Lee Enterprises Reports Earnings for Third Fiscal Quarter
Including discontinued operations, earnings for the quarter totaled 49 cents per diluted common share, compared with 50 cents in 2006.
Mary Junck, chairman and chief executive officer, said: "Even in the current advertising slowdown, our publishing business in print and online remains one of the most profitable in the industry. Our vigorous sales culture and careful cost control has allowed us to continue to generate strong free cash flow(2) and reduce net debt by $110 million in the first three quarters of this year, on top of the $179 million we repaid in the full year in 2006."
She added: "Although our advertising revenue has been significantly stronger than that of peers, it's been nonetheless down modestly compared with a year ago. Real estate is in a down cycle, taking retail home improvement and furniture store advertising with it. National advertising is also in a trough. In addition, some of our bigger department store customers are working through competitive and branding issues, and the auto industry is undergoing structural changes. Meanwhile, our rapid online growth has accelerated to a rate of more than 60 percent in the last quarter and now accounts for almost 8 percent of our advertising revenue, surpassing national. This past spring, we rolled out the Yahoo! HotJobs ad platform with excellent success, and, beginning this summer, we're adding more Yahoo technology to capture search revenue and drive additional traffic to our sites. At the same time, our newsrooms have been energetically reinventing themselves to provide unmatched local news and information in interactive, multimedia formats on our websites as well as in our powerful daily printed newspapers."
Total revenue for the quarter from continuing operations decreased 3.2 percent from a year ago to $281.4 million. Total advertising revenue decreased 3.1 percent, with online advertising up 61.2 percent. Combined print and online retail advertising decreased 2.8 percent. Combined print and online classified advertising revenue decreased 2.1 percent, with employment up 7.6 percent, automotive down 9.1 percent and real estate down 8.3 percent. Combined print and online national advertising revenue decreased 13.6 percent. Circulation revenue declined 3.3 percent.
On a same property(3) basis, which excludes the impact of acquisitions and divestitures made in the current or prior year, total revenue for the quarter decreased 3.1 percent from a year ago. There were no significant day exchanges in the quarter.
Total operating expenses, excluding depreciation and amortization, decreased 1.1 percent for the quarter compared with a year ago. Newsprint and ink expense decreased 12.0 percent. Compensation expense declined 0.4 percent. Other operating expenses increased 4.9 percent, reflecting support of industry-leading revenue and circulation initiatives and results. Same property operating expenses, excluding one-time items, depreciation and amortization, also decreased 0.2 percent for the quarter compared with a year ago.
Operating cash flow(4) decreased 8.5 percent to $73.2 million. Operating income, which includes equity in earnings of associated companies and depreciation and amortization, decreased 3.9 percent to $54.6 million. Non-operating expenses, which are primarily financial expense, decreased 11.1 percent to $19.6 million. Income from continuing operations before income taxes increased 0.6 percent to $35.1 million. Income from continuing operations increased 4.7 percent, to $22.3 million. Net income, including discontinued operations, decreased 1.0 percent to $22.5 million.
Free cash flow totaled $42.9 million for the quarter, compared with $47.3 million a year ago.
YEAR TO DATE
For the nine months ended June 30, 2007, total revenue from continuing operations decreased 0.6 percent from a year ago to $843.5 million. Total advertising revenue decreased 1.0 percent, with online advertising up 56.5 percent. Combined print and online retail advertising decreased 0.5 percent. Combined print and online classified advertising revenue decreased 0.7 percent, with employment up 6.1 percent, automotive down 5.2 percent and real estate down 5.4 percent. Combined print and online national advertising revenue decreased 6.2 percent. Circulation revenue declined 1.2 percent.
On a same property basis, which excludes the impact of acquisitions and divestitures made in the current or prior year, total revenue for the nine months decreased 0.8 percent from a year ago.
Total operating expenses, excluding depreciation and amortization, for the nine months decreased 0.9 percent, reflecting lower newsprint costs, along with one-time items in both years. Other operating expenses increased 5.6 percent, again reflecting revenue and circulation initiatives. Same property operating expenses, excluding one-time items, depreciation and amortization, increased 1.3 percent for the nine months compared with a year ago, with compensation down 0.1 percent, newsprint and ink down 2.8 percent, and other operating expenses up 5.5 percent.
There were no day exchanges during the nine-month period. At Lee's 50 percent partnership in Tucson, which uses calendar year period accounting, a 53rd week of the 2006 calendar year was recognized in December 2006. Tucson results are reported as equity in earnings of associated companies. The remaining former Pulitzer enterprises will record a 53rd week in September 2007.
Operating cash flow increased 0.1 percent to $212.5 million. Operating income, which includes equity in earnings of associated companies and depreciation and amortization, increased 1.2 percent to $158.6 million. Non-operating expenses, which are primarily financial expense, decreased 6.4 percent to $62.5 million. Income from continuing operations before income taxes increased 6.9 percent to $96.1 million. Income from continuing operations increased 8.5 percent, to $60.9 million. Net income, including discontinued operations, increased 1.9 percent to $61.0 million.
For the nine months, diluted earnings per common share from continuing operations were $1.33, compared with $1.23 a year ago, an increase of 8.1 percent.
Free cash flow totaled $102.6 million, compared with $133.8 million a year ago, reflecting improved operating results and lower financial expense, which were more than offset by changes in timing of tax payments.
Lee Enterprises is a premier provider of local news, information and advertising in primarily midsize markets, with 51 daily newspapers and a joint interest in five others, rapidly growing online sites and more than 300 weekly newspapers and specialty publications in 23 states. Lee's newspapers have circulation of 1.7 million daily and 1.9 million Sunday, reaching more than four million readers daily. Lee's online sites attract more than 11 million visits monthly, and Lee's weekly publications are distributed to more than 4.5 million households. Lee's 55 newspaper markets include St. Louis, Mo.; Lincoln, Neb.; Madison, Wis.; Davenport, Iowa; Billings, Mont.; Bloomington, Ill.; Tucson, Ariz.; and Napa, Calif. Lee stock is traded on the New York Stock Exchange under the symbol LEE. For more information about Lee, please visit www.lee.net.
ADJUSTED EARNINGS AND EPS (1)
The following tables summarize the impact on income from continuing operations and earnings per diluted common share from one-time items. Per share amounts may not add due to rounding.
Three Months Ended June 30
----------------------------------------------------------------------
2007 2006
------------------ ------------------
(Thousands, except EPS) Amount Per Share Amount Per Share
-------- --------- -------- ---------
Income from continuing
operations, as reported $22,310 $ 0.49 $21,316 $0.47
----------------------------------------------------------------------
Adjustments to income from
continuing operations:
Reduction in value of
intangibles - 5,526
Transition costs - 1,677
----------------------------------------------------------------------
- 7,203
Income tax expense (benefit) of
adjustments, net - (1,984)
----------------------------------------------------------------------
- - 5,219 0.11
----------------------------------------------------------------------
Income from continuing
operations, as adjusted $22,310 $ 0.49 $26,535 $0.58
======================================================================
Nine Months Ended June 30
----------------------------------------------------------------------
2007 2006
------------------ ------------------
(Thousands, except EPS) Amount Per Share Amount Per Share
-------- --------- -------- ---------
Income from continuing
operations, as reported $60,944 $ 1.33 $56,151 $1.23
----------------------------------------------------------------------
Adjustments to income from
continuing operations:
Curtailment gains (3,731) -
Curtailment gains, Tucson (1,037) -
Early retirement program - 8,654
Reduction in value of
intangibles - 5,526
Transition costs - 2,830
----------------------------------------------------------------------
(4,768) 17,010
Income tax expense (benefit) of
adjustments, net 1,683 (5,662)
----------------------------------------------------------------------
(3,085) (0.07) 11,348 0.25
----------------------------------------------------------------------
Income from continuing
operations, as adjusted $57,859 $ 1.26 $67,499 $1.48
======================================================================
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30 June 30
----------------------------------------------------------------------
(Thousands,
Except EPS
Data) 2007 2006 % 2007 2006 %
----------------------------------------------------------------------
Advertising
revenue:
Retail $112,577 $118,017 (4.6)% $346,518 $353,550 (2.0)%
National 11,975 13,862 (13.6) 42,831 45,641 (6.2)
Classified:
Daily
newspapers:
Employment 21,275 23,994 (11.3) 60,992 66,859 (8.8)
Automotive 14,008 15,964 (12.3) 41,190 44,750 (8.0)
Real estate 15,104 16,506 (8.5) 43,856 46,854 (6.4)
All other 10,842 10,813 0.3 28,903 29,105 (0.7)
Other
publications 12,603 12,371 1.9 35,651 33,776 5.6
----------------------------------------------------------------------
Total
classified 73,832 79,648 (7.3) 210,592 221,344 (4.9)
Online 16,200 10,051 61.2 39,708 25,370 56.5
Niche
publications 4,326 4,422 (2.2) 12,243 12,311 (0.6)
----------------------------------------------------------------------
Total
advertising
revenue 218,910 226,000 (3.1) 651,892 658,216 (1.0)
----------------------------------------------------------------------
Circulation 49,917 51,644 (3.3) 152,307 154,134 (1.2)
Commercial
printing 4,309 4,600 (6.3) 12,441 13,066 (4.8)
Online services
& other 8,239 8,300 (0.7) 26,885 23,563 14.1
----------------------------------------------------------------------
Total operating
revenue 281,375 290,544 (3.2) 843,525 848,979 (0.6)
----------------------------------------------------------------------
Operating
expenses:
Compensation 107,898 108,338 (0.4) 330,578 328,654 0.6
Newsprint and
ink 27,077 30,766 (12.0) 85,412 89,437 (4.5)
Other
operating
expenses 73,243 69,852 4.9 218,785 207,228 5.6
Curtailment
gains - - NM (3,731) - NM
Transition
costs - 1,677 NM - 2,830 NM
Early
retirement
program - - NM - 8,654 NM
----------------------------------------------------------------------
Operating
expenses,
excluding
depreciation
and
amortization 208,218 210,633 (1.1) 631,044 636,803 (0.9)
----------------------------------------------------------------------
Operating cash
flow(4) 73,157 79,911 (8.5) 212,481 212,176 0.1
Depreciation 7,993 8,578 (6.8) 25,032 24,617 1.7
Amortization 15,067 19,330 (22.1) 45,207 47,101 (4.0)
Equity in
earnings of
associated
companies:
Tucson
partnership 2,590 2,621 (1.2) 10,465 10,309 1.5
Madison
Newspapers 1,927 2,226 (13.4) 5,862 5,858 0.1
----------------------------------------------------------------------
Operating
income 54,614 56,850 (3.9) 158,569 156,625 1.2
----------------------------------------------------------------------
Non-operating
income
(expense):
Financial
income 2,491 1,579 57.8 5,522 4,545 21.5
Financial
expense (22,027) (23,567) (6.5) (68,006) (71,298) (4.6)
Other, net (21) - NM (21) - NM
----------------------------------------------------------------------
(19,557) (21,988) (11.1) (62,505) (66,753) (6.4)
----------------------------------------------------------------------
Income from
continuing
operations
before income
taxes 35,057 34,862 0.6 96,064 89,872 6.9
Income tax
expense 12,376 13,177 (6.1) 33,945 32,829 3.4
Minority
interest 371 369 0.5 1,175 892 31.7
----------------------------------------------------------------------
Income from
continuing
operations 22,310 21,316 4.7 60,944 56,151 8.5
Discontinued
operations 181 1,401 NM 89 3,765 NM
----------------------------------------------------------------------
Net income $ 22,491 $ 22,717 (1.0)% $ 61,033 $ 59,916 1.9%
======================================================================
Earnings per
common share:
Basic:
Continuing
operations $ 0.49 $ 0.47 4.3% $ 1.34 $ 1.24 8.1%
Discontinued
operations - 0.03 NM - 0.08 NM
----------------------------------------------------------------------
$ 0.49 $ 0.50 (2.0)% $ 1.34 $ 1.32 1.5%
======================================================================
Diluted:
Continuing
operations $ 0.49 $ 0.47 4.3% $ 1.33 $ 1.23 8.1%
Discontinued
operations - 0.03 NM - 0.08 NM
----------------------------------------------------------------------
$ 0.49 $ 0.50 (2.0)% $ 1.33 $ 1.32 0.8%
======================================================================
Average common
shares:
Basic 45,715 45,488 45,638 45,380
Diluted 45,887 45,602 45,776 45,509
======================================================================
SELECTED BALANCE SHEET INFORMATION
----------------------------------------------------------------------
June 30
----------------------------------------------------------------------
(Thousands) 2007 2006
----------------------------------------------------------------------
Cash $ 9,221 $ 12,681
Restricted cash and investments 107,310 92,310
Debt (principal amount) 1,426,500 1,581,000
======================================================================
SELECTED STATISTICAL INFORMATION
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30 June 30
----------------------------------------------------------------------
(Dollars in thousands) 2007 2006 % 2007 2006 %
----------------------------------------------------------------------
Capital expenditures 7,944 7,772 2.2% 20,649 19,358 6.7%
Same property newsprint
volume (tonnes) 41,664 44,576 (6.5) 126,862 133,814 (5.2)
Same property full-time
equivalent employees 8,082 8,133 (0.6) 8,119 8,204 (1.0)
======================================================================
FREE CASH FLOW(2)
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30 June 30
----------------------------------------------------------------------
(Thousands) 2007 2006 2007 2006
----------------------------------------------------------------------
Operating income 54,614 56,850 158,569 156,625
Depreciation and amortization 24,645 29,845 74,993 76,120
Stock compensation 1,702 1,901 5,667 5,948
Cash interest expense (23,062) (24,512) (71,036) (74,418)
Financial income 2,491 1,579 5,522 4,545
Cash income taxes (9,176) (10,196) (49,280) (14,794)
Minority interest (371) (369) (1,175) (892)
Capital expenditures (7,944) (7,772) (20,649) (19,358)
----------------------------------------------------------------------
42,899 47,326 102,611 133,776
======================================================================
NOTES:
(1) Adjusted earnings from continuing operations and adjusted earnings per common share, which are defined as income from continuing operations and earnings per common share adjusted to exclude matters of a substantially non-recurring nature, represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Reconciliations of adjusted earnings from continuing operations and adjusted EPS to income from continuing operations and earnings per common share are included in tables accompanying this release.
(2) Free cash flow is a non-GAAP financial measure. A reconciliation of free cash flow to operating income, the most directly comparable GAAP measure, is included in a table accompanying this release.
(3) Same property comparisons exclude acquisitions and divestitures made in the current and prior year. Same property revenue also excludes Lee's 50% ownership in Madison and Tucson, which are reported using the equity method of accounting. Same property comparisons also exclude corporate office costs.
(4) Operating cash flow, which is defined as operating income before depreciation, amortization and equity in earnings of associated companies, is a non-GAAP financial measure. Reconciliations of operating cash flow to operating income, the most directly comparable GAAP measure, are included in tables accompanying this release.
(5) Certain amounts as previously reported have been reclassified to conform with the current period presentation. The prior period has been restated for comparative purposes, and the reclassifications have no impact on earnings.
(6) The Company disclaims responsibility for updating information beyond the release date.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This release contains information that may be deemed forward-looking and that is based largely on the Company's current expectations and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and other uncertainties are changes in advertising demand, newsprint prices, energy costs, interest rates, labor costs, legislative and regulatory rulings and other results of operations or financial conditions, difficulties in integration of acquired businesses or maintaining employee and customer relationships, increased capital and other costs and other risks detailed from time to time in the Company's publicly filed documents, including the Company Annual Report on Form 10-K for the year ended September 30, 2006. The words "may," "will," "would," "could," "believes," "expects," "anticipates," "intends," "plans," "projects," "considers" and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this release. The Company does not publicly undertake to update or revise its forward-looking statements.
SOURCE:
Lee Enterprises, Incorporated
Lee Enterprises
Dan Hayes, 563-383-2100
dan.hayes@lee.net