Exhibit 99.2
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FISCAL 2001 SECOND QUARTER CONFERENCE CALL
January 31, 2001 - 10 a.m. Central
DIRCK STEIMEL:
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Good morning. I'm Dirck Steimel, assistant manager of investor communication
for Meredith Corporation. With me are Bill Kerr, chairman and chief executive
officer, Suku Radia, our chief financial officer; and Tom Ferree, our corporate
controller. Also Steve Lacy, our Publishing Group president, is with us today.
This morning we will discuss our fiscal 2001 second quarter results, and then
we'll respond to your questions. Before we begin, let me remind you that we'll
be discussing forward-looking information that is subject to certain risks and
uncertainties based on management's current knowledge and estimates of factors
affecting the company's operations. Actual results may differ materially from
those currently anticipated. Factors which could adversely affect future
results include, but are not limited to, changes in advertising and consumer
demand, paper prices, postal rates and other adverse economic conditions
nationally, regionally or in specific local markets. A complete description
can be found on page 20 of our fiscal 2000 annual report.
Also, we want to let you know that our formal remarks today are being Webcast
live. We welcome those who are listening to us via the Internet. Our remarks
will be posted on our Web site -- Meredith.com -- shortly after the call's
conclusion, and the Webcast will remain on our Web site until our next earnings
release in April 2001.
At this time, I'll turn the program over to Bill.
BILL KERR:
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Thanks Dirck, and welcome to everyone listening this morning.
I'll begin with a review of our second quarter. Our results, at 47 cents per
share, were in line with our earlier guidance and with the First Call
consensus.
In publishing, reported revenues for the second quarter were down 4 percent and
operating profit was down 10 percent. When adjusted for discontinued titles,
comparable revenues were up 1 percent. These results include increased
investment spending in our Interactive Media operations. During the quarter we
saw strong performance in circulation, books and integrated marketing.
In the second quarter, the softness in packaged-goods advertising we noted in
our first quarter conference call continued, along with reduced spending in
advertising for automobiles, direct response and dot com. This primarily
affected our large titles, Better Homes and Gardens and Ladies' Home Journal.
Looking at market share in the Women's Service field, Better Homes and Gardens
continued to hold the market share leadership position. Based on PIB data for
the 12-month period ended with the December issue, Better Homes and Gardens led
the seven-magazine field with 27.5 percent of all advertising revenues. Its
closest competitor had 16.8 percent. Better Homes and Gardens and Ladies' Home
Journal combined for more than 38 percent of all revenues in the field.
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We saw encouraging growth in our mid-sized magazines. Our mid-sized group, led
by Traditional Home and Country Home, saw ad pages and revenues increase in the
mid-single-digit range. Advertising revenues for Traditional Home were
particularly strong and it grew market share in pages and revenue. Country
Home also saw higher advertising revenues for the second quarter and the six
months, and it increased market share in pages and revenue.
To build the revenue streams of our mid-sized magazines, we have decided to
increase the frequency of Traditional Home and Country Home. Traditional Home
will be published eight times in calendar 2002, up from six times this year.
Country Home will go to nine times a year in calendar 2002 and 10 times a year
in 2003, up from the current eight times a year.
You may recall that we previously announced that we would increase the
frequency of MORE magazine to 10 times annually and its rate base to 600,000
beginning next month. We are planning to raise the rate base of MORE again
next fall. In addition, we just increased the frequency of Renovation Style
magazine to six times annually. We are also moving up the rate base for Golf
for Women to 400,000 for the February issue.
Our strategy to increase our non-advertising revenues in circulation, Books,
Integrated Marketing and Interactive Media continues to yield good results.
Comparable non-advertising revenues were up in the mid-single-digit range for
the second quarter, when compared to the prior year period. For the first six
months of fiscal 2001, 56 percent of our Publishing revenues and 41 percent of
total revenues came from non-advertising sources.
Comparable circulation contribution for our magazines was up in the mid-single
digits for the second quarter and the first six months.
We continue to make significant progress in our efforts to acquire magazine
subscriptions online. In the second quarter, our online subscriptions more
than tripled when compared to the prior-year period. In the first six months
of fiscal 2001, we generated as many subscriptions online as we did in all of
fiscal 2000. We have put a high priority on moving subscriptions to the
Internet because of the tremendous potential for reducing subscription
acquisition costs.
We once again delivered strong newsstand performance. While the industry is
experiencing declining newsstand revenues, our comparable revenues increased in
the high-single digits during the second quarter. Newsstand revenues for our
very important Better Homes and Gardens Special Interest Publications were up
significantly during the quarter.
On the cost side, the postal increase of 9.9 percent went into effect January
7. Our increase was slightly less than that because of our efficient mailing
practices, and in line with our expectations. Paper prices are still
approximately 10 percent higher than they were a year ago because of the two
price increases we saw last year. But they appear stable going forward.
Printing prices are also stable and we continued to experience positive
year-over-year comparisons from our negotiated printing contracts.
Our Book operation continues its strong performance, producing double-digit
increases in revenues and operating profits during the second quarter. This is
a continuation of a long-running pattern of strong performance. In the past
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three years revenues from our Book operations have risen more than 50 percent
and operating profit has more than doubled.
We have accomplished our growth in Books by leveraging our expertise in the
home and family category and by partnering with leading companies, such as The
Home Depot and Ortho. In fiscal 2001 we are introducing four new books for The
Home Depot, in addition to the six titles we have produced for them over the
past five years. For Ortho, we have published 50 new or revamped titles since
we took over the business in 1997. We've recently added partnerships with
Waverly, the leading producer of decorator fabrics and wallcovers, and Stanley
Works, the nation's leading toolmaker.
During the second quarter, we saw continued growth in our Integrated Marketing
operations, with revenues up in the mid-single digits and profits up
significantly more. We have recently entered into a relationship with
Sub-Zero, the manufacturer of premium refrigerators and other appliances, to
produce a high-end kitchen design book to be sold at Sub-Zero dealers and
leading bookstores. We also have several other new relationships with leading
companies, including La-Z-Boy Furniture Galleries, Mrs. Butterworth's, and
Carnival Cruise Lines. We continue to build on our broad existing
relationships, including The Home Depot, Kraft, Nestle, Lutheran Brotherhood,
United Healthcare and Iams.
While these relationships often include some form of advertising in Meredith
magazines, they have grown well beyond advertising to in-depth strategic
relationships with our clients. The growth has been impressive, with revenue
for our top five relationships rising four-fold in the past three years.
We are also very encouraged by the continued progress of our Interactive
business. Revenues for the second quarter and the first half more than
doubled. Consistent with our announced Interactive Media expansion strategy,
operating expenses were $1.6 million and $2.8 million higher than the
prior-year second quarter and first half, respectively.
Page views for all Meredith sites grew 35 percent and unique visitors grew 50
percent for the fiscal 2001 second quarter versus the same period last year.
The number of registrations on Meredith sites continues to grow. At the end of
the second quarter, we surpassed the 1.1 million mark. These registrations are
critical in our efforts to obtain subscriptions online.
Traffic on our flagship site, BHG.com, also increased. In the most recent
rankings by Media Metrix, PC Data and Nielsen/NetRatings, BHG.com was in the
top ten of all magazine Web sites, and it was the top women's-magazine site in
all three rankings.
In our Interactive business we continue to leverage our ability to provide
strong content for the home and family market on the Internet's leading sites.
And we are using our agreements with these leading sites to obtain
subscriptions to our magazines via the Internet.
Earlier today, we announced a multi-year agreement to provide interactive
content to the Microsoft Network's HomeAdvisor.com. Under the agreement,
content from BHG.com will appear on HomeAdvisor.com and will be made available
to more than 56 million users per month. Additionally, HomeAdvisor.com will
provide millions of impressions and links to our subscription-selling site
through buttons, banner ads or an on-page form where a visitor can enter
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subscription order information. We believe that these links will help us
generate thousands of online magazine subscriptions per year.
We also recently signed a new, expanded agreement with America Online. We
continue to have a major presence on several America Online brands, providing
our top-ranked cooking, gardening, health, lifestyle and other information to
the millions of AOL and CompuServe members, along with Netscape and AOL TV
users. Under this new multi-year agreement, we will provide the America Online
brands thousands of recipes from our magazines and Web sites to populate the
searchable collection of recipes. In addition, the new agreement will enhance
Meredith's initiative to generate more magazine subscriptions via the Internet
by featuring Better Homes and Gardens and other magazine titles across the
Shop@AOL online shopping destinations, providing consumers one-click access to
purchasing subscriptions online.
Moving to Broadcasting, revenues were up 3 percent for the second quarter due
in part to significant political advertising at our stations in Kansas City,
Flint/Saginaw and Hartford. For the quarter, political advertising totaled
$10.8 million. Consistent with what you've been hearing from other publicly
reporting broadcasting companies, we saw a slowdown in demand for television
advertising following the election, with softness in automobiles, retail, and
telecommunications. Broadcasting operating profits in the second quarter were
flat with the prior-year period, reflecting continued investments in news
programming and sales improvements.
We are seeing improved ratings at WGCL, our Atlanta CBS affiliate, though we
are not yet achieving our expected financial performance. In the station's
November book, a major selling tool for television stations, ratings for our
newscasts at 5 p.m., 6 p.m. and 11 p.m. increased in both of our key selling
demographics, adults 18 to 49 and adults 25-54. In addition, the station's
sign-on to sign-off ratings improved in both of those demographic categories.
These gains mark the third consecutive ratings book in which WGCL posted
year-over-year increases. While the Atlanta local television advertising
market declined, WGCL increased its share of revenue during the second quarter.
The growth was modest, but it was the third consecutive quarterly market share
gain for the station. Additionally, third fiscal quarter pacing reports for
WGCL are encouraging.
We recently completed our multi-year news expansion program. During October we
launched a 10 p.m. newscast at KPDX, our Portland FOX affiliate. The newscast
had a strong initial ratings book, tying or beating the market's other 10 p.m.
news in all key demos. At KPHO, our Phoenix CBS-affiliate, we launched a
35-minute late newscast in January, expanding it from an eight-minute newscast.
In total, since 1998 we have increased the number of hours of local news on our
stations by more than 50 percent to approximately 230 hours each week.
Our five CBS stations saw brisk sales for the Super Bowl and Survivor II.
Demand for both programs was strong and many of our stations were able to
leverage Survivor and the Super Bowl to attract additional advertising.
Looking ahead to our third quarter and rest of fiscal 2001 for the entire
company, we are facing a weakening and volatile advertising market.
Advertising budgets are under pressure as the country's overall economic growth
begins to slow. We've seen this in Publishing, where recent Publishers
Information Bureau numbers reflect a slowdown in the growth of advertising
spending across all magazines at the end of calendar 2000. The trend was
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especially apparent in the women's service field. In Broadcasting, as I
mentioned, there was a definite post-election slowing in December after
stronger spending earlier in the fall.
I want to assure you we are working very hard to increase revenues and reduce
costs in the face of this advertising slowdown. As we do this, we will not
lose sight of our long-term goals of enhancing our core franchises and building
shareholder value. That means we will continue to make decisions and
investments consistent with our strategic plans for the long-term growth of our
business. I'm convinced that these actions will make Meredith a stronger
company in the coming years.
In anticipation of an advertising slowdown, in the first half of fiscal 2001 we
reduced costs by 8 percent versus our budget, and by 2 percent, or
approximately $8 million, compared to the prior-year period.
In regard to headcount, at the end of the calendar year we were running 175
positions below our budget of 2,900, even with the addition of positions in key
strategic areas, such as Integrated Marketing and Interactive Media in our
Publishing operations, and in news operations and sales improvements in
Broadcasting.
In addition to the cost efforts, we are taking a number of steps to strengthen
the performance of our business in this difficult environment.
In Broadcasting, we are focusing our efforts on enhancing the performance of
our sales and news operations. In sales, we are particularly concentrating in
three areas; pricing and inventory management, account management, and
performance management. In news, as I noted earlier, since 1998 we have
increased the number of hours of local news on our stations by more than 50
percent. The buildup is complete, and we are very focused on generating
incremental revenue from our news investments.
In Publishing, we have established an aggressive sales incentive program to
reward each seller, manager and support team for achievement of
newly-established sales improvement objectives. We are working with each
publishing director and publisher on specific sales performance issues.
Earlier this month, we announced the creation of an enhanced group sales
function, known as Meredith Corporate Solutions. It's designed to utilize the
full range of Meredith's assets to provide clients with comprehensive
advertising and marketing programs. This effort goes well beyond selling
advertising space in multiple magazine titles. It involves deploying all of
our assets, as well as the assets of key strategic partners, to implement
programs that meet client needs. We've promoted Michael Brownstein, formerly
the publisher of Ladies' Home Journal, to lead Meredith Corporate Solutions.
We are implementing a "Home" initiative to focus our efforts on capturing
additional advertising revenues in the furnishings and building/remodeling
categories. While our strong magazine brands make us a clear leader in this
category, we know that there is room to go deeper into advertising budgets,
especially in the shelter category with developing titles such as Traditional
Home and Country Home.
Believing that a period of slower advertising, when others are pulling back on
promotion, is exactly the time to enhance our visibility in the marketplace, we
are launching a trade advertising campaign this spring and a program to step up
the pace of customer contacts.
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To summarize, we are hard at work reducing costs and increasing revenues to
offset this advertising slowdown. These steps I've outlined will be
instrumental in helping us in the short term, while helping position Meredith
for long-term success. Additionally, we continually evaluate all of our
properties to make sure they continue to fit into our long-term strategic plan.
Now we'll take a look ahead at our third quarter and the rest of our fiscal
year. As you know, we try very hard to offer precise earnings guidance, but
the uncertainty and volatility of advertising trends makes precision more
difficult than usual. In this respect, I was struck by some recent comments by
Victor Miller of Bear Stearns about the pace and timing of advertising demand
in last year's first calendar quarter. We understand the market's difficulty
in reading current broadcast pacing comparisons.
What we know now is that third quarter comparable advertising pages and
revenues are down in the low-to-mid-single digits for our Publishing Group. We
are seeing reduced advertising spending by packaged-goods manufacturers,
automobile makers, computer and software companies, and personal hygiene
manufacturers. In addition, dot-com advertising is nearly non-existent.
In Broadcasting, third quarter pacings are currently down in the low double
digits. This appears to be in line with the industry, as local television
broadcasters face difficult comparisons due to strong annual buys last year.
Like our competitors, we have seen declining demand for advertising in
automobiles, retail and telecommunications.
Assuming that these advertising trends continue through the fiscal year, our
full-year earnings could be approximately 5 to 10 percent below the previous
year's earnings per share of $1.71, excluding non-recurring items. Because of
the timing of Interactive and circulation investments, we would expect the
earnings impact to be greater in the third quarter than in the fourth.
I've been in this business for almost 30 years. I've seen advertising
downturns before, and I've managed through them. While we are focused today on
the difficult advertising environment, we also need to continue to concentrate
on the long-term. I have confidence in the strengths of Meredith, which
provide the foundation for our long-term success.
We have a great franchise, with a set of well-established and very valuable
brands, including Better Homes and Gardens.
We have an expanding number of non-advertising revenue sources in Publishing,
such as circulation, books, integrated marketing and interactive media.
We have a Broadcasting Group that, despite its current performance issues, is
well positioned in some of the nation's fastest-growing markets.
And we have a strong balance sheet, giving us the flexibility we need to
respond to changes in the market.
Now we'll take your questions.
Thanks for listening today. We're hard at work implementing our strategies to
withstand the current downturn in advertising and to build long-term
shareholder value.
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