Exhibit 99.2
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FISCAL 2001 THIRD QUARTER CONFERENCE CALL
May 2, 2001 - 10 a.m. Central Daylight Time
INTRODUCTION
JENNY MCCOY:
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Good morning. I'm Jenny McCoy, 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 third 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 year-end
earnings release in August 2001.
At this time, I'll turn the program over to Bill.
BILL KERR:
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Thanks Jenny, and welcome to everyone listening this morning. Let me first
give you a few highlights from today's news release, and then I'll discuss the
initiatives that will drive us through the current economic downturn and help
us build for the future.
I'll begin with a review of our fiscal third quarter. Our results, at 37 cents
per diluted share, met the First Call consensus estimate, and were in line with
the guidance we provided during our January 31 conference call.
At that time, we said that, assuming the negative advertising environment
continued, our full-year earnings could be approximately 5 to 10 percent below
the previous year's earnings per share of $1.71, excluding nonrecurring items.
The advertising downturn continues, and is hitting the media industry in full
force, as evidenced by the rash of pre-announcements over the past few months
and the trend of recent downward earnings announcements. We recognized the
weakening advertising environment early and have tried to give investors
appropriate guidance along the way. I'll discuss our fourth quarter and fiscal
2001 outlooks later in the call.
Before discussing the performance of our operating groups, let me make two
points about our company.
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First, in response to the advertising slowdown, we've been working hard to
manage our costs across the board. We reduced costs by 2 percent in our fiscal
third quarter and the first nine months of our fiscal year versus the
prior-year periods. We achieved these overall reductions despite higher paper
prices, a January postal increase, continued interactive media and circulation
spending and Broadcasting Group sales and news investments.
With regard to staffing, we're more than 200 positions below our budget, and in
the third quarter we reduced our headcount by 2 percent. On April 18th we
announced that we are offering a one-time, special voluntary early retirement
program to approximately 170 employees, to be completed in the fiscal fourth
quarter. The level of acceptance of this program will influence our next steps
to some degree, but we anticipate additional selective work force reductions
through attrition, realignments and job eliminations.
Second, we continue to repurchase shares. We bought back 424,000 shares in our
fiscal third quarter. In the first nine months of the year, we repurchased
approximately 1.1 million shares.
Now let me briefly discuss the financial results of our two groups --
Publishing and Broadcasting.
In publishing, reported revenues for our fiscal third quarter were $213.4
million versus $224.4 million in the prior-year period, and operating profit
was $39.9 million versus $46.4 million a year ago. When adjusted for
discontinued titles, comparable revenues were $213.4 million versus $217.5
million in the same period last year. These results include increased
investment spending in Interactive Media and circulation, as discussed on
previous calls. During our fiscal third quarter, Meredith Integrated Marketing
and the Better Homes and Gardens Creative Collection (our crafts group) turned
in the strongest performances.
Moving to Broadcasting, third quarter revenues were $58.9 million versus $62.6
million in the prior-year period. Automotive and retail advertising were weak
across the group, with the overall weakness concentrated in national
advertising. Our local revenues were up for the quarter.
Broadcasting operating profits in the third quarter were $3.3 million versus
$8.0 million in the prior-year period, primarily reflecting advertising revenue
weakness.
Earlier we mentioned our focus on cost control. While that is important in
protecting our near-term profitability, we must also drive revenue growth to
ensure long-term success. With that in mind, at this time I'd like to update
you on several key revenue initiatives. They are:
- -- Improving our Broadcasting Group performance;
- -- Growing Publishing Group advertising revenue;
- -- Growing Publishing Group nonadvertising revenue; and
- -- Generating significant subscription orders from the Internet.
Let me discuss each one in more detail.
First, we are very focused on increasing Broadcasting Group revenues. Let me
tell you how we're progressing.
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- - I'll start by discussing WGCL in Atlanta. While we typically do not reveal
specific information by station, let me give you a little more detail on
WGCL's performance. It was our strongest station in the third quarter, with
revenue growth of 29 percent. Dilution from the acquisition was six cents, an
improvement of two cents per share over the same quarter last year.
- - Since we bought WGCL in 1999, we have invested heavily in news and sales
improvements. The results we reported today are evidence that those
investments are beginning to pay off.
- - We have outperformed the Atlanta market in each quarter of this fiscal year,
based on auditor-compiled exchange data for our fiscal 2001 first and second
quarters, and our own estimates for our fiscal third quarter.
- - As encouraged as we are about WGCL's recent revenue performance, we have
more work to do, and results will fluctuate along the way. Our priority now
is improving ratings through better news and purchased programming -- which
will drive revenue growth.
- - Turning to our Broadcasting Group as a whole, we're undertaking a number of
initiatives to improve our performance. Let's start with sales.
- - We recently completed sales audits at each of our stations, and each market
has a specific improvement plan tailored to its needs. In addition, we have
launched three groupwide initiatives that will be instrumental in improving our
sales performance. Let me briefly discuss them.
1) We have further increased our focus on generating new local business, and
that strategy is making an impact. We have more than 80 different sales
initiatives in place, and we have created enterprise sales teams in four of
our markets. These efforts have contributed to the growth in local
advertising this quarter.
2) We're also raising the bar related to our sales performance. We've
established tougher standards and more challenging sales targets. We have
replaced nearly 40 percent of our sales managers in the past 15 months,
while increasing our overall sales force by more than 20 percent.
3) To make sure our sales initiatives are effectively implemented across our
group, and to develop sales talent, we have hired a new group sales manager.
Bob Blacher brings nearly 30 years of broadcasting sales experience to this
position, most recently as the General Sales Manager at our own KPHO-TV in
Phoenix. He has a proven record of overseeing sales operations at
television stations in some of the nation's biggest markets, including
Chicago, Miami, and Portland. We look forward to his contributions in this
expanded role as we strengthen our industry position.
- - Turning to news, as we said last quarter, our expansion investments in this
area are complete, and our expenses will become fully comparable in the fiscal
2002 third quarter. We now have 230 hours of locally produced news across our
group each week, up over 50 percent from two years ago.
- - Over the past couple of years, we have focused on launching and growing late
news on our FOX stations in Orlando, Greenville, Las Vegas and Portland. In
the February ratings book, among adults 25 to 54, news ratings grew
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significantly in the first three markets. Particularly important, new news
directors in Orlando and Las Vegas have refocused our products in those
markets. In Portland, we just began producing our own news in October. We're
pleased with the product, and we're now focused on growing its audience.
- - During the February sweeps, CBS and FOX were the No. 1 and No. 2 networks
nationally in audience growth among adults 25 to 54 versus last year. CBS
ratings grew by 15 percent and FOX ratings were up 8 percent. Of our 12
television stations, six are FOX affiliates and five are CBS affiliates.
Our second strategic initiative relates to our Publishing Group. We are
focused on growing advertising revenues, despite the current economic downturn.
Let's begin with a look at market share in the Women's Service field. Based on
PIB data for the 12-month period ended with the March issue, Better Homes and
Gardens led the seven-magazine field with 27 percent of all advertising
revenues. Its closest competitor had 17.2 percent. Better Homes and Gardens
and Ladies' Home Journal combined for more than 37 percent of all revenues in
the field.
- - While we continue to have the overwhelming leadership position in the field,
we have seen some share reduction in our big books. This is unacceptable and
we have undertaken specific initiatives to build back that share. I'll discuss
them in a moment.
- - Turning to other Meredith titles, Country Home and Traditional Home continued
to increase share in their respective fields. Country Home's share of pages
grew by nearly two points for the first nine months of fiscal 2001, while its
revenue share grew by more than three points.
- - For the same period, Traditional Home has seen its share increase by nearly a
full point in both ad pages and revenues.
- - To further the growth of these titles, we have decided to increase the
frequency of Country Home and Traditional Home. Country Home will be published
nine times a year in calendar 2002 and 10 times a year in 2003, up from the
current eight times a year. Traditional Home will be published eight times in
calendar 2002, up from six times this year.
- - As I mentioned, we have several initiatives underway to improve market share
and revenue:
1) We believe that the ideal time to enhance our visibility in the marketplace
is during a period of slower advertising, when others are pulling back.
Therefore, we are launching a trade advertising campaign later this month,
along with a program to step up the pace of customer contacts. This
campaign will reiterate our position as the preeminent home and family
publisher. You will see the first ad run in the major publishing trade
magazines on May 14.
2) We have added special sales incentives for all ad sellers. In addition, we
created a program for Better Homes and Gardens and Ladies' Home Journal
sales staffs related to increasing market share.
3) We have reorganized our Detroit office to place more emphasis on this
important market, primarily comprised of automotive advertisers. Previously
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this operation employed several advertising rep firms, along with the
Meredith sales staff. As a result of this reorganization, we are increasing
the staff and bringing all sales in-house for improved control and focus on
revenue growth.
- - During the third quarter, we announced the reorganization of our group sales
function to form Meredith Corporate Solutions, and we put one of our top sales
executives in charge of this business. Meredith Corporate Solutions uses the
full range of Meredith's assets to provide clients with comprehensive
advertising and marketing programs -- with a heavy emphasis on selling
advertising across our magazine group.
- - A recent program with DuPont Stainmaster Carpets illustrates the value of
Meredith Corporate Solutions. We are using our 60-million-name database to
identify prospects for a targeted direct-mail program. In addition, we will
distribute a customized DuPont Stainmaster brochure to individuals who order
home plans through our publications. Finally, DuPont will significantly expand
its Meredith advertising schedule. As a result of this program, DuPont
Stainmaster will have doubled its spending with Meredith, giving us the
greatest share of its magazine advertising dollars (we were third last year).
Our third strategic initiative is to continue growing our significant sources
of nonadvertising revenues, with special emphasis on circulation contribution
and Integrated Marketing.
- - Comparable nonadvertising revenues were up in the mid-single digit range for
the third quarter, when compared to the prior-year period. For the first nine
months of fiscal 2001, 55 percent of our Publishing revenues came from
nonadvertising sources.
- - Comparable circulation contribution for our magazines was up in the
mid-single digits for the third quarter and the first nine months.
- - We continue to deliver strong newsstand performance. While the magazine
industry is experiencing weak newsstand revenues, our comparable revenues
increased in the low-double digits for the third quarter and the mid-single
digits for the first nine months of the fiscal year. At the same time, we've
been able to increase our efficiency and decrease our magazine production. In
the past we've discussed the fact that we added more than 40,000 additional
check-out pockets at The Home Depot Stores. That strategy has paid off, as
Meredith magazine sales at The Home Depot stores have increased nearly 70
percent since the pockets were added last October.
- - During the third quarter, we saw continued growth in our Integrated Marketing
operations, with revenues up over 40 percent and profits up more. We've been
able to expand many of our current relationships and we continue to add new
clients.
- - New relationships contributing the most to the third quarter and year-to-date
results included Eastman Kodak and United Healthcare.
- - Our relationship with The Home Depot has grown at a compound annual growth
rate of over 80 percent since 1997, and third-quarter revenues from this
relationship grew significantly versus the prior-year period.
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- - During the quarter we launched a new book for The Home Depot, called WIRING
1-2-3. This is part of a "1-2-3" series that began with HOME IMPROVEMENT 1-2-3
in 1995. We've sold more than 3.5 million books in the series to date, and
we're optimistic about the growth potential of this new group of titles. Since
WIRING 1-2-3 went on sale in January 2001, its sales have been very
encouraging.
With that look at nonadvertising revenue sources, let's continue our discussion
of our strategic initiatives. The fourth one relates to our goal of generating
1.5 million magazine subscriptions from the Internet over the next three years.
We have put a high priority on moving subscription orders online because of the
tremendous potential for reducing subscription acquisition costs, and we're
pleased with our progress to date.
- - In the third quarter, our online magazine subscription orders grew more than
130 percent when compared to the prior-year period. We're on track to meet our
goal of generating 1.5 million magazine subscriptions from the Internet by the
end of fiscal 2003, including approximately 250,000 online subscriptions this
fiscal year.
- - A strong Internet presence is critical in achieving our online subscription
goals. Last quarter we told you about our new agreements with The Microsoft
Network and America Online. Both relationships are up and running. With
regard to The Miscrosoft Network, you can see our content and online
subscription offers by visiting www.homeadvisor.com. Turning to America
Online, we have more anchor tenant positions on AOL, and our brands are now
featured on CompuServe and Netscape as well. AOL has begun showcasing our
content on welcome screen promotions, driving additional traffic to our sites.
- - Page views for all Meredith sites grew 68 percent and unique visitors grew
166 percent for the fiscal 2001 third quarter versus the same period last year.
The number of registrations on Meredith sites also continues to grow. At the
end of the third quarter, they totaled 1.3 million. These registrations are
critical in our efforts to obtain subscriptions online because they drive
traffic to our sites and enable us to better target e-mails to potential
subscribers.
After that overview of how we are developing our businesses, we'd like to give
you a quick look ahead to our fourth fiscal quarter.
Clearly the advertising downturn is continuing, and it is impacting our
business.
In publishing, our fourth quarter comparable advertising pages and revenues are
down in the mid-single digits. Not all fourth quarter issues are closed, so
these results could change slightly.
In broadcasting, our fourth quarter pacings are down in the low double digits.
Remember that pacings are a snapshot in time and change frequently.
Looking at our fiscal 2001, we said in our last conference call that we think
fiscal 2001 results could be 5 to 10 percent below last year's EPS of $1.71
before nonrecurring items. Based on what we know today, we still believe that
our earnings per share before nonrecurring items will end the year within that
range. At this time, any one-time nonrecurring charges related to our
previously announced voluntary retirement program -- and any subsequent
additional employee severances -- are difficult to quantify.
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As Matthew Rose indicated in a Monday Wall Street Journal article, advertisers
are making increasingly short-term decisions about where to spend their
shrinking budgets. Sometimes they are even buying on a month-to-month basis.
Given that environment, the outlook for fiscal 2002 is particularly unclear.
No one has a complete understanding of how deep this advertising downturn will
be or how long it will last. As you think about our fiscal 2002 performance,
we hope you recognize several factors that will impact our results:
- -- First, advertising trends are down in our fiscal fourth quarter;
- -- At this point we have not seen data that would suggest an immediate recovery
beyond that; and
- -- In fiscal 2001 we booked $14 million in net political advertising that will
be absent in fiscal 2002.
Because of these factors, we're being cautious as we develop expectations about
our 2002 performance. We'll provide more information related to our outlook
during our fourth quarter conference call in August.
I want to assure you we are working hard to increase revenues and reduce costs
in the face of this advertising slowdown. As I described earlier, we're
employing creative selling approaches through Meredith Integrated Marketing and
Meredith Corporate solutions, and we're growing our circulation margin. In
broadcasting, we're improving our sales practices, we're carefully managing
costs, and we're encouraged by the performance of WGCL in Atlanta.
Now we will address 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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