GANNETT CO., INC. FIRST QUARTER
                    CONFERENCE CALL AND WEBCAST
                                 April 12,...
This growth was offset by results in our UK operations, where ad demand has
continued to be very soft.

Our broadcasting s...
The reported increase in newsprint expense was almost 14% in the quarter,
comprised of a price increase of 9.6% and almost...
measures in the press release and on the Investor Relations portion of our
website. With that introduction, I will turn it...
Automotive, as we have been saying for quite some time, remains soft in both
our domestic community and UK newspapers in t...
In our Broadcast Division, ad demand was solid in the quarter. Total revenues
for broadcasting, including Captivate, incre...
QUESTION AND ANSWER




Lauren Fine – Merrill Lynch; Analyst
I'm curious what has improved on TV such that the pacings are...
interest we held in the Cincinnati Reds, and so that small gain on that scale is
also included in that line this quarter.
...
new opportunities as we move forward. But rest assured we are not going to do
anything that would impact us for the long-t...
Gracia Martore – Gannett - CFO
I think we still are hopeful that in the second half of the year we will see some
easing of...
will - based on our expense structure - re-ignite our growth patterns in the UK.
We have had five years of just outstandin...
Gracia Martore - Gannett – CFO
I'm not sure if I would characterize it as small, but there are some things we're
looking a...
The only addition to make there would be in the Telcom category. We would
certainly anticipate that would continue, and th...
Doug McCorkindale – Gannett – Chairman
This is Doug, Fred. What did they say that we're supposed to be commenting on?


Fr...
there is some sense that things may have bottomed and are not getting worse.
But it is going to be little tricky with the ...
Okay. To clarify, could you give us the monthly ad revenue change for the first
quarter for the UK? I am just really tryin...
Well, currently for the VOD applications - for any other subscription applications
- we are looking at all the possibiliti...
Lisa Monaco – Morgan Stanley – Analyst
Gracia, could you just give us a little bit of color on the US domestic ad revenue
...
Gracia Martore - Gannett – CFO
You mean in the non-operating area?


Peter Appert – Goldman Sachs – Analyst
Yes.


Gracia ...
Yes, we do. CareerBuilder network revenues increased 46% for the first quarter
compared to the first quarter of '05. And t...
Robert Schiffman – Credit Sussie – Analyst

Okay. With so much balance sheet strength though, and if there really are very...
is quite that close a one-to-one tie with them. Clearly there are some ties, but I
think they have just done very, very we...
Following up on Rob Shipman's questions. I know your credit metrics have
weakened quite a bit from a year ago, such as you...
Doug McCorkindale – Gannett – Chairman

Dan, we will just go where we can make the most money for the shareholders, so
the...
Certain statements in this transcript may be forward looking in nature or “forward looking
statements” as defined in the P...
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gannett 1Qtranscript2006

  1. 1. GANNETT CO., INC. FIRST QUARTER CONFERENCE CALL AND WEBCAST April 12, 2006 PRESENTATION Operator Good day, everyone, and welcome to Gannett's first-quarter earnings conference call. Today's call is being recorded. Due to the large number of callers, we will limit you to one question or comment. We greatly appreciate your cooperation and courtesy. At this time for opening remarks and introductions I would like to turn the call over to Ms. Gracia Martore, Chief Financial Officer. Gracia Martore – Gannett - CFO Thanks very much and good morning. Welcome again to our conference call and Webcast today to review Gannett's first-quarter results. We hope you have had a chance to review the press releases we issued this morning, which also can be found at www.gannett.com. With me today are Doug McCorkindale, our chairman, Craig Dubow, our president and CEO, and Jeff Heinz, director of Investor Relations. Since many of you heard our presentation at the MEANY luncheon just a few weeks ago, we will keep our comments relatively brief. As you saw in the press release this morning, Gannett earned $0.99 per diluted share this quarter compared to $1.03 per share for the first quarter of 2005, on a continuing operations basis and consistent with our guidance in late March. I would like to briefly detail a few areas before I turn it over to Craig. The trends we discussed in late March with you all held for the balance of the quarter. Overall, our results reflected ad demand growth at our domestic community newspapers, particularly in classified real estate and employment.
  2. 2. This growth was offset by results in our UK operations, where ad demand has continued to be very soft. Our broadcasting segment generated record revenues, benefiting from ad demand related to the Winter Olympics on our NBC affiliates. Craig will discuss our operations in more detail in a few moments. Several additional factors had an impact on our reported results this quarter, so let me give you a few of those details. First, we began expensing stock-based compensation. The non-cash, pretax cost was approximately $11.2 million. About $6 million of that was attributable to the newspaper segment, while roughly $1 million was allocated to broadcasting and $3.6 million to corporate. After-tax, the charge was approximately $7 million or $0.03 per share. We completed the expansion and reorganization of our Texas-New Mexico newspapers partnership with MediaNews Group on the last day of our 2005 fiscal year. As you may recall, we contributed one Pennsylvania newspaper and MediaNews Group contributed three. As a result, our interest in the partnership is now a little less than 41%, and MediaNews Group has become the managing partner. Our percentage of the net results of the partnership is included in other operating revenues rather than fully consolidated in the financial statements. This treatment is similar to our California newspapers partnership investment. And as we've discussed previously, affecting our reported results in the quarter was the reorganization of the Detroit Newspaper partnership that we completed in August affected our reported results in the quarter. The full consolidation of 100% of Detroit's results had an impact on both revenues and expenses for the full quarter and our margin for the newspaper segment. Finally the exchange rate, as we mentioned in March, created a headwind for us as it averaged $1.75 this quarter versus $1.89 a year ago. The decline had a negative impact equal to roughly $0.02 per share. Since these items had a significant impact on our expenses this quarter, let me sort out some of the comparisons to give you a clearer picture. As you saw in the press release, overall our reported expenses were up 10.8%. However, excluding stock-based compensation expense and on a pro forma basis, costs for the company were held to an increase of only 0.6%. Drilling down a little bit in the segments: On the newspaper side, our reported expenses increased about 11%, again on a pro forma basis. Assuming we owned 100% of Detroit and the other newspapers, or the same complement of properties in the first quarter of 2006 and 2005, newspaper expenses would have been less than 1% higher. However excluding stock compensation expense, newspaper segment expenses were up very modestly, only 0.3% and that includes a significant increase in pro forma newsprint expense.
  3. 3. The reported increase in newsprint expense was almost 14% in the quarter, comprised of a price increase of 9.6% and almost 4% greater usage. Detroit and the other acquisitions had an impact on this area as well. So on a pro forma basis, newsprint expense was up about 6% with usage down 3.6% and prices up about 10%. Turning to the broadcasting segment, operating expenses were up 4.6% on a reported basis. Excluding stock-based compensation expense, our costs increased only 3.4%. And the last piece, corporate reported expenses, were $3.7 million higher, due almost entirely to stock option expense. If you exclude those costs, corporate expense would have increased only about $169,000. Before I move to the balance sheet, let me provide a quick update on newsprint. We have termed, fixed-price arrangements covering a majority of our newsprint requirements as you know. This resulted in stable pricing for Gannett through the first quarter despite an announced February price increase. General market prices in North America did not rise in February as planned by the producers. Throughout March, that announced increase continued to struggle to gain traction as publishers stayed focused on conservation efforts such as web width reductions, conversions to lighter weight newsprint, and we also saw declining exports. Now turning to the balance sheet, total debt at quarter end stood at $5.2 billion and cash and marketable securities were $66 million. At this point, our all in cost of debt is 4.9% with commercial paper at 4.75%. With respect to shares outstanding, basic shares at the end of the quarter and the quarterly average were both 237.8 million shares. On the capital expenditure side, we had approximately $41.2 million of expenditure in the quarter. We are still on track to spend about $240 million on capex for the year. During the quarter we also announced that we made a minority investment in 4INFO, a company that offers a comprehensive suite of mobile search services. And we also entered into a marketing and distribution agreement with them for the entire company. Finally I need to remind you that our conference call and Webcast today may include forward-looking statements and our actual results may differ. Factors that might cause that to happen are outlined in our SEC filings. This presentation also includes certain non-GAAP financial measures and we have provided a reconciliation of those measures to the most directly comparable GAAP
  4. 4. measures in the press release and on the Investor Relations portion of our website. With that introduction, I will turn it over to Craig. Craig Dubow – Gannett – President and CEO Thanks Gracia, and good morning to everyone. At the MEANY meeting in late March and as Gracia summarized, we told many of you that the results for the quarter for the domestic community newspapers were positive, although we were seeing some significant geographical divergence and auto remained challenging. At USA TODAY, results were choppy. While the ad environment in the UK continued to be very soft and ad demand for the Olympics and Captivate were continuing to contribute to positive results at our broadcasting segment. Now that the quarter is complete, let me fill you in on some details on our results starting with our newspaper segment. Reported newspaper operating revenues advanced 6% for the quarter and include the full consolidation of Detroit and Tallahassee, which we acquired in an asset swap with Knight-Ridder. Assuming we owned the same newspapers in both years, total advertising revenues in the newspaper segment declined almost 2% for the quarter. The exchange rate also had an impact on the revenue side. On a constant currency basis, ad revenues would have been down only slightly. Our results in the U.S. were significantly better than those in the UK, with US ad revenues up 1.5%. Let me review some of our category results. One caution first, Easter is later this year and this has had some impact on how individual categories fared. As in the past, we suggest you combine March and April results for comparison purposes. Although classified advertising companywide was down close to 2%, domestic classified advertising advanced over 4.5%. Real estate advertising for the entire company increased 12% in the quarter. Real estate ad demand grew progressively through the quarter, with March finishing up over 15%. Again U.S. results in real estate were stronger than the UK. For the US community newspapers, real estate increased over 22% for the quarter and also finished strongly in March with an increase of over 31%. Positive results were posted in most of the regions, although as Sue Clark-Johnson noted in her MEANY presentation, strength came from the South and West groups. We experienced similar trends in employment advertising. For the company as a whole, it was down almost 4% for the quarter. If the exchange rate remained constant year-over-year, employment advertising would have been down 1.3%. Domestic classified employment results were significantly better than our results in the UK. In the U.S. community newspaper classified employment increased over 7% for the quarter. Solid gains came particularly from the West and South groups.
  5. 5. Automotive, as we have been saying for quite some time, remains soft in both our domestic community and UK newspapers in the quarter, decreasing almost 17%. In our U.S. community newspapers, the automobile category was down almost 14%, reflecting declines in all regions but most heavily in our New Jersey and Midwest papers, a trend that continued from the fourth quarter of '05. Pro forma local advertising in the newspapers segment declined almost 2% in the quarter. In the U.S., local advertising was down slightly due in part to the Easter switch this year. Across all products, the health, financial, and home improvement categories were positive while department store, grocery, restaurant, and telecommunications categories lagged compared to 2005's first quarter. In our local markets, we have continued to foster and test our audience aggregation strategy. The high level of reach we are achieving has had a positive impact on our non-daily and niche publication and our online products. Revenues for our local non-daily products, which do not include the Army Times, Nursing Spectrum, or Clipper Magazine, continued to be strong. As we increasingly focus on our digital business, our online results have continued to grow. Online revenues for the total company including PointRoll were up about 30% for the quarter. Our domestic community newspapers contributed to that growth with an increase in online revenue of over 35%. Our latest monthly numbers for March for domestic websites had about 24.1 million unique users and reached 15.6% of the Internet audience. In the UK, Newsquest’s online audience totaled 3.8 million unique visitors with 51.8 million page impressions. In addition, the CareerBuilder network continues to generate growth in revenues. Up 46% compared to the first quarter of 2005. Traffic for the network also grew and averaged almost 22 million uniques for the first quarter. National advertising revenue was down 2% for the quarter, driven primarily by a 4% decline in USA TODAY's ad revenues. Gains in the auto, technology and telecommunications categories at USA TODAY were offset by weakness in the entertainment, travel, financial, and retail and packaged goods and pharmaceutical categories. USA TODAY.com generated strong revenue growth, increasing approximately 19% for the quarter. Focusing on the UK briefly, Newsquest, as we have been noting, has been hampered in part by the consumer slowdown particularly in employment and automobiles. Revenue for Newsquest in pounds was down almost 8% in the quarter. Newsquest's operating profit again in pounds was 19% lower. Our team at Newsquest has done a great job controlling expenses, but it is tough to offset steep declines of 22% in auto and 15% in employment. But let me assure you Newsquest is in a position to contribute meaningfully to the bottom-line once ad demand returns.
  6. 6. In our Broadcast Division, ad demand was solid in the quarter. Total revenues for broadcasting, including Captivate, increased 11% and reached $182.6 million, a record level of revenues. At our TV stations, total revenues were approximately 10% higher compared to last year. Local ad revenues increased 12% while national increased 10%. Growth in both online and Captivate contributed to the record revenues. Looking ahead, the latest pacings for the second quarter overall are down in the low single digits compared to last year's second quarter. Local is stronger than national at this point. Remember that this week's pacing and those numbers are bouncing around. We will keep you updated in our monthly reports as the quarter progresses. Before we go to Q&A, I want to focus for just a moment on our strategy moving forward. Gracia mentioned our investment during the quarter in 4INFO. Mobile is just one avenue consumers are using to access content. Consumers are moving to a variety of platforms and technology for content and we want to provide solutions for them. To that end, we made two key announcements during the quarter to amplify our focus on technology and innovation. Jack Williams was promoted to President of Gannett Digital and we created the Gannett Design and Innovation Center with Roger Ogden, who also heads up the Gannett Broadcasting. The Center is an important piece of our strategy for stimulating innovation throughout the company. These efforts are an indication of our commitment to the strengthening of our core assets, our newspapers and television stations, while growing a dynamic digital business. We believe that there are huge opportunities out there. Our customers are using more media than ever before and we intend to be there for them. Our focus will be on providing the kind of information that our customers want most, local information across any and all platforms. Now we will stop and take your questions.
  7. 7. QUESTION AND ANSWER Lauren Fine – Merrill Lynch; Analyst I'm curious what has improved on TV such that the pacings are less negative. And specifically, if you could drill down on what's going on with auto and any expectations you have on political as it relates to the quarter. Craig Dubow –Gannet – President and CEO Retail for Q1 has been slightly off overall, but when you take a look at the positive side, restaurants are up in the low- to mid-double digits. Telecommunications is up. Services are up. Medical and dental are up significantly. Media is also up. Movies and home videos are up significantly as well. The banking and finance sector is up just a little bit. Automotive, as we came to the close of the quarter, was down in the very low single digits, so there was some improvement, but it has been bouncing up-and-down, as I said earlier. We are seeing some greater results at this point, from obviously the foreign auto sector, but overall for the US, in composite, that is where we are at this time. Gracia Martore – Gannett - CFO On the political side, Lauren, we have picked up some dollars here early in the quarter, but we would anticipate picking up further dollars later in the quarter, particularly in late March and June. The dollars we achieved here early in the quarter although it won't be a big number for us in this particular quarter. Lauren Fine - Merill Lynch – Analyst Okay, then just a follow-up. On the non-operating other income line, there was a big swing this quarter, and I am wondering what contributed to that? If you could give us any breakdown of what was in that line. Gracia Martore – Gannett - CFO Sure, Lauren. There's probably 20 different items in that line at any given quarter, plus or minus. There is CareerBuilder and a number of our smaller internet investments and some other investments. What moved the dial a little bit in this quarter was that we were able to sell, along with others, our very small
  8. 8. interest we held in the Cincinnati Reds, and so that small gain on that scale is also included in that line this quarter. Lauren Fine - Merrill Lynch – Analyst Is there a way to isolate that piece and break it out? Gracia Martore – Gannett - CFO Since there are so many pieces in there that we would then have to break out, I would leave it to be said that normally we would expect that particular line to be anywhere swinging from plus or minus $5 million so it obviously had a more meaningful impact than the normal. But we are not going to break out the specifics on it. Craig Huber - Lehman Brothers – Analyst Gracia, could you just give us the non news print cash costs year-over-year percent change, I guess adjusting for stock options etc.? Then my follow-up question, once you give us that please, is how much longer do you think you can maintain this very, very tight cost controls without actually hurting the quality of your newspapers going forward, franchises and so forth? Assuming ad revenues continue like this for a while. Gracia Martore – Gannett - CFO I'll be happy to give you the number and then Craig Dubow may want to jump in on the other. On a pro forma basis excluding news print and cash costs, and also excluding stock compensation, our costs would have been down 0.5% to 1% in the quarter, so a meaningful job done by our folks particularly at Newsquest, where their costs have been running below last year in the few percent range. Craig, you may want to comment…. Craig Dubow – Gannett – President and CEO With respect, to the tight costs, we have run the business for a long, long time with a very mindful eye there. We won’t do anything that will impact us from a content standpoint. We will continue, as always, to look at other efficiencies and
  9. 9. new opportunities as we move forward. But rest assured we are not going to do anything that would impact us for the long-term. Craig Huber - Lehman Brothers – Analyst Then if you could just comment on April trends for your newspapers, are they much different than we saw in March please? Gracia Martore – Gannett - CFO It is really too early for us to say, Craig. We also have that slight impact of Easter between March and April, so it is probably a little early for us to comment on April trends other than to say that we have not heard anecdotally from folks anything dramatically different one way or another in the UK. I'd say, similarly, there is nothing that would change the trends we have seen so far in a meaningful way, at least that we are aware of this early in the quarter. John Janedis - Banc of America – Analyst Can you just expand your thoughts on the UK recovery? I think you've talked in the past about typical cycles lasting about 18 months or so. Is this still how you feel in terms of how this one plays out? Gracia Martore – Gannett – CFO John, if history is any benchmark for what might happen, you are absolutely right. Our management there has talked about 18- to 24-month cycles in the UK. As you know, our numbers were slightly negative in the UK starting in the first quarter of last year, but the downward momentum did not pick up until the second half of the year. There have been some mixed signals out of the economy in the UK. We have seen a positive in the last month or so on housing prices which hopefully would bode better for consumer spending. But then, on unemployment claims as of this morning, those have risen a little bit more than was expected. There are a lot of mixed signals coming out of the UK economy and we are just going to have to keep watching it as we said at our March MEANY meeting. John Janedis - Banc of America – Analyst Related to that Gracia, would this necessarily be the point, I mean the year in where you'd start to see the numbers improve somewhat off of the bottom? Or is it just again too soon to tell?
  10. 10. Gracia Martore – Gannett - CFO I think we still are hopeful that in the second half of the year we will see some easing of the situation in the UK. But, again, that will depend on other factors that are beyond our control in that economy. Clearly the folks at Newsquest have done a fabulous job on the expense side, so if we see any kind of turn up in that economy, the pounds will flow very meaningfully to the bottom line there. Alexia Quadrani - Bear Stearns - Analyst A question on the health of the help wanted growth you are seeing here in the domestic community papers. It is up a nice 7% plus in the quarter. But clearly not as strong as it has been last year. Do you think you are seeing a less robust marketplace or is it a question of tough comparables? Then I have a follow-up question. Gracia Martore – Gannett – CFO Alexia, the tougher the comps play into the equation, and so we've had some fairly decent employment numbers for the last couple of years. But as Sue Clark- Johnson mentioned in March, we are seeing some geographic differences in frankly all of our categories where the western part of the country and some of our properties to the south, and particularly in Florida have seen some very strong numbers both on the real estate side as well as the employment side. Those properties in economies that are more manufacturing based or automotive based, are clearly having a tougher time of it. There are a mix of factors at play there. Alexia Quadrani - Bear Stearns - Analyst Then given how tough the newspaper environment is in the US but also particularly in the UK, which looks like it may stay this challenging for a little while now, at what point or at some point do you reconsider what your uses of cash are, and maybe consider more of an aggressive share buyback or dividend payment? Gracia Martore – Gannett - CFO Alexia, we are all always careful in focusing on the difference between long-term investments versus short-term cyclical factors. We continue to believe, particularly in the UK, but also in some of the economies here in the US, that it is a cyclical downturn, that we will come out of that cyclical downturn and that we
  11. 11. will - based on our expense structure - re-ignite our growth patterns in the UK. We have had five years of just outstanding performance in the UK and we don't want one or 1.5 years of difficulty to suddenly color our view of things there. We still think we have a great opportunity in the UK going forward. Likewise in the US, so we are careful about our long-term investment decisions versus short-term cyclical factors and how those play into the decision-making. We continue to look at a variety of things, including potential small acquisition opportunities. We have also dipped our toe back in the water on the share repurchase front now that some of the larger opportunities such as Northcliffe in the UK, at least temporarily, have been taking off the market. We will continue to weigh what we will do with cash as we always have. Brian Shipman – UBS – Analyst Just a quick question to see if you have concluded whether or not to exercise your option on purchasing the other stake in CareerBuilder that you don't own? Doug McCorkindale - Gannett – Chairman No comment, Brian. Brian Shipman – UBS – Analyst Okay, Doug. Related to that is use of cash. Could you clarify what you expect you might spend in share repurchases in the coming quarter or the coming quarters through the rest of this year? Gracia Martore - Gannett – CFO Again, Brian, that is a fairly opportunistic basis and is balanced against other acquisition opportunities that might come up. As you know, we have a pending deal on a duopoly situation that may or may not close here in the short-term. There are some other things, small things, that we are looking at. We will have to balance that with some of the acquisitions we do and the totality of our free cash flow this year. Brian Shipman – UBS – Analyst Okay, so the acquisition pipeline looks relatively small at this stage.
  12. 12. Gracia Martore - Gannett – CFO I'm not sure if I would characterize it as small, but there are some things we're looking at. Doug McCorkindale – Gannett – Chairman Brian, I would say that the big deals obviously are off the table or occupied with others, but there is a good flow of transactions in the digital world and some broadcasting and some print-related products too. But they are not big, billion dollar-plus deals. William Bird - Citigroup - Analyst I was just wondering if you could talk about your plans in terms of your debt structure. Do you have any plans to term out your commercial paper? Gracia Martore - Gannett – CFO As we said before, we look at that on a fairly consistent basis. We have been watching short-term rates and yes, we do have a shelf that would allow us to pull down about $2 billion in fixed-rate debt if that is the direction we wanted to head. I suspect you will see us do something in the not too distant future on that front. William Bird - Citigroup - Analyst In Q2, are you seeing any signs of life at USA TODAY? Gracia Martore – Gannett - CFO It depends on the category, Bill. Clearly travel has been a negative there but then they have had terrific success on the auto front, where their numbers are up very solidly. And as always, USA TODAY has always been a terrific forum for brand promotion. It has really been choppy, as Craig just said. We've seen, month-to- month, the numbers have varied quite widely. We will just have to see how the numbers play out and we will keep you posted in our monthly rev and stat reports. Craig Dubow - Gannett – President and CEO
  13. 13. The only addition to make there would be in the Telcom category. We would certainly anticipate that would continue, and then also to a smaller, lesser amount in the home and building category. But those appear to be moving forward consistently for us at this time. Debra Schwartz – Credit Suisse – Analyst I have a quick question on your online revenue. I was wondering if you could comment on where you are seeing the strongest online revenue growth between classified, retail, and national? And if possible, could just give us a sense generally speaking of what percent of your revenue comes from each of the categories in online. Gracia Martore – Gannett - CFO Jeff or I will have to get back to you with the specific breakdown on the online revenue, but I would say we are seeing actually pretty good growth almost across the online spectrum. Good growth in classified as we continue to do a good job on the employment side, CareerBuilder continues to be a big plus for us. And on the cars.com side as well we have done a very nice job. We have also ramped up initiatives on the local front in particular markets and those are beginning to bear fruit. Also in the broadcast side, and Craig may want to comment on this further, we have seen a very, very nice pick up on both the revenue side as well as the traffic on our broadcast Web site. Craig Dubow – Gannett – President and CEO Yes, there has been a very, very concerted effort to that end and the local sites are frankly becoming far, far more robust in providing very local information. The broadcast group has really focused on business development within that. That also creates not only the online but also further opportunity for on-air advertisers, so we are seeing nice pick up. The real focus, as I said earlier in the prepared comments, are local, local types of information and we are having very solid response there. Frederick Searby - JP Morgan – Analyst One question. Can you tell me what your response is or reactions to both Kevin Martin's and Jay Smith's comments over the past week or so?
  14. 14. Doug McCorkindale – Gannett – Chairman This is Doug, Fred. What did they say that we're supposed to be commenting on? Frederick Searby - JP Morgan – Analyst Well Kevin Martin basically was saying he is looking for more help from the newspapers and pushing his arguments for it. Doug McCorkindale – Gannett - Chairman Oh, yes, he said that at the NAA Convention in Chicago last week. We were there and we have talked to him privately about that and we are all supportive of his efforts. It is a question of getting the third Republican commissioner onboard and then moving forward. The Chairman has been very straightforward in his view that we have to move with today's media world and get rid of rules that were passed 20 or 30 years ago that have no relevance. Christa Quarles - Thomas Weisel Partners – Analyst Can you remind us what the Newsquest properties were down in Q4, on a pound basis. Then a broader question. I know you only have two, three ABC stations, but the news last week about ABC putting content online for free, how do you respond to that as an affiliate? Gracia Martore – Gannett – CFP On Newsquest, we were on the ad revenue basis down in the 6% to 7% range in the fourth quarter of last year. Again in pounds, so constant currency. Christa Quarles - Thomas Weisel Partners – Analyst Would you characterize the market as worsening or just sort of --? Gracia Martore – Gannett – CFO In the first quarter, the numbers were worse than what we saw in the fourth quarter, but in conversations more recently with our management at Newsquest,
  15. 15. there is some sense that things may have bottomed and are not getting worse. But it is going to be little tricky with the Easter switch here not to determine a trend from the March numbers. We are just going to have to see how the April numbers turn out, look at them together with March, and then get a better handle on where things stand. Craig Dubow – Gannett – President and CEO As far as the ABC announcement, we are looking at that as more of an experiment. There have been a couple of advertisers that have jumped aboard as they have gone along, but the real question is the measurement of ad success and how that is going to be received and perceived overall. At this point, ABC appears to be further in front of the other networks in this type of experimentation. But it is really about the measurement and the overall effectiveness and that is unknown at this time. Paul Ginocchio - Deutsche Bank – Analyst Just two questions. First would you pay 13 or 14 times for NBC stations? And second, can you give us UK revenues by month for the first quarter, thanks. Gracia Martore – Gannett – CFO I will start maybe with the Newsquest revenues and then Craig may want to comment on 13 to 14 times on television properties. We indicated in our 10-K that, for the full year in the UK, our revenues were about $1.1 billion to $1.2 billion. And, the first quarter is the lightest quarter on the revenue side. So if you were looking in pounds in the 150 million pounds to 160 million pound-range for the first quarter, that is about the right ballpark. Craig Dubow – Gannett – President and CEO With respect to paying 13 to 14 times on NBC stations, Paul, I would have to say Gannett has been a very disciplined buyer for years and years and that will continue. When you look at any of these opportunities, you have to consider the market factors, the growth within those areas, to make those kinds of determinations. As a blanket statement, that's not something we would comment on. Paul Ginocchio - Deutsche Bank – Analyst
  16. 16. Okay. To clarify, could you give us the monthly ad revenue change for the first quarter for the UK? I am just really trying to understand March versus January/February. Gracia Martore – Gannett – CFO I can tell you in March that ad revenues in pounds were down about 8%. That is not dissimilar to the numbers for the first two months. There haven’t been vastly different numbers for the first two months compared to March. March might have been slightly better but we will get you those and call you back if there's anything that is dramatically different than that. James Goss - Barrington Research – Analyst A couple more questions regarding the broader future of being network affiliates in the changing technological environment: Between the Internet distribution that was just mentioned, and retransmission efforts, perhaps you might have a comment on that? And the ability to get a piece of the download issue, are you looking at the affiliation potential being positive or negative? Is it more of an opportunity or a threat? Craig Dubow – Gannett – President and CEO I think that’s a great question. As we look at the future, you all know we have in place long-term affiliate agreements. And we have for years known what the best combination of a local/network relationship is to really amplify our revenue opportunities. We still look at that as a very, very positive opportunity for the long-term. We are taking a look, along with the networks and independent of the networks, at any kind of local streaming, any kind of podcast. If you look around our group, you'll certainly see quite a bit of that already is taking place and being monetized at this time. With respect to the retransmission, again we have agreements that are in place and we are very comfortable with what we have and the direction those have gone over the last three years. We are very comfortable as we look to the future for broadcasting. James Goss - Barrington Research – Analyst Is there some framework in which you can get a piece of downloads? In iPods or whatever form it may take? Craig Dubow – Gannett – President and CEO
  17. 17. Well, currently for the VOD applications - for any other subscription applications - we are looking at all the possibilities. Certainly what we have to find, most importantly, is what the customer wants. As we have said many times, whatever platform and whatever form, Gannett will definitely be there. That will be with our print as well as our broadcast products, across the board. We will meet the needs of our customers. Edward Atorino – Benchmark Company – Analyst When do you start cycling through all of these pro forma numbers? Will it show up at all in the third quarter or we have to wait till the fourth quarter? The acquisitions are late August, so a little bit in the third I guess and --. Gracia Martore - Gannett – CFO We closed Detroit in late August, so we'll still have to go through the full second quarter and part of the third quarter. We also had Tallahassee come onboard and then the Texas-New Mexico shift from being fully consolidated to the “other operating revenues” line, which occurred at year-end. It will be a little bit of time before we cycle that. The Detroit piece is the biggest. Edward Atorino – Benchmark Company – Analyst Right, and interest expense going forward from the second quarter levels? Will it inch up from here? I guess that depends on what you… Assuming you didn't buy anything? Gracia Martore - Gannett – CFO If we didn't buy anything, our free cash flow would be used to pay down debt and our interest expense would be lower. It will all depend on what little acquisitions we might be doing and what we might be doing on the share repurchase front. Edward Atorino – Benchmark Company – Analyst That was my other question, have you been active lately? Gracia Martore - Gannett – CFO We have dipped our toe back in the waters.
  18. 18. Lisa Monaco – Morgan Stanley – Analyst Gracia, could you just give us a little bit of color on the US domestic ad revenue percent change in March, and as well as February, excluding USA TODAY? Gracia Martore - Gannett – CFO Excluding USA TODAY, Lisa, we'll have to get back to you on that. But we indicated that in total, pro forma US newspapers were up about 1.5% in March and USA TODAY was a negative to that. So if you exclude USA TODAY from that, revenue growth would have been slightly higher across the US newspapers. Lisa Monaco – Morgan Stanley – Analyst Okay, and then just can you give us a percent change for the daily from the quarter? I don't believe that was quantified. Gracia Martore - Gannett – CFO It was in the high single digits. Peter Appert – Goldman Sachs – Analyst Gracia, back to the other income for a second, I assume the inclusion of Texas- New Mexico in that is a pretty big item, so could you give some guidance on what that number might look like for a full-year basis? Specifically, what the “other income” item might look like on a full-year basis? Gracia Martore - Gannett – CFO Sure. There actually are two pieces in that “other operating” number. One, as you rightly point out, is Tex-Mex. But the other, bigger piece, actually, is our PointRoll acquisition. That is the other factor that is in “other operating revenues.” Peter Appert – Goldman Sachs – Analyst This is the follow-up question: For the “other income” line, do you have an estimate of what that would look like on a full year basis?
  19. 19. Gracia Martore - Gannett – CFO You mean in the non-operating area? Peter Appert – Goldman Sachs – Analyst Yes. Gracia Martore - Gannett – CFO Again, as I said earlier, there are a number of pieces in that line, including CareerBuilder, some of our other Internet investments, some minority interest pieces. It is really going to depend on what the activities are. If you use a ballpark of plus or minus $5 million depending on the quarter, I can't really give you any better guidance than that. Peter Appert – Goldman Sachs – Analyst That is a mighty big range on a full year basis. Gracia Martore - Gannett – CFO On $1.2 billion, I guess it is not quite as big as it would appear. Peter Appert – Goldman Sachs – Analyst It moves the EPS number though. Gracia Martore - Gannett – CFO It does, but it is simply something that I can't sit here today and predict, and I would not want to lead you in one direction or another. Peter Appert – Goldman Sachs – Analyst This is the tough follow-up question: Do you have the numbers on CareerBuilder revenue performance for the first quarter? Gracia Martore - Gannett – CFO
  20. 20. Yes, we do. CareerBuilder network revenues increased 46% for the first quarter compared to the first quarter of '05. And their network traffic averaged about 22 million visitors, which was up about 7% from March of last year. Peter Appert – Goldman Sachs – Analyst Great. Thank you. Gracia Martore - Gannett – CFO You are welcome. Let me make one correction on domestic advertising revenues for just the month of March. They were actually up 1.9%. The 1.5% was for the full quarter, so they would have been a little bit better than that if you exclude USA TODAY. Robert Schiffman – Credit Suisse – Analyst You guys have kept a tremendous amount of dry powder on this balance sheet; you obviously have more firepower than your competitors. Maybe you can give us a little bit of color on why you decided to pass on the Knight-Ridder properties? And in line with that, bondholders are worried that what you just said was limited M&A opportunity and the stock being down significantly, why would you turn out some of your debt if the continued focus is going to be on debt reduction in the near-term? Gracia Martore - Gannett – CFO First, I don't think we said our focus was going to be on debt reduction in the short-term. In fact, I think I said we had dipped our toes back into the water on the share repurchase front. Also, we said there are some other small acquisition opportunities that we were looking at. I hope I didn't leave you with the impression that we were totally focused on debt repayment in the short-term. Doug McCorkindale – Gannett – Chairman On Knight-Ridder, Robert, we said publicly numerous times that we had many, many overlaps that did not have easy solutions. That is very relevant to the chairman of the FCC's comments just last week. I think we had six or eight significant overlaps that would have been very disruptive in trying to do a transaction with Knight-Ridder.
  21. 21. Robert Schiffman – Credit Sussie – Analyst Okay. With so much balance sheet strength though, and if there really are very few acquisition opportunities, how do you think about this capital structure going forward? I mean historically having a stronger balance sheet may have made some sense, but why not lever this balance sheet over time? Gracia Martore - Gannett – CFO It is interesting, because we cannot look at what the acquisition opportunities are just in a two-month period of time. If we had been talking in July of last year, we would have been talking about very small opportunities out there. Then, in very short order, Northcliffe came up in the UK. And then the Knight-Ridder properties came up in the US - similar to 2000 or 2001 where we started the year and it didn't look like there was much in the way of activity, then in rapid order Central, Thompson and Newscom in the UK came up, which was about $4.7 billion or so of acquisitions. We have to manage for a more long-term look at things rather than just a month-to-month look at what is available in the acquisition arena. Thomas Russo – Gardner – Analyst Gracia, you had mentioned in the response about CareerBuilder that the revenues were up 46% but traffic up 7%. So is it still the balance in pricing? Gracia Martore - Gannett – CFO I'm sorry, Tom. I missed the last part of your -- Thomas Russo – Gardner – Analyst Yes, is the difference between the growth rate in traffic versus growth rate in revenue - which is up quite sharply – is that mix or pricing? How do you get from 7% traffic growth to up 46% in revenue? Gracia Martore - Gannett – CFO I don't think that traffic growth is in a one-to-one relationship in this side (of the business) as it is for instance when you think about pages of advertising and newspaper revenue, or spots on a TV and advertising revenue. I don't think there
  22. 22. is quite that close a one-to-one tie with them. Clearly there are some ties, but I think they have just done very, very well and continue to, both from a mix and a pricing opportunity. There are terrific opportunities now and going forward. Thomas Russo – Gardner – Analyst Okay, good. Then the Newsquest properties. Revenues were down 8%, operating income down 19%. What would happen in the US operations? Would you suspect if you had a similar decline in revenue in terms of the leveraged impact on operating income? It seems like you were able to maintain margins in the face of a fairly drastic decline in revenue in the UK. What were the steps taken and how might the US properties react if you had similar declines? Gracia Martore - Gannett – CFO Tom, you also have to look at the fact that in the UK their dependence on classified advertising, particularly employment and auto is a little bit more significant than it is in the US. Classified revenues in the UK make up about 69% or 70% of their revenues, whereas that number in the US is more in the 45-ish percent range. There is more leverage off of that very important employment classified category that is probably even a little bit more profitable for them even on the margin than it is for us here in the US. There are those factors that are different between the US and the UK that would have to enter into that equation. We have seen in the US in 2001 and 2002 employment revenues down in the 30% to 50% range, depending on the company. We all can harken back and look at what those results were back in 2001, but again classified is less of the pie here in the US than it is in the UK. Thomas Russo – Gardner – Analyst Yes, okay. Fine. Lastly, any observations, direct or indirect, on the remarketing of Knight-Ridder properties? What are you hearing? What is your level of involvement? Doug McCorkindale – Gannett – Chairman Tom, we are not involved. Dan Jenkins - State of Wisconsin Investment Board – Analyst
  23. 23. Following up on Rob Shipman's questions. I know your credit metrics have weakened quite a bit from a year ago, such as your operating cash flow coverage is down to about 7.5 times from 11.4 a year ago. And your balance sheet leverage is up as well. My question is, how much further would you see yourselves pushing those metrics, given that your share price is at a four-year low? And as you notice acquisition opportunities present themselves, could you spend an excess of free cash flow given where you sit right now? Gracia Martore - Gannett – CFO As we have done historically when we have seen investment opportunities we believe will add significant value to the Company and to our shareholders, and also our bondholders, then we will leverage up the balance sheet as we did in 2000/2001, and as we did frankly back in 1995 when we did the Multimedia acquisition. Then we get very focused on paying down the debt, because again, as we have consistently said, we very much want to be a strong investment- grade company. We will continue to be focused on balancing all of those factors - acquisitions, share repurchases, and the like - to continue to maintain our profile as a strong investment-grade company. From time to time, we will lever up a bit and then if you look at a 15-, 20-year chart of us, you'll see historically we have been focused on bringing the debt down. Then we will re-lever again if the right opportunity and right investments come along. Dan Jenkins - State of Wisconsin Investment Board – Analyst My follow-up is what would be the higher priority or use of your cash, given where your share price is? Would it be share buybacks or would it be maybe US paper acquisitions or UK paper acquisitions or perhaps broadcasting? Is there any area that you see as maybe a higher priority for your cash currently? Gracia Martore - Gannett – CFO The highest priority would be to bring the best results to the company, and we are fairly agnostic as to whether that is in the UK or the US or it is in newspapers or broadcast or on the digital front. Whatever will create the most value for our shareholders is where we are interested in investing, as it has been for the last thirty-something years, that Doug has been at the company and continues to be. We will just keep that same discipline and that same focus going forward.
  24. 24. Doug McCorkindale – Gannett – Chairman Dan, we will just go where we can make the most money for the shareholders, so there are a whole series of opportunities out there. We don't say we have to be bigger in broadcasting or bigger in print. We will go where we can make money. We can buy broadcasting stations that are not well run or at least not as well-run as Gannett can do it and make a lot of money. We can buy the Clippers of this world, which do very, very well. We can do things in the digital world or we can do all of them, at the same time, to bring the most money to the bottom-line and to improve the cash flow. There is no game plan that you only have to do one. Operator I will turn the conference back to you, Ms. Martore for any closing comments at this time. Gracia Martore – Gannett - CFO Thanks very much for joining us this morning and if you have any other further questions, feel free to call Jeff Heinz at 703-854-6917 or me. Have a great day. Certain statements in this transcript may be forward looking in nature or “forward looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The forward looking statements contained in this transcript are subject to a number of risks, trends and uncertainties that could cause actual performance to differ materially from these forward looking statements. A number of those risks, trends and uncertainties are discussed in the company’s SEC reports, including the company’s annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward looking statements in this transcript should be evaluated in light of these important risk factors. Gannett Co., Inc. is not responsible for updating the information contained in this transcript beyond the published date, or for changes made to this document by wire services or Internet service providers.
  25. 25. Certain statements in this transcript may be forward looking in nature or “forward looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The forward looking statements contained in this transcript are subject to a number of risks, trends and uncertainties that could cause actual performance to differ materially from these forward looking statements. A number of those risks, trends and uncertainties are discussed in the company’s SEC reports, including the company’s annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward looking statements in this transcript should be evaluated in light of these important risk factors. Gannett Co., Inc. is not responsible for updating the information contained in this transcript beyond the published date, or for changes made to this document by wire services or Internet service providers.

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