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Journal Communications Reports Second Quarter 2012 Results

Thursday 26. July 2012 - Second Quarter 2012 compared to Second Quarter 2011 Revenue of $95.5 million, up 6.0%

Second Quarter 2012 compared to Second Quarter 2011
Revenue of $95.5 million, up 6.0%
Broadcast revenue up 18.4% or 16.5% excluding revenue from the new Tulsa station local marketing agreement
Broadcast TV revenue up 22.5% or 7.1% excluding political and issue advertising revenue
Operating earnings of $13.5 million, up 17.1%
Diluted EPS of $0.13 or $0.14 excluding a $1.0 million pre-tax publishing workforce reduction charge, up from $0.10
Notes payable to banks of $21.4 million, a reduction of $19.9 million from year end 2011
Repurchased 132,589 class A shares for $0.6 million
Milwaukee Journal Sentinel launched new iPad app
Journal Communications, Inc. (NYSE:JRN) today announced results for its second quarter ended June 24, 2012.
“Journal Communications had a strong second quarter with operating earnings up 17% driven by political and issue advertising and a continuing recovery in many of our local broadcast markets,” said Steven Smith, Chairman of the Board and Chief Executive Officer of Journal Communications. “We continued to pursue our JS Everywhere strategy, launching a new Milwaukee Journal Sentinel iPad app in May. We were pleased to close on the purchase of our two new radio stations at the beginning of the third quarter for $11.7 million, creating a strong cluster in Tulsa Oklahoma. While we expect to continue to actively pursue growth opportunities in broadcast, we also expect to use our cash to pay debt and repurchase shares.”
Second Quarter 2012 Results
Note that unless otherwise indicated, all comparisons are to the second quarter ended June 26, 2011.
For the second quarter, revenue of $95.5 million increased 6.0% compared to $90.1 million. Operating earnings of $13.5 million increased 17.1% compared to $11.5 million. Net earnings were $7.6 million compared to $6.1 million.
In the second quarter, basic and diluted net earnings per share of class A and B common stock were $0.13, or $0.14 excluding a $1.0 million pre-tax publishing workforce reduction charge, compared to $0.10.
The operating margin was 14.1% for the second quarter compared to 12.8%. EBITDA (net earnings (loss) excluding the earnings/loss from discontinued operations, net; total other expense, net; provision (benefit) for income taxes; depreciation; amortization; and, if any, non-cash impairment charges) was $19.4 million compared to $17.3 million, an increase of 11.7%.
Consolidated and Segment Results
The following table presents revenue and operating earnings (loss) by segment for the second quarter of 2012 and 2011 (dollars in millions).

2Q 2Q
2012 2011 % Change
Revenue:
Broadcasting $ 54.5 $ 46.1 18.4
Publishing 41.1 44.1 (6.9 )
Corporate eliminations (0.1 ) (0.1 ) 12.0
Total Revenue $ 95.5 $ 90.1 6.0

Operating earnings (loss):
Broadcasting $ 13.1 $ 8.3 57.4
Publishing 2.4 5.4 (54.9 )
Corporate (2.0 ) (2.2 ) 5.4
Total operating earnings $ 13.5 $ 11.5 17.1
For the second quarter, total expenses of $82.0 million increased 4.4% compared to $78.6 million.
Broadcasting
For the second quarter, broadcasting revenue increased 18.4% to $54.5 million compared to $46.1 million. Total broadcast political and issue advertising revenue was $5.7 million compared to $0.9 million. Core broadcast revenue, excluding political and issue advertising revenue, increased 8.1% to $48.8 million compared to $45.2 million. Core local and core national advertising revenue increased 2.8% and 23.0%, respectively, primarily due to an increase in automotive advertising. Retransmission revenue was $2.8 million compared to $2.1 million. Broadcasting operating earnings of $13.1 million increased 57.4% compared to $8.3 million.
Revenue from television stations for the second quarter increased 22.5% to $35.1 million compared to $28.7 million. Excluding political and issue advertising revenue of $5.2 million in 2012 and $0.7 million in 2011, revenue from television stations increased 7.1%. Core local advertising revenue decreased 2.2% primarily due to a decrease in medical and communications advertising and the impact of political and issue advertising displacement of available local advertising spots. Core national advertising revenue increased 26.2% primarily due to an increase in automotive and supermarket advertising. Operating earnings were $8.7 million compared to $4.3 million, an increase of 100.5%. Television operating expenses increased 8.6% primarily due to increases in employee related expenses and network fees.
For the second quarter, revenue from radio stations increased 11.5% to $19.4 million from $17.4 million, or 6.7% excluding $0.8 million of revenue from the local marketing agreement (LMA) for two Tulsa radio stations acquired early in the third quarter. Excluding political and issue advertising revenue of $0.5 million in 2012 and $0.2 million in 2011, revenue from radio stations on a same-station basis increased 4.8%. Core local revenue increased 9.5% or 4.6% on a same-station basis primarily due to an increase in automotive advertising. Core national revenue increased 12.8% or 7.1% on a same station basis primarily due to an increase in media and other services advertising. Operating earnings from radio stations were $4.4 million compared to $4.0 million, an increase of 10.7%, or 8.5% excluding $0.1 million related to the Tulsa LMA. Radio operating expenses increased 11.8% or 6.1% on a same station basis, primarily due to increases in employee related expenses and new Tulsa radio station transaction and LMA costs.
Publishing
For the second quarter, publishing revenue decreased 6.9% to $41.1 million compared to $44.1 million, largely due to continued decreases in the classified, national and retail advertising categories. Operating earnings from publishing were $2.4 million compared to $5.4 million, a decrease of 54.9%. Total newsprint and paper expense in publishing was $4.2 million compared to $4.5 million, a 5.2% decrease, primarily due to a reduction in newsprint consumption.
Revenue at the daily newspaper for the second quarter decreased 4.1% to $35.2 million compared to $36.7 million. Retail advertising revenue decreased 2.1%. Classified advertising revenue decreased 20.7% driven primarily by a decrease in the auto and employment categories. Digital advertising revenue of $3.0 million was up 1.1%, primarily due to an increase in sponsorships and other digital advertising revenue that was largely off-set by declines in classified digital advertising revenue. Circulation revenue of $12.6 million increased 3.0% driven by rate increases that more than off-set circulation volume declines. Other revenue of $4.0 million, which primarily consists of commercial printing and commercial delivery, was down 2.9%. Operating earnings from the daily newspaper were $2.0 million compared to $4.3 million, a decrease of 53.5%. Excluding $1.0 million in workforce reduction charges recorded this quarter, operating earnings would have decreased 29.5%. Daily newspaper operating expenses increased 2.4%, primarily due to $1.0 million in workforce reduction charges. Excluding workforce reduction charges, daily newspaper operating expenses declined 0.7%.
Community newspapers and shoppers revenue for the second quarter decreased 21.2% to $5.8 million compared to $7.4 million. Excluding revenue of $1.1 million related to Florida operations sold in 2011, revenue decreased 7.4%. Operating earnings from community newspapers and shoppers was $0.4 million compared to $1.1 million, a decrease of 60.4%. Excluding Florida operating earnings of $0.3 million in 2011, operating earnings of $0.4 million would have declined 45.1%. Operating expenses were down 14.5% or 2.0% lower excluding $0.8 million of Florida related expenses. The decrease in operating expenses was primarily due to employee expense savings resulting from previous workforce reductions and lower operating costs associated with lower revenue.
Corporate
The operating loss for the second quarter was $2.0 million compared to $2.2 million.
Non-Operating Items
For the second quarter, other expense, which primarily consists of interest expense, was $0.7 million compared to $0.9 million. The decrease in interest expense reflects a decrease in average borrowing levels for the quarter.
The second quarter effective tax rate was 40.5% compared to 42.0%. The lower effective tax rate in 2012 is due to a write-off of a state deferred tax asset in 2011.
Notes Payable to Banks and Cash Flows
At the end of the second quarter, our notes payable to banks were $21.4 million. During the first half of 2012, we reduced our notes payable to banks by $19.9 million as compared to the 2011 year-end. At the end of the second quarter, our consolidated funded debt ratio, as defined in our credit agreement, was 0.30-to-1. Year-to-date cash from operating activities was $27.2 million compared to $17.5 million. Year-to-date cash from operating activities has increased primarily due to lower income tax and management incentive compensation payments in 2012 and an increase in net earnings. Year-to-date capital expenditures were $5.1 million compared to $5.4 million.
Stock Repurchase Program
In July 2011, the Board of Directors authorized a share repurchase program of up to $45.0 million of outstanding class A common stock and/or class B common stock until the end of fiscal 2013. During the second quarter and year-to-date 2012, the Company repurchased 132,589 and 709,604, respectively, of its class A shares for $0.6 million and $3.5 million, respectively. From July 2011 through June 24, 2012, the Company has repurchased a total of 1,810,299 class A shares for $7.6 million.
Third Quarter 2012 Outlook
For the third quarter of 2012, we anticipate broadcast revenue to increase in the low-double digits, compared to the prior year, driven by an improving economy, higher political and issue advertising revenue in key states and Olympic revenue at our NBC-affiliated television stations. We anticipate publishing revenue to decline in the mid-single digits, compared to the prior year, excluding revenue from the Florida community newspaper operations sold in 2011, reflecting continued challenges with publishing advertising revenue.