Exhibit 99.2
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FISCAL 2001 FOURTH QUARTER CONFERENCE CALL
August 2, 2001 - 10 a.m. Central (11 a.m. Eastern)
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.
This morning we will discuss our fiscal 2001 fourth-quarter and fiscal-year
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.
This conference call contains dated information that is accurate only as of
August 2, 2001.
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 through August 9, 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. I plan to give
you a few highlights from today's news release and an update on our businesses,
including the progress we are making on the strategic initiatives we have
outlined in previous conference calls and presentations. Finally, I'll give you
some thoughts about fiscal 2002.
But before I do that, let me first share some general thoughts.
To summarize the quarter, we continued to experience the advertising recession
that has been impacting our core businesses and the industries in which we
compete. Looking at our own experience and that of other media players, we do
not see signs of a quick change in this situation.
We are continuing our efforts to cut costs. At the same we are continuing our
consistent pattern of investing in initiatives that will improve our
competitive position, particularly when the advertising economy rebounds. In
this respect, our long history of building strong circulation economics and
integrated marketing programs is serving us particularly well, as we were
actually able to grow our publishing profits by 12 percent during the quarter.
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Looking at the recently completed fiscal year, it was extremely difficult for
all media companies -- the toughest in at least a decade. I believe we
recognized the difficulties early on, and positioned Meredith as competitively
as possible.
Additionally, we have tried very hard to provide you with accurate guidance
along the way. Indeed, we have been discussing this advertising downturn since
our August earnings release 12 months ago.
FOURTH QUARTER AND FISCAL YEAR REVIEW
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Now for some specifics about the quarter and the year.
In the fiscal fourth quarter, we reported earnings before nonrecurring items of
40 cents per diluted share. For the 2001 fiscal year, we reported earnings
before nonrecurring items of $1.55 per share. Earnings in both the fourth
quarter and the fiscal year were in line with the guidance we have provided
since January, and were ahead of the consensus numbers. We are also pleased by
our publishing results, considering the difficult environment.
As we stated in our release this morning, our fourth-quarter and fiscal-year
earnings included several one-time items. They were:
- -- Charges of $25.3 million primarily for employment reduction programs and the
write-down of certain Internet investments;
- -- Charges of $9.9 million for the write-down of broadcast film rights; and
- -- A $21.5 million gain from the sale of Golf for Women magazine.
The net effect of these items was an after-tax charge of $8.4 million or 16
cents per share.
Since last fall, we have been reducing costs as we deal with the advertising
downturn. We cut costs by 4 percent for the fourth quarter, and by 2 percent
for the entire fiscal year. We achieved these overall reductions despite higher
paper prices, a January postal increase, and continued interactive media and
broadcasting sales and news investments.
Looking more closely at our efforts, publishing costs were down 7 percent for
the fiscal fourth quarter, while broadcasting costs increased 4 percent.
However, when you exclude our investments in sales and news improvements,
broadcasting costs were flat for the quarter.
Since December 31, 2000, we've reduced staffing by 7 percent. We expect
staffing to be down 10 percent versus the prior-year period at December 31,
2001.
At the end of the fiscal year we had a comfortable debt level of $470 million,
which was down $35 million from the end of the last fiscal year. In addition,
we had $36 million of cash on hand at June 30, 2001.
Also, we've continued our share repurchase program, buying 231,000 shares in
the fiscal fourth quarter. For the fiscal year, we bought 1.3 million shares.
On a diluted basis, our shares outstanding at the end of the fiscal year were
51.3 million.
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BROADCASTING
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Turning to our operating groups, let's begin with a discussion of our
broadcasting performance. Broadcasting Group operating profit excluding film
write-downs was $9.7 million for the fiscal 2001 fourth quarter, versus $17.5
million in the prior-year fourth quarter. Fourth quarter Broadcasting Group
revenues were $67.6 million, compared to $72.9 million in the same period of
fiscal 2000.
For fiscal 2001, broadcasting operating profit excluding broadcast film
write-downs was $44.6 million, compared to $61.5 million for the prior-year
period. Broadcasting revenues for fiscal 2001 were $270.3 million, compared to
$278.3 million for the prior-year period.
Despite having a strong set of broadcasting assets, we are not getting
sufficient performance out of this business. While our improvement efforts have
been hindered by the advertising recession, we are still not meeting our goals.
We must remedy this, and we are taking steps to improve our performance and
build shareholder value.
We've launched a nationwide search for a new head of the Broadcasting Group. We
are searching for executive candidates with well-established industry
experience, preferably in leading either a station group or major broadcast
franchise. We have already had preliminary discussions with several potential
candidates and are encouraged by the caliber of people the position has
attracted.
In the interim, Doug Lowe is managing the Broadcasting Group. Doug brings more
than 17 years of broadcasting experience to this role. Included in his
background are seven years as Vice President and Chief Financial Officer of
First Media Television/Cannell Communications, and a stint with Cox
Enterprises. Doug has impressed me from day one since joining Meredith a year
ago, and will do a fine job on an interim basis.
As stated in past calls, we are focused on two key initiatives to improve
broadcasting performance: strengthening our sales departments and enhancing our
news operations.
We are implementing recommendations to improve our sales practices,
specifically inventory and account management. Additionally, we have increased
our overall sales force by 15 percent, and 25 percent our sales managers were
new in fiscal 2001.
We are achieving success in our ongoing program to attract local businesses
that typically do not advertise on television. We have some 80 initiatives in
place. These efforts contributed to a low-single-digit local advertising
revenue increase in the fourth quarter, even in the face of a down market. This
is the second consecutive quarter we have increased local advertising.
As we've noted previously, our news expansion is complete and will become
comparable in the third quarter of our fiscal 2002. We are now focused on
enhancing our newscasts to improve ratings and drive revenue gains.
Despite the negative advertising environment, we are seeing other positives on
the broadcasting front.
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We have held or gained share in the majority of our television markets for the
quarter. A good example is at WOFL, our FOX affiliate in Orlando. It reported
strong revenue growth in the fourth quarter, following improved results in the
third quarter.
We also continue to make progress at WGCL, our CBS affiliate in Atlanta. WGCL
has gained market share for five consecutive quarters, according to
auditor-compiled exchange data. The station's revenues for the fourth quarter
were up in the low-single digits versus the prior-year period. This came on top
of a 29 percent gain in the third quarter. Also, the station is pacing up in
the first quarter of fiscal 2002.
While we are encouraged by the improved sales performance at WGCL, we know
there is more work to do. Our priorities at the station are continuing the
sales momentum, improving news ratings, and improving syndicated programming.
One of the station's weaknesses when we purchased it was the poor quality of
its syndicated programming. We've addressed this issue by securing improved
programming, including Everybody Loves Raymond. We've also acquired two shows
which will begin airing in calendar 2002: Dharma & Greg and the Maury Povich
talk show.
Our primary network partners recorded favorable results during the May sweeps.
CBS primetime ratings were up 12 percent among adults 25 to 54 versus a year
ago, while FOX ratings were up 5 percent. We believe this strength in CBS and
FOX will carry into the fall season. Of our television stations, six are FOX
affiliates, five are CBS and one is NBC.
In summary, we acknowledge there is room for improvement in our Broadcasting
Group. We are addressing the specific issues and seeing a number of signs of
progress. But we realize there is much hard work in front of us.
PUBLISHING
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Turning to Publishing, I'll begin with a brief recap of the quarter. Then I'll
discuss specific actions we are taking to grow advertising revenues in our
magazines, as well as progress we are making in increasing revenues from
integrated marketing and books. I'll also discuss our initiatives to bolster
our circulation contribution.
Fourth quarter publishing operating profit was $34.9 million, compared to $31.1
million in the prior-year quarter. Publishing revenues were $202.4 million,
versus $210.7 million in the fourth quarter of fiscal 2000. Revenues adjusted
for discontinued magazine titles were $202.4 million in the fourth quarter of
fiscal 2001, versus $203.2 million for the previous year.
For fiscal 2001, publishing operating profit was $132.8 million, compared to
$139.0 million for the previous year. Publishing revenues for the fiscal year
were $782.9 million, versus $818.8 million for fiscal 2000. Revenues adjusted
for discontinued magazine titles were $768.8 million in fiscal 2001, versus
$771.5 million for the previous year.
Central to our strategy for increasing advertising revenues are the following
initiatives: (1) strengthening our lead position in the home and family market;
(2) investing in our strong and developing brands; and (3) launching
multi-platform advertising programs through Meredith Corporate Solutions.
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One of our great strengths is the overwhelming share leadership held by Better
Homes and Gardens and Ladies' Home Journal in the so-called Women's Service
category. Earlier this year, we had expressed concern about some minor share
slippage. That erosion appears to have ended, and we are making progress in
regaining share.
Looking at our other magazines, Country Home, our third largest magazine,
continues to gain market share. According to PIB numbers, Country Home gained 2
percentage points in advertising revenue for the fiscal year.
MORE magazine posted strong growth in advertising revenues in the fourth
quarter, and is up more than 45 percent for the fiscal year. We have increased
the frequency of MORE to 10 times per year, and we are increasing its rate base
to 650,000 this fall.
The July-August issue of Midwest Living was the magazine's largest ever in
terms of advertising revenue. Additionally, Midwest Living continues to extend
its brand by adding to its roster of advertising-sponsored travel guides.
Newly formed Meredith Corporate Solutions brings together all Meredith assets
to offer solutions to clients' advertising and marketing needs, with an
emphasis on selling additional pages in our magazines. In recent months the
group has attracted several multi-publication advertising buys, including the
California Almond Board; Mill's Pride, a leading manufacturer of home
cabinetry; and Chicken of the Sea tuna.
Meredith Corporate Solutions is also increasing the company's presence in the
automotive market. We've revamped our Detroit office and we have placed an
added emphasis on the West Coast, where many auto manufacturers have their
marketing headquarters.
This effort is already paying off. Even in a down advertising market for autos,
we have experienced growth in pages and revenues. For May and June, the two
months of the quarter in which public data was available, our automotive PIB
revenues were up 24 percent, while the industry PIB revenues were down 3.6
percent for the same period.
To that point, Nissan recently added Traditional Home to its advertising buy.
The company also renewed advertising buys in the "Better by Design" edition of
Better Homes and Gardens.
We are working to expand the program we developed with Toyota and The Home
Depot. We helped Toyota increase its visibility for its Tundra pickup in the
do-it-yourself market by using our ongoing Home Depot relationship to develop a
multi-faceted marketing program. It included do-it-yourself tips from our Home
Depot 1-2-3 books, which ran opposite Toyota ads in many of our magazines.
To summarize, we're encouraged by the share gains we are achieving at our large
and mid-sized titles. We're using our content expertise to offer our clients
innovative programs, and they are responding.
Another area of focus for us is increasing revenues from books and integrated
marketing, and growing our circulation contribution. Comparable combined
revenues in these areas were up in the mid-single digits in the fourth quarter
and the fiscal year. They comprised 55 percent of the total revenues of our
Publishing Group. This growth is critical given recent volatility in
advertising cycles.
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Let's look at some details, beginning with circulation. Comparable circulation
contribution improved in both the fourth quarter and the fiscal year.
Running counter to industry trends, our magazines are selling very well at the
newsstand, with fourth quarter revenues up in the mid-teens. For the fiscal
year, our newsstand revenues were up in the high-single digits. This continues
a track record we've achieved over the past three years, once again, counter to
the magazine industry as a whole.
An important aspect of our newsstand success has been our ability to charge
premium prices for our high-quality publications. The average newsstand retail
price for Meredith publications was approximately $4.40 per copy in calendar
2000, versus the industry average of about $2.75.
Our strong lineup of Better Homes and Gardens Special Interest Publications --
a big factor in our newsstand success - continues to sell very well. Revenues
for our SIPs were up in the mid-teens during the fourth quarter and operating
profits were up even higher versus the same period a year ago. For the 2001
fiscal year, revenues and operating profits were up in the mid-single digits.
Our book operations posted improved fourth-quarter results. We continue to
succeed in books by leveraging our home and family expertise to create books
that extend our own brands, along with books that help our marketing partners,
such as The Home Depot and Ortho, as they extend their brands.
Meredith Integrated Marketing posted strong growth in the fourth quarter,
continuing its streak of very successful quarters. Revenues were up nearly 25
percent compared to the prior-year period, and operating profit was up even
higher. For the full fiscal year, revenues from integrated marketing were up in
the mid-teens compared to the previous year, and operating profits were up well
above that.
We recently announced a multi-component program with Hunter Douglas, the
nation's leading maker of window fashions. We have published a 144-page book
that is currently on sale at leading book retailers and mass market outlets.
Additionally, we will produce a 24-page holiday magazine to be distributed at
Hunter Douglas retailers, and Hunter Douglas advertising will run in Better
Homes and Gardens and Traditional Home magazines during the fall. Also, Hunter
Douglas will use Meredith's database to send a special mailing to 250,000
consumers.
We are very pleased with the progress of our efforts to generate magazine
subscriptions from the Internet. As you know, we've put a high priority on this
effort because of the tremendous potential for reducing subscription
acquisition costs by obtaining subscriptions online.
During the fourth quarter, Internet subscription orders continued to build
momentum, rising nearly five-fold compared to the same period a year ago. For
the 2001 fiscal year, we acquired 290,000 subscriptions orders online. That
exceeded our goal of 250,000, the first milestone in our goal of obtaining 1.5
million gross Internet subscriptions by the end of fiscal 2003. We are also off
to a strong start in fiscal 2002.
To summarize, we are pleased with the results we are posting from these
"nonadvertising" related businesses. We see this growth continuing, and believe
this is an area of strength that sets us apart from our competition.
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OUTLOOK
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With that overview of our businesses, let me share a few thoughts about fiscal
2002.
First, the advertising downturn continues and, at this time, we are not seeing
any clear signals of a rebound.
At our television stations, pacings currently are running down in the
low-double digits for our first fiscal quarter. This is consistent with what we
have been reporting, but I remind you that pacings are a snapshot in time and
change frequently.
In publishing, our first quarter comparable advertising pages and revenues are
currently flat with last year. While encouraging, we do not view this as a
turnaround.
In addition to the general advertising environment, there are three specific
considerations that will impact the first two quarters of our fiscal year.
First, we have not yet begun to cycle the $14 million in net political
advertising we booked in fiscal 2001. That added 4 cents to earnings in the
first quarter and 13 cents in the second quarter of our fiscal 2001.
Second, while our overall level of circulation mailings in fiscal 2002 will be
about equal with 2001, we currently expect to mail more heavily in the first
half of the year than in the second half. This should impact earnings by about
4 cents in the first quarter and 5 cents in the second quarter.
Third, we are also concerned about rising trends in external costs, including
healthcare, pension, postal and programming increases. These cost increases
will somewhat offset the savings from reduced employment levels.
As a result, we expect earnings in the first half of fiscal 2002 to be well
below those in the first half of 2001.
As we look at the full 2002 fiscal year, we have very little visibility at this
time. Analyst estimates for the year fall in a broad range of $1.41 to $1.70
per share, with a consensus number of $1.60. As of now, we are uncomfortable
with most of these estimates, especially given the lack of political
advertising in fiscal 2002, which contributed 17 cents to fiscal 2001 earnings.
We do not believe that the current advertising environment will allow us to
offset the loss of these political advertising revenues.
We will update this assessment at our next earnings call in October. In the
meantime, we continue to work hard to increase revenues and reduce costs. We
believe these efforts will help Meredith emerge in a strong position when the
advertising climate begins to improve.
At this time we'll take your questions.
AFTER Q&A
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Thanks for listening today. We're hard at work implementing the strategies
we've outlined today to build long-term shareholder value.
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