Business News
Lee Enterprises Reports Continued Earnings Growth in Fiscal Q4
Tuesday 09. November 2010 - Lee Enterprises, Incorporated (NYSE: LEE) reported today that for its fourth fiscal quarter ended September 26, 2010, earnings per diluted common share were 11 cents, compared with 4 cents a year ago. Excluding adjustments for unusual matters(1) in both years, earnings per diluted common share were 16 cents, compared with 5 cents a year ago.
Lower interest expense, overall reduction in operating expenses and strong digital revenue growth contributed to the results, while newsprint costs increased and total year-over-year revenue performance mirrored the previous quarter.
Mary Junck, chairman and chief executive officer, said: “The economic recovery in our markets stalled a bit in the September quarter, but the revenue trend improved markedly in October, and we expect the improvement to continue in November, as we continue ratcheting up digital sales, which have been growing at a double-digit clip since February. In 2010, we have been building on our rapid digital audience growth by providing local news and information through mobile apps for smartphones, and this fall we have begun rolling out apps with extensive coverage of local prep and college sports. As technology and media choices continue to evolve, we are making sure that our newspapers and digital products remain, by far, the primary source of local news, information and advertising in our communities, reaching more than 80 percent of all adults.”
FOURTH QUARTER RESULTS
Operating revenue for the quarter totaled $188.7 million, a decline of 3.7 percent from a year ago. Combined print and digital advertising revenue decreased 4.4 percent to $134.3 million, with retail advertising down 4.4 percent, national down 11.7 percent and classified down 3.5 percent. Combined print and digital employment advertising revenue grew for the second consecutive quarter, up 7.9 percent in the September quarter. Automotive decreased 1.6 percent for the quarter but increased in September. Real estate decreased 19.5 percent for the quarter and other classified decreased 1.7 percent. Digital advertising revenue on a stand-alone basis increased 22.4 percent to $12.5 million, representing 9.3 percent of total advertising revenue. Digital retail advertising revenue climbed 38.6 percent and digital classified revenue rose 8.1 percent. Circulation revenue declined 1.2 percent.
Operating expenses, excluding depreciation, amortization and impairment charges in the prior year, decreased 3.1 percent. Newsprint and ink expense increased 40.2 percent, a result of price increases and accounting adjustments. Last-in first-out (LIFO) newsprint accounting charges were $3.3 million unfavorable compared to the prior year quarter, as prices were decreasing in 2009 but increasing throughout 2010. Excluding such charges, newsprint and ink expense increased 7.8 percent for the quarter. Newsprint volume declined 6.2 percent. Compensation expense declined 4.6 percent, with the average number of full-time equivalent employees down 5.4 percent. Operating costs, excluding depreciation and amortization, are expected to be down more than 1 percent in the December 2010 quarter in spite of higher newsprint costs.
Operating cash flow(2) decreased 5.9 percent from a year ago to $38.1 million. Operating cash flow margin(2) was 20.2 percent. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income totaled $22.6 million, compared with $21.0 million a year ago. Operating income margin was 12.0 percent in the current year quarter. Non-operating expenses, primarily interest expense and debt financing costs, declined 24.4 percent to $16.9 million from $22.3 million. Year end adjustments to income tax liabilities reduced the effective income tax rate for the quarter. Income attributable to Lee Enterprises, Incorporated totaled $5.2 million, compared with $1.8 million a year ago.
ADJUSTED EARNINGS AND EPS FOR THE QUARTER
Unusual matters affecting year-over-year comparisons include debt financing costs in both years and impairment charges in 2009. The following table summarizes the impact from unusual matters on income attributable to Lee Enterprises, Incorporated and earnings per diluted common share. Per share amounts may not add due to rounding.
AUDIENCES
The number of unique visitors at Lee digital platforms totaled 48.9 million in the quarter, an increase of 27.1 percent from a year ago.
Paid newspaper circulation, in the six-month Audit Bureau of Circulations Fas-Fax period ended September 30, 2010, decreased 3.9 percent daily and 4.9 percent Sunday, compared with industry average declines of 4.9 percent daily and 4.4 percent Sunday. Factors contributing to the declines include selective price increases and general economic conditions.
The latest Lee Enterprises Audience Report, for the January-June 2010 survey period in Lee’s top 12 markets, shows that overall audience reach remains strong at 66 percent of adults either reading the newspaper or visiting the newspaper website over the course of a week. An additional 16 percent used the newspaper in some way, such as accessing advertising or other information, for a total reach among all adults of 82 percent in a week. The report, from Thoroughbred Research, carries an overall margin of error of 1 percentage point.
FISCAL 2010 RESULTS
Operating revenue for the year totaled $780.6 million, a decline of 7.3 percent compared with a year ago. Combined print and digital advertising revenue decreased 8.9 percent to $560.1 million, with retail advertising down 8.1 percent, national down 11.6 percent and classified down 9.9 percent. Combined print and digital employment advertising revenue decreased 14.8 percent, automotive decreased 10.4 percent, real estate decreased 19.5 percent and other classified declined 0.6 percent. Digital advertising revenue on a stand-alone basis increased 12.4 percent to $47.3 million. Circulation revenue declined 2.9 percent. Operating expenses, excluding depreciation, amortization and impairment charges in both years, decreased 9.7 percent, with compensation down 6.9 percent and newsprint and ink down 24.7 percent.
Operating cash flow increased 2.3 percent compared with a year ago to $170.9 million. Operating cash flow margin was 21.9 percent. Including equity in earnings of associated companies, depreciation and amortization, as well as curtailment gains, impairment charges and other unusual matters, operating income totaled $147.2 million, compared with an operating loss of $173.4 million a year ago. Operating income margin was 18.9 percent for the year. Non-operating expenses, primarily interest expense and debt financing costs, declined 18.8 percent. Income attributable to Lee Enterprises, Incorporated totaled $46.1 million, compared with a loss of $123.2 million a year ago.
FISCAL 2010 ADJUSTED EARNINGS AND EPS
For the year, earnings per diluted common share were $1.03, compared with a loss of $2.77 a year ago. Excluding adjustments for unusual matters, earnings per diluted common share were $0.71, more than double $0.35 a year ago.
Unusual matters affecting year-over-year comparisons include, in 2010, curtailment gains and the impact of health care legislation. Impairment charges and debt financing costs impact both years. Also, $71.3 million of the liability related to the redemption of the minority interest in St. Louis initially recorded in 2008 was reversed in 2009, increasing 2009 results by $57.1 million. The following table summarizes the impact from unusual matters on income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per diluted common share. Per share amounts may not add due to rounding.
DEBT AND FREE CASH FLOW(3)
Debt was reduced $20.4 million in the quarter, compared with $20.0 million in the prior year quarter, and has been reduced $86.7 million year to date. Debt, net of changes in cash, has been reduced $98.6 million in the last 12 months. Debt repayments to date in the December 2010 quarter total $12.5 million and already exceed repayments in the full December quarter in 2009.
Carl Schmidt, vice president, chief financial officer and treasurer, said: “Lee readily meets all financial covenants and expects to continue repaying debt primarily with ongoing cash flow. Liquidity(4) at the end of the quarter totaled $104.7 million, which is improved from the June 2010 level, and compares to $81.5 million of debt repayments due in the next four quarters.”
Free cash flow totaled $19.6 million for the quarter, compared with $20.4 million a year ago. Timing of income tax payments accounts for the decline in the quarter. For the year, free cash flow increased 82.9 percent and totaled $104.2 million, compared with $57.0 million in 2009.
