Meredith Corporation
Q2 2009 Earnings Call Transcript

Published: 22 Jan 2009

[Operator:]

Ladies and Gentleman, we thank you for standing by and welcome to the Meredith Corporation Second Quarter Earnings Call. At this time all lines are in the listen-only mode. Later we will conduct a question and answer session. Instructions will be given at that time. (operator instructions). As a reminder, this conference is being recorded. I will like to turn the conference over to our host Mr. Mike Lovell, please go ahead, sir.

[Michael Lovell:]

Hi good morning everyone. Before Chief Executive Officer, Steve Lacy begins our presentation today, I'll take care of a few housekeeping items. In our remarks, we will include statements that are considered forward-looking within the meaning of Federal Security Laws. The forward-looking statements are based on management's current knowledge and expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. A description of certain of those risks and uncertainties can be found in our earnings release issued today and in certain of our SEC filings. The company undertakes no obligation to update any forward-looking statements. We will refer to non-GAAP measures which in combination with GAAP results provide additional analytic tools to understand our operations. Tables that reconcile non-GAAP measures to GAAP results are posted on our website and in our earnings release. A transcript of this call will be posted to our website as well. And with that Steve will begin the presentation.

[Stephen M. Lacy:]

Thank you Mike, and good morning everyone. Today I'll start with some thoughts on the current state of the environment we are experiencing, describe how Meredith is responding and provide more detail on our operating performance. Joe Ceryanec, our Chief Financial Officer will go into greater depth on our financials and update our outlook. Then we will be happy to answer any questions that you might have. Joining us for the Q&A will be Jack Griffin, our Publishing Group President along with Paul Karpowicz, our Broadcasting Group, President. During the second quarter of fiscal 2009, the broader economic weakness particularly impacted the advertising side of our business, including categories that have long been staples of the American economy. Based on the limited information available so far in early calendar 09, we do not see near term improvement in the advertising environment. Earnings per share were $0.28 in the second fiscal quarter including a special charge of $0.21 related to performance improvement measures we announced earlier in January. Excluding the charge, earnings per share were $0.49 compared to $0.75 last year matching our previously stated expectations. Revenues were 366 million compared to 396 million a year-ago. Automotive advertising, the largest category in our broadcasting group was off about 40% during the quarter. In publishing three of our top five ad categories, prescription drugs, home and direct response, experienced decline in the 30 to 40% range. However, our largest publishing category food and beverage experienced only a slight decline, while our number two category toiletries and cosmetics grew very strongly. In addition, certain of our revenue streams not tied to advertising spend are rising, particularly our integrated marketing, brand licensing and video production activities. I am also pleased to note that Meredith's connection to the individual consumer continues to strengthen across our businesses and media platform. In the most recent Mediamark Research and Intelligence report, our total readership audience remained strong at a 120 million. The average reader age declined and household income rose for our major subscription magazines including our flagship brands, Better Homes and Gardens and Parents. This is in sharp contrast to trends in other forms of print media. We believe it's due to the great consumer value our brands provide and the fact that our editorial content is not time sensitive in nature. In broadcasting, most Meredith television stations including key markets such as Atlanta, Portland and Hartford reported significant increases in news viewer ship in the most recent ratings books. Better our daily nationally syndicated television show produced by Meredith Video Solutions, now reaches 30 % of all U.S. television households. These readership and viewer ship metrics are important because of course overtime, advertising dollars follow meaningful aggregations of consumer audiences. We had media assets to scale that are valuable to advertisers and marketers alike including a broad reach to 85 million, unduplicated American consumers. Comprehensive consumer research, targeted database marketing, custom video productions, online programs and campaign management. Surrounding all of this is our ability to deliver expert editorial content across all media platforms. In the current environment we're keenly focused on our performance improvement plan, first outlined about six months ago. Its key elements include gaining market, growing new revenue streams and practicing aggressive expense control. Total Meredith operating expenses declined 2.6% in the second quarter, and were down 2.8% for the first six months of our fiscal 2009, excluding the special charge. Excluding acquisitions and the charge, total company expenses declined 4% in the quarter, and were down 4.5% for the first six months of fiscal 09. Before providing detail on our operating businesses, I think its important to remember that Meredith possesses a strong balance sheet, modest levels of debt at a low-cost of funds and adequate liquidity supported by strong operating cash flow. We're taking additional steps to strengthen our solid financial position through continued disciplined expense and cash management. We continue to believe the current down-turn in advertising that we're experiencing is primarily cyclical. Linked to the recessionary economy and less tied to structural issues impacting our business. Independent research we commissioned points to the same conclusion. Our strong national and local brands growing new revenue streams and conservative financial practices I just mentioned all position Meredith well for future economic recovery. Now let's take a look at our operating performance beginning with publishing. Advertising revenues declined nearly 20% in the second quarter similar to our first quarter results. While, it's still too early to call it a trend, our third quarter advertising forecast is pacing down under 15%, stronger than in the first half of the fiscal year. Most of our major advertising categories experienced significant decline in the first half of the fiscal. But as I mentioned earlier toiletries and cosmetics, our second largest category was up in double-digit for the second consecutive quarter. Food and beverage, the top publishing ad category generating more 25% of ad dollars in the second fiscal was off in mid single-digit, a marked improvement from the 30% decline witnessed in our first quarter of fiscal 09. To better serve our clients and capture a higher share of advertising revenues in the current environment we are working of course to maximize the efficiency of our sales force, emphasizing the broad reach and tremendous value our media portfolio offers for our advertising clients. During the second quarter Meredith 360 our strategic sales group that typically works directly with corporate clients when several new multi-million dollar, multi-platform progress. As an example, we were awarded new business from a leading insurance company to develop a multi-platform campaign focused on parents bringing, their new babies home from the hospital. Recognizing Meredith as an authority on baby care, the program spans six of our brands, including Parents and Better Homes and also includes video, online and consumer events. Fisher price shows Parents and American Baby to launch a new branding initiative, the eight page insert ran in the November and the December issues, and the campaign continues into calendar 09. And finally more magazines celebrated its 10th anniversary during the quarter. The newly redesigned November issue copy I of luxury advertisers, such as Mercedes-Benz and Estee Lauder, each purchased their first advertising with MORE. Since its launch in 1998, MORE has quadrupled its guaranteed rate base to 1.2 million and has built consumer events anchored by the annual model search and the MORE marathon. These wins emphasize the fact that established media brands are particularly well suited to helping corporations strengthen their own connection to the consumer and of course sell more products. As I mentioned earlier, we are very pleased that Meredith's brands strengthened their connections to the American consumer across many media platforms in our fiscal second quarter, including prints, online and through consumer products via our brand licensing activities. In addition to the factors I mentioned a few moments ago, initial direct mail response rate and renewals have exceeded our expectations. Check out scan data estimates point to increases in market share for our major titles at newsstand, particularly Family Circle, Better Homes and MORE versus competitors in the women's interest arena. We believe these indications are that the consumer recognizes the value our products offer in these difficult economic times. Traffic on Meredith consumer website increased in the second quarter, compared to a year ago. The number of unique visitors rose 25% to nearly 16 million, and page views average nearly 200 million per month during the quarter. The average time spent per visitor on or publishing sites grew to nearly 13 minutes and the number videos viewed rose 17% to 3.3 million. During the quarter, we announced an investment in Real Girls Media, a group of premium branded online social community. We also launch MixingBowl.com a new social networking site for women are passionate about food and recipes. Meredith is now in the top ten online networks dedicated to women and important market positioning in the advertising community. Turning to integrated marketing, revenues grew about 30% during the fiscal second quarter driven by growth in our core custom publishing activity and contributions from acquisitions made over the last several years. The capabilities we've added now allow integrated marketing to pitch for much broader range of new business than ever before. It's important to remember that revenues in this business typically come from the clients marketing budget and assignments are worth million of dollars and tend to span several years. This business has always been important hedge against the month-to-month volatility in advertising revenue. However, our integrated marketing clients are not immune to the broader economy and currently prospective clients appear less inclined to launch major new long term program. Meredith integrated marketing was awarded several new assignments during the quarter, these include new work developing consumer websites for two premium Nestle brands Coffee-mate and Taster's Choice. Led by our O'Grady Meyers team this win represents an additional assignment within Nestle's important beverage division. Genex won new business from Craft to develop an iPhone application in support of our much broader custom marketing program for Crafts multimedia, food and family brand. This application was featured yesterday in the New York Times. The iFood assistance offers more than 7000 recipes tested by Craft, shopping list, user reviews and instructional cooking videos. Additionally Genex with commissioned during the quarter to design and maintain accurate new financial services websites. Our team at New Media Strategies expanded business with several clients including Sony pictures, Nestle's instant nutrition division and Kimberly Clark. Additionally, New Media Strategies was commissioned to begin working internationally for Paramount Global during our second fiscal quarter. Brand licensing delivered another strong quarter as revenues rose 27 %. We completed several licensing agreement that will extend Better Homes and Gardens, Parents, MORE and our Diabetic Living brands to more than 20 countries including Italy, Mexico, Brazil, and other countries throughout the Middle East. With these new alliances Meredith's global reach will expand to more than 25 agreements in 40 countries. At this point in time revenues from most of our international relationships are relatively modest. However, we view our efforts in this space as lying an important foundation for growth, primarily driven by a growing middle class and increasing home ownerships in these developing countries. We continue to sign new franchises to the Better Homes and Gardens real estate service, including the MA Yellow (ph) Group, one of the largest real estate companies in the country with 30 offices and over 600 sale associates. And finally, sales of the Better Homes and Gardens branded home products at Wal-Mart are meeting expectations following the September 2008, launch of this new program. Wal-Mart is supporting the line with the national multimedia advertising campaign that is reaching millions of American consumers. Additionally Meredith and Wal-Mart reached an agreement during the quarter to nearly double the size of the program to approximately 1000 FKUs in calendar 2009. Turning now to our broadcasting group, total revenues declined 4% during the quarter as 17 million in net political revenues helped offset double-digit declines in most ad categories, including a 40% reduction in automotive advertising. For the first half of fiscal 2009, total political revenues were 23 million, meeting our earlier stated expectation. I am also pleased to note that for the second fiscal quarter, our stations advertising performance outperformed the television industry, according to recent data from the television bureau of advertising. We were able to outperform the industry in part because of our aggressive efforts to improve ratings. We were successful in achieving viewer ship gains as evidenced by the November ratings book. Among the highlights, our Hartford CBS station continued its market leadership across all news periods. Our Nashville NBC affiliate ranked number one in all three evening news caps. Our Portland Oregon FOX affiliate won in morning and late news and is the number one news station in the marketplace. For the first time our Atlanta CBS affiliate was number two in the 11 pm news and our stations in Las Vegas, Kansas City and Greenville, South Carolina; all posted to strong rating gains. These rating gains are key to commanding higher revenues for advertising spots into the future. Additionally, we continued to actively identify and pursue new revenue streams and of course share these best practices across our station group. These include a new viewer loyalty program called Rewards, that creates incentives for viewers to watch our programming, and then interact with advertiser sponsored questionnaire, games and surveys online. This program was recently featured in broadcasting and cable magazines. Our job connections program, which takes advantage of the power and reach of our station and our website to help local businesses recruit new employees and better health, which captures a greater share of local health care advertising. The program provides sponsored content from specialists in the local medical community, and also features contents for Meredith publishing brands including Healia, our web medical search engine. Additionally, Meredith Video Solutions while still in the investment phase, tripled revenues during the second fiscal quarter. The Better show, our nationally syndicated lifestyle television activity featuring content inspired by our publishing brands, is now available in more than 40 markets representing 30% of the country. Top 20 markets including San Francisco, Cleveland and Denver, cleared the program during our second fiscal quarter. Retransmission fees have now more than doubled in the first half of fiscal 09. We recently agreed to new terms with Comcast, the largest carrier of our signal, operating in eight of our ten television markets. Meredith has now successfully completed new retransmission agreements with six of the seven major cable operators across our marketplace. We expect retransmission fees to grow to at least $15 million annually by fiscal 2010. With that company overview and update on our operations, I'll turn the presentation over to Chief Financial Officer, Joe Ceryanec, who will bring you up to date on our financials and on our outlook.

[Joseph H. Ceryanec:]

Thanks, Steve. As Steve noted, earnings per share were $0.28 in the second quarter, including a special charge of $0.21 per share that's $0.49 without the special charge, and inline with our previously stated expectations. During the second fiscal quarter, we reported a special charge of approximately 16 million or 10 million after tax. The charge includes the cost of the company wide workforce reduction of approximately 250 employees. The closure of Country Home magazine, effective with the March 2009 issue; and the relocation of the creative functions of the ReadyMade brand and Parents.com to Des Moines. Additional information on the special charge is available in tables one and two of today's press release and in the Meredith's press release dated January 8, 2009. For the first six months of fiscal 2009, earnings per share were $0.69, including the special charge, and $0.90 without it. Fiscal 2009 first half revenues were 737 million, compared with 800 million in the prior year. Fiscal 2008, first half earnings per share were $1.43. Within the publishing group, fiscal 2009 second quarter publishing operating profit was 15 million including the charge, and 28 million without it, compared to 45 million a year ago. Total revenues were 282 million versus 309 million a year ago. Advertising revenues were 122 million versus 153 million in the second quarter of fiscal 08, when advertising revenues had increased 8%. For the first half of fiscal 2009, operating profit was 48 million including the charge, and $61 million without it. Revenues were 582 million. For the first six month of fiscal 2008, operating profit was a 100 million and revenues of 638 million. Ad revenues were 271 million, compared to 333 million a year ago, when advertising revenues had increased 11%. Net advertising revenue per page rose approximately 1% for the first six months of fiscal 2009 from the year ago period. Within the broadcast group, fiscal 2009 second quarter broadcast operating profit was 22 million including the charge, and 24 million without it, compared to 28 million a year ago. Total revenues were 84 million versus 88 million a year ago. Net political revenues were $17 million, which matched our expectations, compared to 1 million in the year ago period. For the first half of fiscal 2009, operating profit was 33 million including the charge, and 35 million without it. Revenues were 155 million for the first six months of the fiscal 2008, operating profit was 41 million, and revenues of 162 million. Net political revenues were 23 million, again matching our expectations and up from 3 million in the year ago period. Now, turning to cash flow and the balance sheet, Meredith generated 83 million in cash flow from operations during the first six months of fiscal 2009. Our total debt was 455 million at December 31, 2008, down 30 million from our prior fiscal year-end. And our weighted average interest rate was approximately 4.4% as of December 31, 2008. Our debt to EBITDA ratio continues to be a conservative 1.7 to 1, well under our existing debt covenants. The company has repurchased 865,000 shares in fiscal 2009, leaving 1.5 million shares remaining under our current share repurchase authorization. As Steve noted, we continue to have a strong balance sheet, low level of debt and we are exercising an aggressive expense management across the company, and are well positioned to weather the current softness in advertising and general turbulence in the financial markets. Now, focusing on our outlook; most of our advertising clients continue to experience a difficult economic environment. This resulting weakness will impact on revenues for the remainder of our fiscal 2009. While, it's too early to predict an improving trend, fiscal 2009 third quarter publishing advertising revenues are currently down nearly 15%, compared with the decline of nearly 20% in the first half of our fiscal 2009. Additionally, fiscal third quarter paper prices are moderating compared to the first half. Still, paper prices are expected to be approximately 7% higher than the third fiscal quarter of 2008. Broadcasting advertising pacings are currently down nearly 40%, driven by 70 % decline in automotive pacings. Our average tax rate is expected to be approximately 36% in the third quarter, and 40% for the full fiscal 2009. Currently, we expect our third quarter earnings per share to range from approximately $0.55 to $0.60. And full year earnings per share are expected to range from $2 to $2.25, excluding the special charge taken in the fiscal second quarter. And now, I'll turn it back to Steve for closing comments.

[Stephen M. Lacy:]

Thank you very much, Joe. To conclude this morning before the Q&A, Meredith possesses a solid foundation and is well positioned to build shareholder value overtime. We have a powerful portfolio of profitable and vibrant media brand and asset. We possesses a strong and growing connection to the American consumer, particularly women, who make the overwhelming majority of purchasing decisions in the American household. This is evidenced on the publishing side by our recent leadership studies as measured by MRI, and on the broadcasting side, through the most recent November ratings period. Our revenue mix is balanced with approximately 60% generated from advertising sources, and 40% from non-advertising sources of revenue. Many of these non-advertising sources including brand licensing and video productions are experiencing rapid growth and possess more upside potential. We are continuing our aggressive expense and cash management program. We generate significant operating cash flow, have a conservative balance sheet and a modest level of debt at a low cost to fund. At Meredith, we have a proven track record of outperforming our effective industry and growing share. Once again, we believe the current trends are primarily cyclical in nature and not structural as it relates to our industry or Meredith in particular. We are confident that we'll manage through this challenging time and emerge in an even stronger competitive position. Now, we'll be happy to answer any questions that you might have.

[Operator:]

(operator instructions). And the first question comes from the line of Catriona Fallon with Citi. Pleas go ahead.

[Unidentified Analyst:]

Hi, this is Dave Ross (ph) for Catriona. How are you guys.

[Stephen Lacy:]

Hi, Dave. Good morning.

[Unidentified Analyst:]

Morning to you too. You talked a little bit earlier about how total expenses were down about 4.5% for the first half of the year. Do you have any idea how much the expense decline would have been if you exclude paper, postage, fuel you all said non-controllable costs?

[Stephen Lacy:]

We can certainly made that calculation, obviously it would have been higher because the paper prices are up about 18% in the quarter. So Dave we can make that calculation and get back to you on a follow-up call. But paper prices are up about 18%, postages up about 3 and that's probably about where our printing prices are as well.

[Unidentified Analyst:]

Okay. well just following on to that. Your guidance for Q3 in terms of at least the advertising revenue suggest that, total revenue will likely be down a little bit more in Q3 then it was for the first half of the year. Given that in all the cost cutting that you've done to date, both -- and your recent announcement this month and then previously in June last year. Where should we expect to see expenses falling for Q3 and beyond, in terms of how much cost cutting you've been able to do today?

[Stephen Lacy:]

Well I -- if you make the assumption of the volumes that we gave you, because that's really important, especially on the publishing side because as ad revenue goes up or goes down, there is a relationship to all of the cost to good factors we talked about further. But you're going to see our expenses run down a little more in the back half of the year than in the front half, because of the move that we made effective at the beginning of the fiscal year, basically assuming that the revenue assumptions we've given hold true. Of course if revenue begins to pickup, especially on the print side, total expenses will rise of course because of the increased cost of paper, printing and postage, but that would be a good problem to have, you can get my address.

[Unidentified Analyst:]

Just one other question, with regards to publishing advertising revenues, what we've seen to-date in Q3 is that ad pages aren't running down as much as slightly below 15% as what you said revenues are. Are you seeing advertisers come back to you and asking for discounted ad pages or giving up a little bit on add revenue per page. I know that you as said for the first half is up 1%. Do you see that coming down in the back half of the year?

[Stephen Lacy:]

Jack why don't you speak to what we're doing to ramp up volume and how you see the pricing scenario in the current marketplace.

[Jack Griffin:]

In 2009, we've instituted a very aggressive share program where our overwriting objective in this challenging marketplace is to take share aggressively from every corner and every competitor. And as you all know the share numbers lag the financial numbers but in the early goings of the calendar year we have reason to believe that is exceeding. If you see in one month of data is not predictable but if you look at February mid numbers, and pages that totaled measured magazines were down about 20% and our major measured magazines were down much less than that. And we believe that's an indication that what we're doing is working. We have a very disciplined and focused senior management team in the advertising space. We have great assets to work with. We have very strong pricing function. We have a no-nonsense culture and we believe that in this marketplace what we're doing now is working. It is not without it challenges, many of the major marketers and you've read about this in the press. In the country have stated publicly that they wish to reduce their cost of marketing and advertising, and our team is working diligently and aggressively where ever that occurs to take pieces of volume in partnership and we have demonstrable results to demonstrate that is working so far.

[Unidentified Analyst:]

Okay. Thank you very much.

[Jack Griffin:]

You bet.

[Operator:]

And our next question comes from the line of Michael Meltz with JP Morgan. Please go ahead.

[Michael Meltz:]

Great. Thank you. I'd actually probably have about 20 questions, but I'll try to keep it to three or four here. On the first question that Dave ask their. Steve, what should we be expecting from expenses in the second half. You were down 3.5% publishing cash cost in Q2. So you're saying down a little bit more in Q3 and Q4? Can you just quantify that? And then broadcasting cost, I'm actually more focused on, what's the expectation there in the second half? And then, I have a few follow-ups?

[Stephen Lacy:]

As I said Michael that the real trick is on the publishing side is, I'm speaking to this basically assuming the revenue kind of assumptions that we have provided. But, what I'm saying on the publishing side is our best estimate is that the cost would be a couple of points lower than we experienced basically in the first half. And, on the broadcast side, the costs are going to be down in the high singe-digit range in the second half time period.

[Michael Meltz:]

Down high single-digit, and that compares to flat, I guess in December, which political commissions I guess impacted?

[Stephen Lacy:]

Yes.

[Michael Meltz:]

Okay. Can you talk about the auto pacings information? I'm sorry, the TV pacings for the March quarter. Obviously, we all know it's bad, but can you talk about pacings per month, and perhaps talk about other categories beyond auto, what else are you seeing?

[Stephen Lacy:]

I don't have the pacings by month. We've got them in total by category. We can certainly get that for you if you would like. And as I mentioned before on the call, the real driving force, and I'm going to ask Paul Karpowicz to give you little color around this really comes on the automotive side. If you go then to some of other major categories, home furnishings as an example, down more like the group as a whole down around 40% if you will, which is another big category. Professional service is down about 30, and fast food restaurants and that sort of thing down in the high 20s. And then some of the smaller categories actually show some uptick but -- Paul, why don't you talk a bit about the timing of how we see automotive booking right now and what you see in the marketplace.

[Paul Karpowicz:]

Okay. Yeah, there is a lot of uncertainty in the market as it relates to automotive. And, I think what we're going to see as this quarter develops is that that we're going to see orders coming in later and later and later. Anecdotally, in our station in Las Vegas this morning, and in meeting with the sales managers, they told me about and an avail request that came in from G Chrysler with a start date of 1/26. Now, that's just a few days away. And, I think it's a reflection of how uncertain this environment is, where the agency literally just found out yesterday that they are going to be booking something seven days later. So, I hope that we are going to see more and more of that activity as we work our way through the quarter. But, I don't want to be overly optimistic. It's just that quite frankly, I don't think these automotive guys really know what's going to happen next.

[Michael Meltz:]

Okay. And the Comcast retrans deal, I -- is this -- I don't think you've announced that previously. I know it was expiring, can you talk about the impact on numbers in the back half of the year.

[Stephen Lacy:]

The majority of the impact from a timing point of view is really in our fiscal 2010 because of the timing of the implementation. And, that was the largest of the contracts to be wrapped up. We still have one remaining, and we feel pretty confident that I think you've got history of -- if you go back in 2006 and 2007 as an example, that was 5 or $6 million. And what we're saying in fiscal 2010, it will at least 16, maybe a little bit more. And as we wrap all these agreements up and get all the implementation dates lined up, we'll continue to message how we think that revenue is going to play out.

[Michael Meltz:]

And as a publishing group, the other expense, other revenues; can you just clarify that what was the acquisition benefit? And then, I think you said, the reported revenue growth was 9%. But, you said, integrated marketing was up 30, licensing was up over 10, what's the drag there?

[Stephen Lacy:]

I don't know if I am exactly tracking with you, but let me answer some of the parts and pieces of your question. Yes, integrated marketing was up about 30%, as was the licensing activity. The flip side would be the reduction in our retail book activity down kind of in the mid 20s. But the big change if you're looking at the other revenue line on the income statement, it's really growth in licensing and interactive offset by reductions in the amount of book products we putout at retail, compared to prior year period.

[Michael Meltz:]

And the acquisitions, what would that add?

[Stephen Lacy:]

The acquisitions would be a few million dollars difference in revenue, not a big difference on the bottom-line in terms of profit.

[Michael Meltz:]

Okay and last question I promise here. The -- Jack your comment on pricing, you're saying aggressive share program. I think we're kind of backing into a number where yields were down about 2% in the December quarter. Are you saying yields are going to be down a lot more going forward, can you just -- I know you're not going to market saying that but what's implied in your guidance?

[Jack Griffin:]

I can tell you that in the early goings of 2009 we're seeing some yield erosion. But I wouldn't characterize it as a big number relative to the earlier quarter number you just talked about. And as you know yield varies with category mix and all the waiting and we're closing issues early in '09. We only have a couple of issues closed. So I don't see any pricing information in those early issues that would say its markedly different than where we've been in the recent months. On the overall pricing front going to market, what we attempt to do when we go for share is to be prudent about what we do on pricing and also bundle as many of our magazines and other pack -- other assets as we can, our online programs and our events. And I think we're being successful doing that. So, we're not sitting here signaling that there's a major yield issue that we're seeing in the early numbers.

[Michael Meltz:]

Okay. Actually Victor just emailed me, said I'm asking too many questions. So I'm going to stop it there, thanks for your time.

[Stephen Lacy:]

Thanks Michael.

[Operator:]

Next question comes from the line of Edward Atorino with Benchmark. Please go ahead.

[Edward Atorino:]

Hi, good morning. I want to get back to the auto situation. The -- sort of the shocking numbers, I've never seen any numbers like that before in terms of the pacings and stuff. It was encouraging to hear that maybe there's just been a long delay in auto business coming back. Could you sort of give us your thoughts on that. I mean AdAge just talked about some of the foreign companies looking on opportunities to gain market share. Is this hole in January sort of a carryover from the credit crisis and the difficulties in late 08 and now maybe the budgets are being put back together and the other companies have to sell cars it seems to me. To avoid going out of business and television is still a pretty good way to sell cars. So could you sort of flush out what you think is going to happen in the auto side going forward?

[Stephen Lacy:]

It all depends and then Paul I'll ask you to add some color. I think it all depends over what period of time that you're referring to but for most of us other than people who live in a major metropolitan area, you basically need a car to get to work. And maybe a different type of a car then we would have purchased historically but the big, big, big decline that we are seeing in the pacing right now are really domestic manufacturer advertising. Twice as weak as import manufacturer if you will. And I think that makes sense based on what we would know and if you look even at total domestic compare to total import, there is about a 20 point swing with of course domestic being worse than import. In terms of the pacing that we have on the books at the moment compared to a year ago. And I know Paul if you'd like add anything to that but those are the numbers.

[Paul Karpowicz:]

I guess, I would add the other thing that we're seeing locally is there has been a witty out process as it were. Where we have seen some dealers go out of business and literally just shut their doors. However in the aftermath of that we have seen adjacent dealerships realizing that, that is now opened up potentially a new market for them. And have come back on the air and have essentially tried to fill that void and reinforced the message that, hey we're still in business, we're still here Toyota dealership and we now are available, you can find us and we're in this area. So that's the other off shoot of the shake out that I think, we have seen through this credit crunch where it really did its become survival of the fittest and we're now seeing those that have survived, starting to step up a little bit and it certainly not been overwhelming but we starting to see on a local level some of these dealers step up again and say okay we think we've seen how the markets going to shake out, we're going to jump back in.

[Edward Atorino:]

Could you also talk about online publishing revenues and T.V. revenues and what was the number for cable retrans in the quarter?

[Paul Karpowicz:]

Sure, the online activity on the publishing sites from the revenue point of view looked a lot like the magazine, advertising. On the broadcasting side, it was a bit stronger, it was down but down more like about 15% in the quarter. So those are the interactive advertising revenues that you were asking about, and what was the other party or question is?

[Edward Atorino:]

The cable retrans revenues in the quarter.

[Joseph Ceryanec:]

Its Joe. They were about 3 million in the second quarter, which was about double from a year ago.

[Edward Atorino:]

All right. Thanks.

[Operator:]

Next question comes from the line of Brian Shipman with Jefferies and Company. Please go ahead.

[Brian Shipman:]

Thanks. Good morning. Couple questions, first on that Wal-Mart business you've been doing. From your guidance in past had been that you would generate an incremental 12 to $15 million in revenue. Is that base business still doing that well, in other words has the guidance there a change? And with the new skews you're adding to Wal-Mart where would those numbers go or would they be same with consumers really bringing and spending? Second question on circulation, really I guess, are you seeing any dampening in renewal levels, or you haven't discounted all that keep people subscribing to your title that all, you could talk about that a bit? Thank you.

[Stephen Lacy:]

On the Wal-Mart deal Brian, the numbers that we message when we talked about guidance, we're really tight, very much to guaranteed minimum that we had agreed to. And the program has been in place for about 90 days and that ramps up aggressively into the new calendar year, because of the big Lawn and Garden activity which is really, really important to the spring. So, there has been no change in our expectations regarding the Wal-Mart program for the current year, those additional 500 skews where the program doubles really come in sort of ratably through calendar '09. So we will get certainly a positive benefit in our fiscal 2010, but I think it gets back again as you said to the consumer speaking, and having a sense of what that upside opportunity might be. But there is no change in our thinking about what the program will do, certainly in about the first year of its existence. And I'll ask Jack to give a little color on circulation, but its really the reason that we tried to provide more information than we normally do about the consumer side of the business because we've been very pleased with the mail that we have dropped and although the new stand part of the business industry wide is weak, it appears that we have picked up some share and so renewals direct response rate, all of those indicators if you will are really quite strong and if you think about subscription to better homes and gardens its pretty good value, we delivered 12 issues to your door compared with the paper back book a peat whatever else you might do with 20 bucks. So I don't know Jack if you want to add any thing to that?

[Jack Griffin:]

I will add that on our subscription business. We're experiencing now very solid results both in our initial direct mail acquisition and in our renewal efforts and as we talked to you about many times before, we do prodigious research from a reader standpoint. And what we're seeing in the connection with the consumer is very encouraging. We had a major redesign of ladies home journal effective with February and the reader feedback of that so far is very, very positive. And if you take a big step back and look at the macro environment, our magazines have merit of are particularly well suited to this new mood of the country as people deal with uncertainty and fear, they're looking for things to hang on to and trusted brands and that's what we provide with magazines like better homes and gardens and parents and more and so forth. And I think the other piece of that is that we're not a company predicated on popular culture or celebrity. We have enduring friends that really matter in people's lives particularly when times get tough. And as toughest things are now in the consumer world, people are spending more time at home, magazines are a pleasure that are affordable and we think both of those macro circumstances are affecting our business in very positive ways.

[Brian Shipman:]

Okay. Thank you.

[Operator:]

And our next question comes from the line of Barry Lucas with Gabelli & Company. Please go ahead.

[Barry Lucas:]

Thank you and good morning.

[Stephen Lacy:]

Morning, Barry.

[Barry Lucas:]

Couple questions Steve. It looks like the share repurchase program slowed fairly considerably in 2Q, and its probably understandable, but maybe you could talk about priorities for the use of cash what's important, and how do you deploy that? I've just got one or two follow-ups.

[Stephen Lacy:]

That's perfect. I'll ask Joe to speak to the cash activity, because he's managing it very carefully.

[Joseph Ceryanec:]

Yeah Barry, we did significantly curtailed for share repurchase. I noticed there is a comment this morning that they remain maybe more purchases than somebody had thought given on, what we're talking last quarter, but most of the purchases in our second quarter actually occurred in October. And so I think you'll see that activity will be extremely limited. The focus is on cash as you've said I mean the leverage that we are looking at are minimizing our CapEx spend while making sure we don't do anything that's going to hurt the business in the long term. Managing just general working capital inventories and the like. Dividends, we have our Annual Board Meeting coming up at the end of the month and so we'll be discussing dividends, but that is a program we expect to continue to support. Overall when you look over the next six months, we have payment on our total debt coming due to July 1st and our internal plan is to make that payment out of operating cash flow, such that if you'd look June 30 '07 -- I am sorry June 30, 08 compared to June 30, 09, our plan is to have net debt down 100 million with that payment.

[Stephen Lacy:]

Is that helpful Barry?

[Barry Lucas:]

Yes, it is very helpful. Thank you, Steve. On -- and I know that payment is coming up, but may be you could touch on another time, and that is given the difficulty that some of your peers are having whether it is publishing or broadcast and the strength that Meredith has both on the balance sheet and on an operating basis, in terms of generating cash. What do you see out there in M&A land, is there anything attractive what would be preferences if there was something available?

[Stephen Lacy:]

Well, at the moment, I think it's a pretty quite phase, I was on with a couple of bankers yesterday along with Joe and I think it is fairly quite. But we have a pretty disciplined development activity that really goes across, and I'll sort of break it four ways for you. We have a target lift of national magazine brands that we are very, very focused on that would be very much inline with the portfolio that we have built up overtime, and really focused on areas as relates to helping women take care of their children, take care their home and the family's health and well being. And the companies that own those brands know of our interests and we have active dialogue back and forth between those entities. On the broadcasting side, we also have a target lift of properties that we would fit in very well and allow us to create some efficiencies in the marketplace, and a simple example would be, we have very strong CBS affiliate in Phoenix, and if we could have a station in Tucson you've got all of Arizona covered. And we have that list as well that we work on. On the custom marketing side, on integrated marketing, where we've been most active in recent years. There are also some new platform areas that we are interested in and we'll be having some discussions and seeing some of those activities up after Board Meeting later in the month Joe spoke to. And also on the interactive side to add to our scale, well once again in the same types of areas, where we've already played and not in the areas that Jack mentioned that would be maybe more flash in the pan sorts of topics. So, you will see us stay pretty close to our knitting, but in those four platforms we know exactly what we're after and so do the people that own those businesses. That's one of the reasons we want to be aggressive on the debt reduction to have the maximum amount of dry powder available, because we think one of our biggest challenge is over the next 18 to 24 months, we'll be sorting where we can invest scarce capital.

[Barry Lucas:]

Okay. Last question if I may for Paul, since we are seeing the materialization of retrans fees and kind of got a handle on them for, into next year. Maybe, you can talk a little bit about OMVC and what happened in Las Vegas, what may happen NATB, and can that be a meaningful contributor, I don't know, 2011, 2012?

[Paul Karpowicz:]

I definitely think it can be a contributor. Meredith is a member of OMVC and it actually have been very supportive of the trials here in Las Vegas. We actually housed the van that they used here at the station, and we're very helpful in the testing, which turned out to be very positive. This is really the development of mobile video, and our ability to transmit our signal or an offshoot of our signal via mobile devices. We've indicated two OMVC, and I think they released it at the CES show that we will probably make our station at Atlanta, available as a test market. So, that would give us another opportunity to see exactly how much vibrancy there might be in that marketplace. Whether its 2011, 2012, I think that's very difficult to try and predict. But, for right now, of all the uses that we've seen for the use our additional digital spectrum, I'm probably the most excited about the mobile application versus any of the other things that have come to pass so far. So, we will continue to be very involved in that process, and you can see as these tests go forward across the country, some of the markets that they will be and, Meredith will be involved in those trials.

[Barry Lucas:]

Thanks very much Paul. If I can ask just one more I just realized -- the Feb 17, 2009, what's the handicap now? You think we're going to go digital or not?

[Paul Karpowicz:]

You know what that's is a great question. I was in Washington a week ago. And at that time, I would have said 90%, we were not going to go; 10%, we would go. The fact that the Senate held it off; really, unexpectedly, I was shocked that that happened, because it looked like that had so much momentum that once the Obama transition team had signaled that they wanted a delay, I thought this thing was full speed ahead. It does look like the house is going to back off now and wait to see if Senator Rockefeller can move it through the Senate. If he can, I think then, it's a done deal. But, we're running out of time. I mean we're coming right down to the last minute if in fact, they are going to do a delay. Our preference would be that we just go ahead. I think the broadcasters have done an excellent job in creating awareness and preparing the American public for the fact that this is going to happen. It would certainly be easier for us if it did, but obviously, we have to comply with what the Congress says.

[Barry Lucas:]

Right. And there's been almost no upper of any kind at Hawaii.

[Paul Karpowicz:]

Not at all. No, I mean, that's a great example where they just -- they went ahead and did it. And, in fact, we may in some markets if in fact the delay is implemented, we may ask to just go ahead and make the transition ourselves in certain instances.

[Barry Lucas:]

Thanks very much, Paul.

[Paul Karpowicz:]

Okay.

[Operator:]

And our next question comes from Matt Chesler with Deutsche Bank. Please go ahead.

[Matthew Chesler:]

Good morning.

[Stephen Lacy:]

Hi Matt.

[Matthew Chesler:]

Hi there, its good afternoon now. I'll try to ask fewer questions than Michael, its probably going to happen at this point. Just wanted to understand better, how you are going to get to your stated high single digit cost decline in the broadcasting division. Apart from consolidating functions across the affiliate network, how much can you cut programming cost from here and what percentage of the cost base in the divisions does that represent?

[Stephen Lacy:]

We can dig out the percentage that is programming but nothing that we have done Michael, and I think this is an important thing to note that we've been; as Joe mentioned earlier very-very careful on the content creation side. None of the cost reductions have anything to do with programming and what I was making reference to was really sort of the full year impact of some of the decisions that had already been made and implemented. And on the broadcast side there are a few levers that can be pulled but most of it has to do with some of the centralization activities that we are going to be deploying and also some of just the careful expense control measures really across the board and but its not related to programming.

[Matthew Chesler:]

Okay.

[Joseph Ceryanec:]

Because -- Matt its Joe. One thing that might help you guys model a little bit is that the action that we announced about two weeks ago, the 16 million charge, 6 million roughly 6 million in that was right off of differed costs and some other assets related to Country Home. 10 million was primarily severance in our placement. Our expectation is that, we've had about a six month pay back on that charge. So as you are looking at our second half, you can expect that we should get that charge back in cost savings and that will be, as we said company wide, so there will be impact on publishing and broadcasting as well as corporate.

[Matthew Chesler:]

Okay, good. So that's the company wide and then can you just help me understand the affected employee base, stemming from your recent action. If you think about the 250 people and 40 or so, probably coming from Country Home and I imagine others from the publishing division and a corporate. What percent or how many does that leave to on the broadcasting division to be affected and what is the total -- what was the total cost based employee count in that division at the end of the year?

[Stephen Lacy:]

Matt, we can dig out those numbers. I can give you kind of the total company. Numbers, they were about 3500 employees a year ago at this time. And so we have taken about not quite 10% reduction more or less in head count over a couple action. Part of it was the decision really tighten up in book that I think you remember and then country home would be the next largest decision and then on the broadcast side it's all important to remember that we're in 12 stations and 10 physical location. So its not a huge number of people in any ones thought. But that sort of kind a 10% number is basically where it all netted out across each of the segments when all the trading done.

[Paul Karpowicz:]

I guess I would you add in the broadcast stations again it's not as if anyone segment of -- or anyone department in a station was impacted, it was pretty much whether it was sales, technical, news, promotion, business office. It really just ran the gambit?

[Stephen Lacy:]

Its really the matter of an exercise that the broadcast leadership did were you lay all these stations outside by side. Station X can run traffic with four people, why do we for some reason have five station why? And that sort of kind of systematic process.

[Matthew Chesler:]

Right, right.

[Stephen Lacy:]

Okay.

[Matthew Chesler:]

And Steve and Paul, I understand you've been very vigilant about cost in that division and you already had a number of programs on early stages. I mean can you give us a sense for the rate of change for your emphasis on those program as you head back, back half of the year.

[Stephen Lacy:]

When you say rate of change I'm not...

[Matthew Chesler:]

Yeah. I was understanding that numbers of these programs were already underway? Such as the centralization of functions.

[Stephen Lacy:]

Right that sounds correct.

[Matthew Chesler:]

Yes.

[Stephen Lacy:]

Go ahead Paul.

[Paul Karpowicz:]

Yeah. Those are very much in process and those are ongoing and we're looking right now at exactly how each of those will be implemented and we do have it laid out in a number of phases, and we anticipate getting to phase I very quickly and then phase II will follow couple months behind that and then subsequently phase III. So we do have a plan laid out, we haven't announced it yet but we have a very clear idea of how that consolidation plan will take place?

[Matthew Chesler:]

Great. In terms of paper, I guess you're expecting that the price to be down 7% year-over-year in the third quarter. Can you state in the absolute terms, I guess its for around what approximately the absolute price is for paper and do you have an expectation for how you see the pricing market trending over the next six months given the demand environment?

[Paul Karpowicz:]

First of all go back and check...

[Unidentified Analyst:]

What I have said Mathew that paper prices we expect to be 7% higher in the third quarter of this fiscal year than the prior fiscal year.

[Matthew Chesler:]

Okay.

[Unidentified Analyst:]

However, we have seen in the first half of our fiscal, we had seen significant increases and we've effectively seen that level off. But quarter-over-quarter, third-and-third we expect to be about 7% higher.

[Matthew Chesler:]

Have you seen the market prices decrease yet, or are we at that point in the cycle or are we at a level environment?

[Stephen Lacy:]

No, no there is still higher Matt than they were. Remember we got as high at one point as almost 25% earlier in the fiscal.

[Matthew Chesler:]

Right, they're still increasing year-over-year. But what's the sequential trend looks like?

[Stephen Lacy:]

Are you talking about like Q3 over Q2?

[Matthew Chesler:]

Right.

[Stephen Lacy:]

Yeah, about 4% less in Q3 than in Q2.

[Matthew Chesler:]

Okay, great.

[Paul Karpowicz:]

Okay?

[Matthew Chesler:]

Just can I squeeze one more in here. Just could you comment on the recent press coverage, two large wholesalers indicating that they're interested in raising the price per copy delivered?

[Stephen Lacy:]

Yeah, Matt we did receive notice from one of our distributors that they would like to make the modifications to our existing terms. We've not received notice from any of the other distributors that we work with, and just as some background because we really haven't history talk much about this. We have contractual agreements in place with all of our distributors that would really require as to mutually agree to any amendment that might happen to those arrangements. We do just in that the normal course of dealing with new stand, have those kinds of issues with the distributor and really as we do with all of our new stand matters, we manage this process through Time Warner, who we've hired as our national distributor if you will. You probably know, because you follow the industry for a while that the whole distribution model has been inefficient in some areas for quite a period of time and obviously as part of any of these processes we work with Time Warner and potentially some of our largest retail customers for alternate distribution if that need would arrive, but we're just not to that point yet.

[Matthew Chesler:]

Okay, I'm done. Thank you.

[Operator:]

And our next question comes from the line of Edward Atorino with Benchmark. Please go ahead.

[Edward Atorino:]

Hi, I don't want to blame up this call. You announced this Media Meredith Online Network, this brand name.

[Stephen Lacy:]

Yes.

[Edward Atorino:]

I understand this is not a portal that allows viewers to go in. This just sort of a brand name and viewers have to go to the individual portals. Have you thought about linking the main; what they call mega portal. So that people could log on to Meredith Online Networks and then sort of pick and choose where they go. I know that's technically feasible, have you thought about doing that?

[Stephen Lacy:]

Ed you know, if you step back from it and Jack if you want to add to this you can. From a consumer point of view, Meredith is not a household consumer brand and gutter, homes and gardens and parents and now real girls; those are really the consumer brands. The Meredith Network that you're referring to is really scaling all of those assets together from an advertising marketing point of view.

[Edward Atorino:]

Got you.

[Stephen Lacy:]

Not really from a consumer connection point of view. If you typed in meredith.com you get out IR website. If you get my drift.

[Edward Atorino:]

Got you.

[Stephen Lacy:]

Its Okay.

[Edward Atorino:]

Okay.

[Stephen Lacy:]

All right.

[Edward Atorino:]

Thanks a lot.

[Stephen Lacy:]

Thank you.

[Edward Atorino:]

Bye, bye.

[Operator:]

And with our presenters, we have no other questions. Please continue.

[Stephen Lacy:]

All right. Thank you all for participating today, and we're certainly available for follow on calls if anybody has any other question. We appreciate your participation.

[Operator:]

And ladies and gentlemen, this conference will be available for replay after 12