Business News

Media General Reports First-Quarter 2011 Results, Provides Outlook

Wednesday 20. April 2011 - Media General, Inc. (NYSE: MEG) today reported an operating loss in the first quarter of 2011 of $4.2 million, compared with operating profit of $8.7 million in the first quarter last year. Segment operating profit was $8.6 million in the first quarter compared to $19.4 million last year. Net loss in the first quarter of 2011 was $25.8 million, or $1.15 per share, compared with $16.7 million, or 75 cents per share, last year.

Total revenues in the quarter decreased by $9.9 million, or 6.2 percent, to $148.9 million. Last year’s revenues included a total of $9.3 million of Olympics, Super Bowl and Political revenues that were not present this year.
“Strong performances by our television stations and local media websites in the first quarter were offset by weaker results in print and Advertising Services operations,” said Marshall N. Morton, president and chief executive officer. “To mitigate revenue shortfalls, we managed expenses aggressively, and total operating costs increased just 2 percent from last year.
“We were pleased that our Broadcast television stations continued their strong performance. Total Broadcast revenues decreased $1.8 million, or 2.6 percent, from last year, despite the absence of $7.6 million in Olympics revenues and nearly $1 million in Super Bowl revenues. Political revenues of $188,000 this year compared with $980,000 last year. Excluding those amounts, Broadcast revenues increased 13 percent in the first quarter. This strong performance underscores the fundamental strength of television advertising as well as the outstanding efforts of our stations to generate new business,” said Mr. Morton.
“Our local media websites produced a 20 percent increase in revenues. Digital Media revenues grew 26 percent in our Virginia/Tennessee market, 23 percent in the Mid-South, 20 percent in North Carolina, 18 percent in Ohio/Rhode Island, and 11 percent in Florida. Local online revenues continued their robust double-digit growth and increased 35 percent. Online Classified revenues grew 7.1 percent and marked the fifth consecutive quarterly increase. Unique visitors to our websites increased 18 percent,” Mr. Morton said. The strong performance of the websites was offset by lower results in Advertising Services, which caused total digital media revenues to decline 1.6 percent.
Newspaper advertising remained soft in the quarter. Total Publishing revenues were down 9.8 percent. Classified advertising declined 17.8 percent, driven by lower foreclosure notices and continued weakness in real estate and employment classifieds. Local print revenues decreased 8.1 percent, reflecting softness in retail spending across markets. Last year’s Local revenues included Easter-related advertising that will be in this year’s second quarter. National print revenues decreased 30 percent, mostly from reduced spending by telecommunications and national automotive advertisers. Printing and distribution revenues increased 24 percent as the result of the company’s success in attracting third-party distribution and commercial printing customers.
Circulation revenues declined 7 percent in the first quarter, mostly the result of lower single-copy sales partially offset by increased home-delivery in many markets. Circulation volumes have grown in many markets, primarily from aggressive marketing for home delivery. In March, five Daily newspapers reported higher circulation volumes from last year and nine newspapers exceeded circulation volume for Sunday. Total Sunday home delivery increased 1 percent from last year.
Market Segments
Virginia/Tennessee market profit in the first quarter was $3.8 million, compared with $7.6 million last year. Revenues declined 7.1 percent, primarily reflecting decreased Publishing revenues. Expenses increased 1.3 percent. Local revenues decreased 1.5 percent, driven by declines on the print side, except at the Richmond Times-Dispatch, partially offset by increased Local revenues at the market’s two television stations. National revenues decreased 21 percent, due mostly to declines in Richmond. Classified revenues decreased 17 percent, as a result of lower legal, real estate and help-wanted advertising, partially offset by higher automotive advertising in several markets. Printing and distribution revenues increased 5.4 percent, partially due to a new third-party delivery agreement with the Wall Street Journal.
The Florida market had a loss of $3.1 million, compared with a profit of $1.2 million a year ago, due mostly to continued softness in print advertising and to the absence of Olympics revenues this year at the market’s Broadcast television station. Revenues decreased 11 percent, while expenses were up only 0.7 percent from last year. Local revenues decreased 4.2 percent. Publishing drove the decline in Local, while WFLA-TV replaced most of its Local Olympics revenues from last year and Local digital revenues increased 67 percent. National revenues decreased 31 percent, due primarily to non-recurring National Olympics revenues and weakness in telecommunications and other categories that affected all media platforms. Classified revenues decreased 17 percent as a result of continued weakness in real estate and employment classifieds. Printing and distribution revenues were up 16 percent.
Mid-South market profit of $5.4 million increased 16 percent from last year. Total revenues grew 4.7 percent, and expenses increased 3 percent. Local advertising revenues increased 5.1 percent, as a result of higher broadcast and digital media advertising partially offset by publishing declines. National advertising rose 5.3 percent, and all platforms finished above prior-year levels. Eight of the market’s 11 television stations are CBS affiliates and did not have Olympics revenues in last year’s results. Classified revenues were down just 2.3 percent, by far the smallest decline of any of the company’s geographic markets. The newspapers in Alabama generated higher Classified revenues this year, led by the automotive and legal categories. Printing and distribution revenues were up 54 percent, due to new third-party customers at several newspapers.
North Carolina market profit of $127,000 compared with $1.1 million last year. Revenues decreased 6.3 percent, and expenses decreased 1.1 percent from last year. Local revenues decreased 6.5 percent, including lower retail spending on the print side and to the absence this year of Olympics revenues at the Raleigh television station. National revenues decreased 20 percent, also due to the absence of Olympics revenues this year and weakness in selected categories across all platforms. Classified revenues decreased 16.2 percent, due to lower real estate and local automotive advertising. Printing and distribution revenues increased significantly from the addition of the printing USA TODAY in Winston-Salem and from adding the delivery of the Charlotte Observer in the community newspaper markets.
Ohio/Rhode Island market profit of $2.3 million compared with $3.3 million last year. This market includes two NBC affiliated television stations. Total revenues decreased 9.2 percent, mostly reflecting the absence this year of Olympics revenues, and expenses decreased 3.1 percent. Local revenues declined 8.4 percent, and National advertising decreased 18 percent.
The Advertising Services and Other segment loss of $13,000 compared with a profit of $1.4 million last year. The lower results were primarily due to a 52 percent decrease in revenues at DealTaker.com, driven by a significant change in the way Internet search results are delivered by Google that affected many e-commerce businesses and which is being addressed by DealTaker.com.
Other Results
Interest expense was $17 million in the first quarter, compared with $20 million last year. Last year’s first quarter included $5.5 million in debt issuance costs immediately expensed from the company’s new debt financing structure completed in February 2010.
Corporate expense increased 4 percent from last year, mostly due to higher compensation costs.
Non-cash income tax expense in the first quarter was $5.3 million, compared with $6 million in 2010. The unusual relationship of income tax expense to pre-tax loss is due to the “naked credit” issue discussed in the company’s public filings.
Debt at the end of the first quarter was $659 million, compared with $663 million at the beginning of the year. Cash generated by operations in 2010 ($32 million on hand at December 26, 2010) was used to pay $18 million in interest on senior notes in February. Retirement plan contributions for the full year will be $11 million, compared to the company’s original expectations of $15-20 million and $7 million was contributed in the first part of the second quarter. Capital expenditures expectations for the full year are also reduced to $20-25 million from a previous estimate of $25-29 million.
EBITDA (income before interest, taxes, depreciation and amortization) was $9 million in the first quarter of 2011,compared with$23 millionin the 2010 period. After-Tax Cash Flow was a deficit of $7.5 million, compared with positive After-Tax Cash Flow of $3 million in the prior-year’s quarter. Capital expenditures in the first quarter of 2011 were $4.6 million, compared with $2.1 million in the first quarter last year. Free Cash Flow (After-Tax Cash Flow minus capital expenditures) wasa deficit of$12.1 million, compared with positive Free Cash Flow of $834,000 in the prior-year period.
Media General provides the non-GAAP financial metrics EBITDA, After-Tax Cash Flow, and Free Cash Flow. The company believes these metrics are common alternative measures used by investors, financial analysts and rating agencies that use these measures to evaluate a company’s ability to service its debt requirements and to estimate the value of the company. A reconciliation of these metrics to amounts on the GAAP statements has been included in this news release.
Outlook
“Despite shortfalls in the first quarter in Publishing and Advertising Services, our profit goal for the year remains ambitious. All of our properties continue to aggressively pursue new business and new revenue streams,” said Mr. Morton. “Our segment operating profit target is in the $100-105 million range, compared with $113 million last year. We are optimistic about the second half of the year, particularly the prospects for our television stations. Even though this is an off-election year, we will benefit from the governor’s race in Mississippi, and we expect issues advertising and early presidential campaign spending to ramp up in the latter part of this year. As of April 15, our full-year Broadcast revenue was pacing 2 percent ahead of last year, despite the absence of elections, Olympics and Super Bowl advertising. Classified advertising is showing signs of stabilizing, and advertisers have responded favorably to our new affiliation with Monster.com. Automotive classifieds are up year-over-year at almost all of our newspapers,” he said.
For the second quarter of 2011, the company expects Broadcast revenues to be flat to up 2 percent from last year. Digital Media revenues are expected to increase 3-5 percent, with continued double-digit growth from the company’s websites offsetting decreases in Advertising Services. Publishing revenues are expected to decrease 3-7 percent. As a result of aggressive expense management, the increase in total operating costs in the second quarter is expected to be limited to 2-4 percent from last year.