our color print expansion project, which will add 16 additional pages of
color capacity to the Journal, remains on track in its final year of build
out, for launch early next year. We are excited about the possibilities
this gives us for additional editorial use of color - as well as the
premium accorded color advertising and the additional advertising diversity
we aim to attract.
At WSJ.com, we are approaching the redesign of the site this summer. The
Online Journal will feature improved navigation and personalization
features. It will also provide WSJ.com with a new digital platform.
Subscription growth of WSJ.com in February and March, to 574,000 at March
31, was quite strong, perhaps reflecting readers' flight to quality. The
redesign will enhance WSJ.com's ability to further build market share in
this environment. And, as you'd expect, this kind of ad environment, which
affects WSJ.com and other internet sites as well, makes us happier than
ever to have built a paid subscription model
I am frequently asked about visibility of advertising trends in the current
environment, but I can only say that we are not making long-range
projections.
It is true, of course, that our year-to-year advertising comparisons begin
to ease in the month of June, and will get progressively easier through the
third and fourth quarters.
-3-
Taking all of this together - that is, easing comparisons, powerful
editorial and advertising franchises, the potential of our color print
expansion project, a redesigned WSJ.com and aggressive expense reductions -
we are well positioned to take full advantage of an improved business
climate, when it comes.
Together with maintaining our commitment to the integrity, reliability and
quality of our products and services, this is our day-to-day focus. We are
committed to emerging from this challenging environment with our franchises
and our finances positioned to make the most of the next set of
opportunities.
With that, it is my pleasure to turn our call over to Rich Zannino. Then
we will be happy to take your questions.
Rich Zannino
Thank you Peter and good morning all.
I'd like to cover two topics this morning: first, a closer look at the
first quarter, developing some of the themes that Peter outlined, and then
some comments on the balance of the year.
I'll begin by covering the three special items that we reported this
morning.
First, we recorded a pre-tax restructuring charge of $14.9 million, or
$0.10 per share, in the quarter; $12.7 million of this was to cover the
workforce reductions referred to earlier by Peter with the balance for
asset write-downs.
By segment, the $14.9 million charge was allocated as follows: $8.6 million
in print publishing; $5 million in electronic publishing; $300 thousand in
community newspapers; and $1 million in the corporate segment.
We also recorded a pre-tax charge of $2.4 million, or $ 0.02 per share,
included in our equity losses, for the shutdown of Work.com, our joint
venture with Excite@Home.
Finally, we recorded a special gain of $2.2 million, or $ 0.02 per share,
recorded as a new line on our P&L, referred to as contract guarantee. This
represents the reversal of a portion of the reserve for our guarantee of
Bridge's contract with Cantor Fitzgerald that we established at year-end
2000. This reversal reflects the $6 million that Bridge paid Cantor in the
first quarter that gives us a dollar-for-dollar reduction in our potential
liability, partially offset by the accretion of interest, or discount, on
the present value of the reserve amount.
Excluding these special items, comparable earnings per share were $0.17 -
well below last year's $0.88 per share.
-4-
Companywide, advertising revenue was off 25%, after rising 44% a year ago.
Total revenues of $460 million were down 17%, after being up 19% a year
ago. EBITDA declined 64% to $59.2 million, after increasing 66% last year
and operating income before restructuring charges, of $30.5 million
declined 77%, after an increase of 86% a year ago.
In response to these declines in our revenues and even steeper declines in
our earnings, we have moved aggressively to reduce our expenses to mitigate
the future impact of such revenue declines and to better position ourselves
for an improved economy. I'll have more on this topic later.
In our Print Publishing segment, revenues declined 23.6% to $298.6 million,
with EBITDA falling 72% to $38 million. Our EBITDA margin fell from 34.6%
last year to 12.7% this year.
We continued to face a very difficult advertising climate for The Wall
Street Journal and Barron's in the first quarter and this is continuing so
far in April.
Wall Street Journal advertising linage declined 31.9%, or 30.9% on a per
issue basis, in the first quarter.
By category, we experienced a decline of 36% in our General linage, which
comprised about 58% of our total linage and includes technology, B-to-C,
auto, consumer and other general spending. Technology linage, our largest
single category, experienced a decline of 43%. Increases in spending in
the PC and computer software areas led by select blue chip tech firms are
being more than offset by B-to-B firms, which have significantly curtailed
their spending due to their well-publicized operational and earnings
pressures. Elsewhere in the General linage category, B-to-C dot-com
advertising is virtually nonexistent compared to the exuberant levels last
year. Reduced B-to-B and B-to-C dot-com advertising explains about half of
our general linage decline in the quarter. We have also seen slowdowns,
albeit much more modest, in the consumer category. Although we do note
that auto is down only slightly as we see relatively strong spending in the
foreign auto category.
We also saw a decline of 33% in our Financial linage, which comprised about
26% of our total linage at the Journal and includes tombstone and other
financial advertising. Volatile capital markets and the related adverse
effects on Wall Street deal flow and advertising have led to a nearly 50%
decline in our tombstone linage, with lesser declines in other financial
advertising linage.
We posted a decline of about 12% in Classified and Other linage driven
primarily by a deceleration in hiring and, consequently, recruitment.
As I stated in March, an unusual confluence of events is driving these
across-the-board linage declines. While our advertising revenue decline is
in line with some of our national advertising competitors, which include
national business magazines and newsweeklies, three factors are
significantly impacting Journal advertising.
-5-
First, we are up against huge gains achieved last year, when we capitalized
on a strong economy and generated increased ad revenues virtually across
the board. First quarter 2000 linage increased nearly 43%. Gains last
year were strongest in the technology and financial services categories,
where we clearly dominate the competition. We also benefited from the
frenetic pace of spending by B-to-C dot-coms. Taken together, these three
categories were up 82% in the first quarter of last year.
Second, we have been whipsawed to the other side of last year's boom with
this year's economic slowdown and uncertainty that has eroded business and
consumer confidence. This, in turn, has triggered a rapid deceleration in
advertising spending, most notably in the Journal's dominant technology and
financial services franchises.
The final event combining to hurt first quarter business is the sheer size
of our technology and financial services franchises, where we generated
more than 50% of total Journal ad revenues last year. While both of these
sectors exhibit very favorable secular growth characteristics, both are
currently quite depressed. This results in a greater hit to our ad
revenues than it does to many of our competitors' ad revenues.
Elsewhere in Print Publishing, Barron's linage is down 26% in the quarter
against a 29% increase last year.
The International editions of The Wall Street Journal saw more modest
linage declines, in large part due to lower international bookings by U.S.
accounts. Advertising volume at The Wall Street Journal Europe was down
10% in the quarter, against a 27% increase a year ago. Linage at The
Asian Wall Street Journal declined 5% in the quarter, compared with a 31%
increase a year ago.
Turning to our Electronic Publishing segment, revenues increased about 3%
to $81.4 million, with EBITDA falling 7% to $14.4 million. Our EBITDA
margin fell from 19.7% last year to 17.7% this year. Please note that we
have now "anniversaried" the launch of the Factiva joint venture, which is
accounted for as an equity investment, and it is therefore excluded from
the electronic publishing segment numbers. But it is no less a sizable and
integrated part of our electronic publishing portfolio and we will comment
on its continued strong performance later.
This segment, as you know, consists chiefly of Dow Jones Newswires, The
Wall Street Journal at WSJ.com, and Dow Jones Indexes - so is predominantly
subscription based, and less advertising dependent, providing a hedge
against the volatility of our print businesses.
Dow Jones Newswires grew revenue 6% in the quarter. This year's first
quarter was reduced just under $1 million by missed payments on various
licensing agreements with Bridge, although it is important to note that
since entering bankruptcy, Bridge is current with all of its Newswires'
payments. Excluding these licensing agreements from both years, first
quarter revenues were up 9% both domestically and internationally.
-6-
At the Online Journal, revenue fell to $9.1 million in the quarter from
$11.5 million a year ago, due to the impact of the challenging online ad
environment as more than half of the ad base at WSJ.com was technology
related in 2000.
More important to the ongoing prospects for the business, though, the
number of WSJ.com subscribers rose strongly in the quarter, to a record
574,000, from 438,000 a year ago and 535,000 at year-end 2000. We believe
this represents a 'flight to quality' among readers of business and
financial news and information on the web, amid considerable turbulence in
the sector.
We have been pleased to see, in the difficult advertising environment,
further validation of our unique subscription business model for WSJ.com,
which last year derived roughly 40% of revenues from subscriptions.
Factiva, our 50/50 information services joint venture with Reuters, had
another strong quarter.
Factiva's results appear in footnote 7 in our press release. Revenue rose
9% year-over-year, bringing our proportionate 50% share to $32 million for
the quarter. Our share of Factiva's EBITDA was $2.5 million compared with
$0.4 million last year. Factiva Publisher, the joint venture's desktop
service product that works in concert with company intranets, continued to
achieve strong reception in the marketplace.
Turning to our Community Newspaper segment, revenues declined only 0.9% to
$79.9 million, with EBITDA falling 16% to $18.7 million. Our EBITDA margin
fell from 27.5% last year to 23.4% this year.
Linage at Ottaway was down only 3%. Roughly 40% of the EBITDA decline at
Ottaway was due to higher newsprint costs. Nonetheless, in a challenging
environment such as this, Ottaway acts as a solid sales and earnings hedge
against the volatility inherent at the Journal and Barron's.
Total newsprint consumption, in both Print Publishing and Community
Newspapers, was 72,000 tons in the quarter, a 13% decline from a year ago.
Our average cost per ton was $600 compared to $503 a year ago, indicating
that increased prices cost us approx. $7 million in the quarter. Our cost
per ton at quarter end was $611.
In our equity investments, excluding the $2.4 million cost of closing
Work.com, our loss declined by 8% this year to $8.4 million, primarily due
to improved performance at Factiva.
Our investment income in the quarter was down $2.3 million compared to last
year due to the elimination of the Bridge dividend and a lower cash balance
this year.
Our depreciation expense in the quarter increased to $27.9 million from
$26.1 million last year. Our capital expenditures were $42 million, down
from $49 million last year. We repurchased 695,000 common shares at a
total cost of $38.6 million and we ended the quarter with only $188 million
in debt outstanding.
-7-
I'd like to turn now to our cost-cutting activities. We committed in March
to make up the first quarter shortfall to the $0.56 consensus with expense
reductions. This turns out to be 39 cents per share, or about $57 million
pre-tax, this calendar year. Noting the continued difficult environment,
we since raised our internal target. I am pleased to say that the Dow
Jones management team has exceeded even this higher target.
While these reductions necessarily involved layoffs, we were able to
accomplish this round of cuts without impacting long-term investment
programs and without putting our future growth at undue risk. These cost
cuts have begun and we will see their benefits in the second quarter when
expenses this year will be below last year's levels.
Looking forward to the second quarter, our guidance is necessarily tempered
by the currently soft advertising climate and difficult comparisons to year
ago levels. Recovery in the technology and financial sectors is not yet
visible and we are up against increases of a year ago of 39% in April, 43%
in May and 12% in June, for a total increase of 30%. This, combined with
our current trend in April 2001, which is about the same as February and
March, where we were down 35%, leads us to conservatively forecast a Wall
Street Journal linage decline of down 30% to 35%. Together with year-to-
year improvements in our International and Newswires businesses, flat
performance at Ottaway and moderate softness elsewhere in our portfolio,
this implies a mid-teens revenue decline in the second quarter. Our
expenses in the second quarter will be below year ago levels, even after
factoring in a $25 per ton newsprint price hike, due to our cost
reductions. This results in estimated diluted EPS before any special
charges of $0.50 to $0.60 per share in the second quarter, compared to
$1.06 last year.
Looking forward to the balance of the year, it continues to be very
difficult to project our advertising revenues with any degree of
confidence. We continue to see economic uncertainty, corporate earnings
pressures at many of our customers and year-over-year softness in the tech
and financial sectors. And signs of abatement are not yet evident. We
also experienced enormous volatility in linage increases during the
quarters of 2000 - where we were up 43% in the first, 30% in the second, 5%
in the third and then down 10% in the fourth quarter. Combining these
factors makes giving predictions of ad linage on anything but an ultra-
conservative basis imprudent.
As such, we do not have updated guidance for the balance of the year at
this time.
What we can say is that we will control what we can and use the cost cuts
already implemented, as well as further cost control, to maximize our level
of profitability in 2001, at any level of revenue. We will also prepare
ourselves to take full advantage of an improved economy, when it arrives.
We can also use a comparison of possible 2001 results to 1999 to clearly
illustrate the positive impact of the business improvement initiatives over
the past two years and of this year's cost containment efforts. This
-8-
hopefully dispels the concern that many of you may have that we've added
permanent structural costs since 1999 that have diminished our
profitability. Quite the contrary, efforts over the past few years have
improved, not diminished, profitability.
Our actual first quarter and estimated second quarter Wall Street Journal
ad linage is estimated about 33% below 2000 levels and 8% below 1999
levels. If one assumes that for the balance of the year our Journal ad
linage declines 2% to 3% versus 1999, we would see a mid-single digit
decline in linage relative to 1999 for the full year (and a high-teens
decline relative to 2000). One might also assume that we continue to
experience the pressures we saw elsewhere in our portfolio during the first
quarter,
If we were to experience this mid single digit decline in linage relative
to 1999 and continued softness elsewhere, we would be nonetheless
optimistic about our ability to achieve EPS, before special items, slightly
above the EPS earned in 1999. In our opinion, this proves the point that
profitability at Dow Jones has, in fact, improved since 1999 and that we
are quite well-positioned to take advantage of an improved economy.
While this analysis benefits from a lower share count and rate increases at
the Journal, it is impacted more by other items, including increasing
newsprint prices, competitive wage pressures and higher depreciation
related to our capital spending programs. As an example of our holding the
line on expenses, fixed expenses at the Journal in 2001 will be less than
2000 and up less than 3% since 1999.
As a final point, to facilitate modeling of your own linage assumptions, we
would like to remind you of the fact that every 1% change in annual Journal
linage versus the example given above would result in an approximate $0.06
to $0.07 change in EPS. Please note that this "rule of thumb" ignores the
impact of changes in linage mix on our blended advertising rates that
adversely affected us in the first quarter, which impact we expect to
dissipate over the course of the year as comparables ease.
As we said last time, we know that it is unusual for us not to give full-
year guidance, but, in this uncertain economic environment, it is simply
not prudent for us to guess at what the future holds.
We can say that we are well-positioned to take full-advantage of an
improved economy. We enjoy leading market share in most of our markets and
are focused on increasing market share in this difficult environment. We
are on track to tap the enormous potential of color print expansion. We'll
benefit from the easing of comparisons. And we've implemented many
business improvement and cost containment initiatives that are beginning to
pay dividends. All of these combine with eventual improvement in economic
conditions to make our future quite bright. As Peter said, this is our
focus.
With that, we'll ask the operator to open the phone lines and we'll attempt
to answer any questions you may have.
-9-
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, business, economic and stock market conditions that are
impacting the volume of advertising (in particular IPO, dot-com, technology
and financial advertising) in The Wall Street Journal and Barron's, and
sales of the company's products and services; the company's ability to
reduce costs without harming long term growth prospects; business
conditions (growth or consolidation) in the financial services industry,
and the tendency of consolidation to negatively impact the market for the
company's products and services and advertising; 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 2000; 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 Dow Jones 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; 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; 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 amount of user traffic on the company's Internet sites and the pricing
of advertising on Internet sites generally; 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.
-10-