Gannett Q1 2004 Conference Call Earnings Report

GANNETT CO., INC. FIRST QUARTER
CONFERENCE CALL AND WEB CAST
APRIL 12, 2004

PRESENTATION

Operator

Good morning and welcome, ladies and gentlemen, to the Gannett first quarter
earnings conference call. I will now turn the conference over to Gracia Martore. Please
go ahead, Ms. Martore.

Gracia Martore - Gannett Senior Vice President and Chief Financial Officer

Thanks very much and good morning. Welcome again to our conference call and
webcast to review our company's first quarter 2004 results. We hope you have had a
chance to review our press releases from this morning, which also can be found at
www.gannett.com.
With me today are Doug McCorkindale, Chairman, President and CEO; and Jeff Hines,
Director of Investor Relations.
Very briefly, as you saw Gannett earned $1 per diluted share this quarter, which is a
penny above the 99 cents we indicated in mid-March when we saw many of you up in
New York. In the first quarter of 2003 the comparable number was 93 cents.
I'd like to briefly detail a few other areas before I turn the call over to Doug.
On the newsprint front, as we said at our meeting in mid-March, newsprint suppliers
were struggling to raise prices on February 1st by $50 per ton as they had planned. We
did not pay an increase for newsprint we purchased in the first quarter or in the month
of April. However, market conditions are very fluid and as yet undetermined. Eastern
Canadian mill labor discussions are reportedly progressing, although it is too soon to
predict an outcome. We're monitoring market conditions and will respond accordingly.
For the quarter, as you saw, newsprint expense was up about 13.3 percent, which
consists of a 10.9 percent increase in price and 2.2 percent increase in usage. On a
constant currency pro forma basis, newsprint expense actually increased about 8.2
percent, with usage up slightly and price up about 7.9 percent.
In February of this year, we exchanged our daily newspaper in Gainesville, Georgia
with Morris Multimedia for two daily publications in Tennessee: The Review Appeal in
Franklin and The Daily News Journal in Murfreesboro and three non-daily publications
in that area. As we noted in the press release this morning, we realized a small non-cash
gain for the exchange, which is reflected in the non-operating line.

Also included in the non-operating area are charges for minority interest and Internet
investments. As you may recall, we had a similar type of non-monetary, non-operating
gain in the first quarter of last year from our Texas-New Mexico Newspapers
Partnership transaction.
Turning to the balance sheet for a moment, total debt at quarter end stood at $3.7 billion
,and cash and marketable securities were $76 million. At this point our all-in cost of
debt is 3.3 percent.
With respect to shares outstanding, basic shares at the end of the quarter were 271.9
million and averaged 272.3 million for the quarter.
Capital expenditures totaled approximately $59 million in the quarter. At this point we
are still on track to spend about $280 million on capex for the year.
Finally, before I turn the call over to Doug, 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 filing.
This presentation also includes certain non-GAAP financial measures, and we have
provided a reconciliation of those measures to the most directly comparable GAAP
measures in the press release and on the investor relations portion of our website.
Now I will turn the call over to Doug McCorkindale.

Douglas H. McCorkindale - Gannett - Chairman, President & CEO

Thanks Gracia. Good morning all. As a Gracia just noted, when we met on St. Patrick’s
Day in New York we told many of you that we were guardedly optimistic and that we
were comfortable with the consensus estimate at that time of 99 cents. The foundation
of our optimism was Gannett's strong market position and anticipation of an improving
economy and increase in politically-driven ad spending. We posted solid results in
January, followed by better results in February. However, as we said in mid-March, we
still had two weeks to go in the biggest month of the quarter. The last two weeks were
better than we expected, particularly for the Broadcasting Division. Our earnings results
and our March revenue figures reflect a better advertising environment and stronger
revenues. As you saw from our press release, net income rose 9.8 percent and operating
revenues increased 11.4 percent for the quarter.
Looking at our newspaper segment, and assuming we owned the same newspapers
both this year and last year as we owned at the end of this first quarter, total advertising
revenues rose 9.4 percent in the quarter. On a constant currency basis, that converts to
advertising revenues being up 6.7 percent. Local advertising in our newspapers rose 6
percent in the quarter, helped by strong, non-daily growth and solid preprint growth.
In the US, across all products, the furniture, entertainment, financial and
telecommunications categories were particularly strong during the quarter, while
department stores and consumer electronics lagged last year's results.
Classified revenues in our newspaper segment were up 12.6 percent in the quarter.
Help wanted revenues grew 17 percent for the quarter, auto was up 6 percent and real
estate was up 11 percent.
Our employment advertising numbers in the US improved each month in the first
quarter of 2004. In March about 70 of our domestic newspapers had employment

revenues above 2003 and about 50 papers, such as Rochester, Westchester, Asbury Park,
Phoenix, Nashville and Fort Myers, actually had double-digit gains.
National advertising was up 10.5 percent for the quarter. USA TODAY's ad revenues
were up 10 percent for the quarter, but March was particularly strong with ad revenue
growth of 25 percent. The entertainment, retail, telecommunications, packaged goods
and advocacy categories were particularly strong, while auto and technology categories
lagged last year's results.
Given the uneven nature of business in 2003, USA TODAY will have one of its toughest
year-over-year comparisons in May when last year's revenues were up 11 percent. But
we will see how it's going. It's improving each and every week.
As we have been describing to you over the last 18 months, our strategy to expand our
non-daily and online products continues to add to our revenue growth. For our
domestic newspapers, non-daily revenues -- and that excludes publications such as
Army Times, Nursing Spectrum and Clipper -- were up 25 percent for the quarter. On
the Internet side, total company revenues in the quarter increased over 50 percent. We
continue to be pleased with the growth of our local websites, both in newspapers and in
broadcast. For example, on the broadcasting side, KSDK in St. Louis, our television
station there, recently became the highest ranked local TV website in the market.
Revenue for the CareerBuilder network for the first quarter of 2004 was up 66 percent
year-over-year, and increased 25 percent sequentially from the fourth quarter of 2003.
The March traffic numbers are not yet available, but CareerBuilder's traffic was up 127
percent over February of last year and almost 15 million -- 14.7 to be exact -- unique
users used the site in February of 2004. March is expected to show similar growth.
Turning to the UK, they again delivered excellent results and the UK economy appears
to be bouncing back very nicely. Pro forma revenues for Newsquest for the quarter in
pounds were up seven percent. Costs, as always, were well controlled, and as a result
Newsquest's operating profit -- again in pounds -- was up in the low-teems. As well, the
exchange rate was also very favorable for the quarter.
In television our results reflect growth in several advertising categories and the
beginning of the anticipated jump in politically based advertising. For the quarter, local
was stronger than national, increasing nine percent versus six percent respectively.
Categories of strength in the quarter for national television in addition to political were
automotive, telephone and financial.
Our latest pacings for the second quarter are up in the high-single digits, with April a
little stronger than May. National is stronger than local at this point. Pacings, however,
continue to be very volatile and subject to weekly changes. That's where we stand at
this moment, but we will keep you up to date in our monthly reports.
As you would expect, we continue to focus on controlling costs, although several
factors continue to impact these numbers. Increased insurance and medical costs are
affecting us and all of corporate America. As Gracia mentioned, reported newsprint
expense was up over 13 percent. Also, a substantial portion of the reported revenue
growth we achieved came from the recent acquisitions such as Clipper and Scottish
Media, and the non-daily products which currently have lower margins than our other
business. These areas represent opportunities for us over the next few years. And as I
also mentioned earlier, the exchange rate which had a favorable impact on revenue
growth also impacts our expense line. So in newspapers on a pro forma basis, excluding

newsprint and on a constant dollars basis, the costs were up over 4.5 percent for the
quarter.
During the first quarter we acquired NurseWeek to add to our existing Nursing
Spectrum operation. And subsequent to the end of the quarter, we announced that we
acquired the assets of Captivate Network. Captivate is a national news and
entertainment network that delivers programming and advertising to television screens
in elevators and premier office towers in North America.
Looking ahead, we're encouraged by the recent employment data and we hope our
monthly results will continue to demonstrate the improved trend we saw in this first
quarter. As we have said before, barring external factors, we expect this year to be better
than 2003 as the economy continues to grow and the election-related money is spent on
advertising. However, based on a sometimes choppy result for 2003, as we said earlier,
we do not expect our growth to be delivered in a straight line manner.
Although our revenues have improved over the course of the first quarter, based upon
what we're seeing among the entirety of all our properties -- and keep in mind we have
101 daily newspapers and 22 television stations and a lot of other activities across the
US -- we're not yet seeing a full recovery. This is especially true for our folks in the
manufacturing-based communities. We will see, however, if the positive trends
continue and we will keep you updated through our monthly reports.
Now we will stop and take your questions.

QUESTION AND ANSWER

Peter Appert - Goldman Sachs - Analyst

Good morning. Doug, just to follow up on the statement you made about costs so I am
sure I understand it -- 4.5 percent cost increase in the first quarter exclusive of
newsprint, exclusive of acquisitions and exclusive of currency, correct?

Doug McCorkindale - Gannett - Chairman, President & CEO

Yes.


So that's a pro forma increase in underlying operating expenses. Is that a number that
we should assume will be relatively constant for the balance of the year?


As you know, Peter, we will try to bring it down. But the healthcare costs in particular
are driving our number there. And we've been spending some money on these new
start-up operations and most of them are ahead of schedule. As I said earlier, their

revenue line was up 25 percent, so they are really doing well. And they will take a little
time to catch up. But we're fine. We can control that number as need be.


On a full year basis then, would that imply that newspaper operating margins will
perhaps be slightly down '04 versus '03?


Well, not if you just take the newspapers and compare apples and apples. But with all
the new things that we have in there, they are at a lower profit margin -- the non-dailies
are lower profit margins; the Scottish acquisition was way below our normal standards
in the UK -- and they are bringing the overall average down a bit. But it's moving up. It
will move up nicely.

Gracia Martore - Gannett – SVP & CFO

Remember, Peter, this is the first quarter which is a small quarter, and so the expense
side of the picture plays a little bigger role. As well, we will cycle SMG in the second
quarter.


As I said earlier, March came in very nicely in the last two weeks. When we were
visiting with you all up in New York, we did not expect the last two weeks of March to
come in. If we see these sort of trends, you'll see some money coming to the bottom line
as usual.


Last question. Share repurchase. I see you did 1 million shares in the first quarter.
Would that be a reasonable expectation for a quarterly pace over the balance of the
year?


We're very cautious and economy-minded buyers, so we will move into the market as
we see the opportunities, Peter. I don't know whether it will be more or less. We have
more than enough authority, and we've discussed this with the Board, and if the
opportunity presents itself we will move in the right direction.

Doug Arthur - Morgan Stanley - Analyst

Just drilling down on the costs again, and obviously some of the things you mentioned
go into this, but the SG&A line was up almost 14 percent. I think it was up 2.5 percent

for all of 2003. You mentioned health care insurance. Is there anything else going on
there?

Gracia Martore - Gannett – SVP & CFO

There are higher sales commissions that we would have been paying on higher levels
of revenue. Also you've got to remember that some of the acquisitions we've done more
recently, such as Clipper, would not have as much in the way of cost of goods sold. It
would be more on the selling and G&A side that their expenses would come in. So
you've got to look at both the mix of business that we are bringing in, as well as the
higher revenue picture.


Part of that -- and it is only a small part, but something I should point out -- is that our
Broadcasting Division has been emphasizing new business. Those are folks that have
not advertised on our television stations over the last 18 months, and they pay a little
higher commission rate to bring that new business in. And it's been going very, very
well. So that number will even out, unless they keep bringing in more, which we would
like to have them do. But it is working very well and it is certainly worth the
commission cost.

Lauren Fine - Merrill Lynch - Analyst

I just want to clarify one thing. On the share repurchase, how much actually fell into
the quarter versus subsequent to the quarter?
And then I'm wondering if you could give us any indication -- and I apologize if you
covered this at the beginning of the call -- what you think your newsprint prices will be
up in the second quarter?
And then third, if you could just discuss -- on CareerBuilder -- I'm sure you're pleased
with the results with the investments that were made in distribution. Can you tell us
any update anecdotally on how that's actually helping your papers in terms of their
joint sales efforts and if you're seeing good translation at the local level?

Gracia Martore - Gannett - SVP & CFO

All of the share repurchases that we mentioned in the press release were done in the
first quarter. We will comment on any activity in the second quarter when we do our
second quarter earnings call.
On the newsprint side, for the second quarter I think we would expect usage price to be
up a little over 10 percent. With regard to how much usage, that will depend on
business conditions and the like. On the reported side it will depend in the UK on the
exchange rate because on a pounds-to-pounds basis their newsprint prices were flat,
but when you factor in the currency their newsprint prices rose in the low-double
digits.


On CareerBuilder, our local folks are very, very happy with that, having the national
site out there and the up-sell. Certain jobs up-sell and local car mechanics jobs do not
up-sell, but it's working very, very well. As I said earlier from the numbers,
CareerBuilder is doing more than we expected, so it's a big plus from both the local side
and from the corporate side.

Lauren Fine - Merrill Lynch - Analyst

One last question, if I could. Can you quantify -- and I ask this often, I apologize -- but
the non-daily revenue on an annualized basis at this point if you were including
Captivate, Clipper and all the other things? Where do you think your are at now and
(indiscernible)


We don't include Captivate or Clipper in the non-daily side. And looking at the non-
dailies -- if you did it on an annualized basis, and understanding that the first quarter of
the year is the smallest quarter -- I think we're safe to say that we're continuing to run at
an annualized rate in a $275 million to $325 million range.


We may do better than that --


Again, that's just in the U.S.


Because, yes, that's just in the U.S. and Gary Watson and the folks in the Newspaper
Division are starting a lot of non-daily products and are being very successful with
them. So there will be some more coming the rest of this year.

Christa Sober - Thomas Weisel Partners - Analyst

I was wondering first if you could quantify the political contribution in Broadcasting
for the month. Then second, in help wanted, it appears that the small markets generally
are doing better than the larger markets and I was just wondering if you could highlight
anything surrounding that trend. And finally, on department stores, you commented
again that they are weak. Just trying to see if you see a secular trend going on? And

also, if you could just give us -- my understanding was your exposure to the larger,
branded department stores is less than, say, some of your other competitors out there. I
was just wondering if you could quantify that as a percentage of revenues.


Small markets versus large markets on employment? I think what we've indicated is
that the more relevant comparison has really been manufacturing-based economies
versus service-based economies. When we look at our employment numbers, as Doug
said earlier, our entire company is not in recovery. When we look at the Michigan
properties, some of the Ohio properties, they're still struggling on the employment
classified side, whereas, you have Fort Myers, Westchester, Rochester, some of those
others, that are seeing double-digit growth in employment revenues. So I think that's
probably more the relevant comparison than small versus large.


Let me add on that. We began to see the decline in the economy start, as we've said
before, in the late summer of 2000 and it started in the larger markets of Cincinnati,
Nashville, Louisville, places like that. And therefore, the rate of recovery will be higher
there because they had more to lose and they did lose more, whereas you remember
from past statements many of our local smaller markets didn't end up in a negative
category at all. So it depends on the market and the size, but the bigger markets
suffered more and that's why they're showing double-digit numbers coming back.


With respect to department stores as a percentage of local advertising, when we look at
it across all products -- and by that I mean ROP, preprint and online -- department
stores in the first quarter were probably 18 percent or 19 percent of local ad revenues.
As to the secular trends, I'll give you some thoughts and I'm sure Doug will jump in
here. As you know, we indicated last year towards the middle of the year that the
companies like Boscovs and Dillards and Federated had announced cutbacks in
spending. We have continued to see those cutbacks, although not as dramatically as
some of the headline numbers they indicated. We will cycle some of those announced
cutbacks I think around June. But whether there will be further consolidation in the
department store category remains to be seen. Certainly there are rumors from time to
time about that. So we will just have to see how that shakes out.


I think you have described it well. On the political front in broadcasting, it's not a big
number in the first quarter, as you might expect. But what we are seeing -- and you can
all see that on your own television sets -- is more advertising sooner. The Bush
campaign is clearly spending money and we're beginning to see it come from the
Democratic side of the equation. The Bush side tends to be more direct political and the
Democratic side is more issue at this point. But it's running ahead of the first quarter in
2002. Obviously that was a non-presidential year. And its coming in very strong. We
hope it stays that way.

Keep in mind that Gannett has a number of television stations in the correct markets, so
we're getting good bang for the buck. And being number one or number two in the
market, that's where folks that are looking to get the attention of the voters are likely to
place their ad dollars.


So political isn't contributing majorly to your second quarter pacings at this point?


Well, it's starting to pick up. I thought you meant just the first --


I did, but I am just curious --


We don't break down political in our pacings.


I think it's in there, but I think some of our core categories are also doing reasonably
well.

William Drewry - CSFB - Analyst

Just looking at the ad revenue to lineage yields year-to-date it looks like you're getting
some good pricing flowing through. I just wondered if you had any comments on that:
If it was a result of mix, higher CPM categories like help wanted and national picking
up or if you thought that there was pricing strength across the board.
Also, Doug, you sort of alluded to the rust belt still being weak in terms of help wanted.
Just wondered if there were any major markets where you have yet to see any kind of
turn.
And then finally, on the share count, it was up I think by about 4 million to 5 million
shares year-over-year. Just wondering if that was from option exercises.


The answer to your last question is yes, Bill. On the rust belt, in manufacturing
America, Detroit is clearly our weakest significant market, if not our weakest market
significant or otherwise. We're not seeing a pickup there. We're hearing from
manufacturing America, especially for those folks that supply parts and other pieces to
the automobile business, that they are not seeing the pickup yet. But Detroit is clearly
the weakest major market.
Do you have any thoughts on the pricing?


On the pricing side of it, just looking at USA TODAY, they, as Craig Moon indicated at
our meeting in March, put through about an eight percent increase in pricing and
they've done a good job of realizing that. They've also seen a lot of demand on the color
advertising side. So from a mix perspective, that's helpful for them because there's a
premium for color versus black and white.
In the other categories, we have been pushing through, as we indicated at year-end,
modest price increases. Some of it's going to be mix. On the classified side, we’re seeing
employment classified picking up. That is the most lucrative or highest rate category of
classified. So that's going to play into the mix as well.
One other thing on the share count. Doug is absolutely right -- option exercises. But also
the share price impact as well, and so higher share price is also impacting the diluted
share number.

William Drewry - CSFB - Analyst

Finally, if I could, is currency right now, Gracia, a straight wash on EPS? Or is it mildly
accretive or dilutive?


Currency in the quarter would have contributed over two cents.


Yes, it's a help. It's $1.80 plus, and that's clearly a positive. Plus the good economy in
the UK, so the expense side is not as high as the revenue side growth and it comes
across as a positive.

Fred Searby - J.P. Morgan - Analyst

Just a question to drill down on the help wanted. You had a nice number there and I
know you are obviously with your local base less exposed to the Monsters of the world.
But can you help us figure out in terms of market share going forward online how
much you think of every incremental dollar that goes into recruitment advertising is

going to be garnered by the pure plays and backing out CareerBuilder as well where
you have kind of the bundled sale?
And just a question that was kind of touched upon, but in the pricing leverage you
think you have at help wanted going forward versus where it may have been
historically five or six years ago when you didn't have quite the online competitive
issue?


Let me answer your question a big picture way first, and Gracia can get into some
details. We are simply not seeing a lot of folks who want to do a help wanted ad online
only. Almost everything we're getting is coming in a combination or just still on the
print side. There's a lot of up-selling, a lot of joint activity and the next level up to
CareerBuilder, as I mentioned earlier. We're not seeing anyone -- and we offer this; we
don't force the sale. We offer the people the opportunity to go on just one or the other or
both. And they're either taking print or taking both, but very, very few are taking just
online ads.


For every incremental dollar it is impossible for us to say what percentage is going here
or there. But I would suspect, based on our experience and based on CareerBuilder's
experience versus perhaps those other national pure plays, that more of those
incremental dollars will come to the folks like us that have the complete package of
print, local online and national online than the pure national plays.


That's very helpful. In terms of pricing do you think you'll be able as things keep
tightening up here to raise rates? Some have made the argument that competitive issues
will restrain that historic kind of pricing leverage --?


Hasn't been an issue. It's simply not coming up. And to get back to Bill's question
earlier about rates, pricing is not an issue with advertising right now. It's been demand
and not a price-driven item at all.


If anything we've seen pricing flexibility on the online side, both in the UK, as well as
in the US.


That is a recent trend in the UK. We have had a big discussion about it. And there
simply is no price resistance on the online side over there at all.


That's very helpful. Thank you.

Paul Ginocchio - Deutsche Bank - Analyst

Just a quick question on auto. I know it's only been two weeks since GM raised
incentives, but I wondered what you were seeing from the dealers.


I haven't heard any negative news, so therefore I'm assuming it is positive. But you
may be a little ahead of us. As I indicated earlier, some categories are stronger than
others or some lines of media, rather, are stronger than others on the automobile side.
But it is simply that we haven't heard anything one way or another.

James Marsh - SG Cowen - Analyst

Two quick questions here. One, as you look at the impact of last year's disruption on
business because of the Iraq war, can you truly read into these March results?
Specifically I wanted you to flesh out some of the individual categories, in particular
help wanted. But maybe phrased differently, if you look at the growth rates from
March, are these an unsustainable spike related to easy comps or is it really the early
stages of a trend of sequential monthly gains?
Secondly, I was just hoping you could compare and contrast the market factors that are
impacting newsprint in Europe, as well as the US. It seems that in the US we're seeing
double-digit price increases; in Europe things seem to be a bit more flat. If you could
just flesh that out, that would be helpful.


I will let Gracia take the newsprint and just give you a big picture on the employment
numbers.
I think both of the factors you mentioned are in play, although we have seen month-to-
month improvements, as I mentioned earlier, in the employment numbers. It was
stronger than we had anticipated in March. When we were up in New York, as you
recall, we were being more conservative on it. But it clearly came in stronger. The
comparisons are easier because of the results from last year.

I think it's going to take a couple of months to see where it comes out, especially in
manufacturing America. We had thought last year that after the war there would be a
pickup, and as you know it wasn't there. It didn't get too much worse, but it just sort of
moved in a sideways direction. So it's going to take a few months to see what happens
here. But it's a combination of both -- the comparisons are easier, but it is getting better.


Just looking at the second quarter of last year, James, that's really where we saw the
impact on employment. Actually employment in the US newspapers in March and
February of last year were down almost a consistent amount, but it was reduced pretty
dramatically in April, May and June. As well, in the UK, Newsquest in the April period
had a dramatically lower employment number. As we said earlier about USA TODAY,
their May of last year actually saw ad revenues up, I think, 11 percent. So it's a mixed
bag. I would say, though, that you're right. Certainly part of that is the easier
comparisons coming up in the second quarter. But we're just feeling like business is
somewhat better in some areas.
And on the newsprint side, as you may know, in Europe they set their prices on
newsprint once a year. It's done in the November/December time frame. And they
typically are in a band. There isn't the tremendous volatility that we see in the US where
prices are on a month-to-month basis. I think the thing that has been helping on the
Newsquest side in keeping their prices flat this year is that demand in continental
Europe has been much softer. Actually the UK has been somewhat better than the rest
of Continental Europe.
On the US side, I think what we've seen is demand has been muted, and it's been really
more that the producers have been willing to take a significant amount of down-time
last year because frankly the prices were so low that they were losing money early in
the year probably on every ton of newsprint that they produced. Now those numbers
are getting closer, although they are still impacted by currency and some other issues.

Steven Barlow - Prudential - Analyst

I want to talk about TV margins a little bit. They were up from the first quarter last
year, down from the first quarter of '02. Last year, obviously, you had more expenses
owing to the war and people not advertising. I wanted to just double check what's
going on on the cost side there, because I guess I thought margins should have been up
a little bit higher then they were. And related to that, can you just talk about your
ratings books for last November and February, and whether those are helping you as
you set prices going forward for the rest of the year; how you did on a relative basis one
year versus the next.


On the ratings side, we did just about the same. I think we -- I'm trying to remember
the books -- I think we had one or two stations that are better. But they are about the
same. As I mentioned earlier, the reason we're getting the political advertising is that
we're number one or number two in the markets and that's where the political
advertisers will go. Our Tampa station has been a success story coming back very nicely

from a very low position when we first got it a few years back. Most of the folks in St.
Louis, Denver, Minneapolis, these are the top-rated television stations not just in the
Gannett group but in the whole country. I think we have four of the 10 top-rated
television stations of all the stations in the United States. So the ratings are still very
strong there.
On a profit margin, I don't know whether Gracia has anything, but I think they have
been controlling costs very well. The revenue picture started off slower. As you know
on the direct political advertising, it comes in at the lowest possible rate so it is not the
most profitable advertising for us and it sometimes displaces some of the other things
that are at a higher rate. But we still like to have it. It is all very good money. But I'm not
aware of anything on the margin side.


A couple of factors that are pretty much universal -- we talked about health-care costs;
on the commission side, on some of the new business development, we're paying a bit
of a higher commission to bring that business in; and then lastly, on the programming
side we have started up some more local programming, which is taking time to build an
audience and so there's more cost in the early rounds of getting the programming up to
snuff. That in the future will pay off in better costs versus syndicated programming.


When you have 50-plus percent cash flow margins, we do whatever we can to bring the
money to the bottom line and increase revenue growth. So we don't try to fine tune it
from quarter-to-quarter. The team in broadcasting knows exactly what they have to do,
and they do it. They will bring the money to the bottom line if it's coming in over the
transom on the revenue side.


On the corporate line, it was up more than I had expected. You mentioned some of the
health care insurance and all of that. Can you just give maybe a number that you think
the Sarbanes-Oxley increased costs would be for 2004 over 2003? My guess is some of
that is in corporate but you may push some of it back to the divisions?


No, we don't push back to the divisions, and it's much greater than it should be. If
Gracia can beat up on our friends at PricewaterhouseCoopers we will come in with an
acceptable number. We had Mike Oxley here a couple of weeks ago talking to our
financial managers, and his estimate of the cost was that it would be 1 percent of
revenue for corporate America. We will try to do a lot better than that.


The other thing is on the insurance side, unlike perhaps some of the other companies
you cover -- and we mentioned this in December -- we had several multi-year insurance
policies that we renewed in the last quarter of last year. And so we would have had a
bigger jump on the insurance side than others who may have annual contracts. So we
benefited from lower insurance costs for an extended period of time. But those
contracts, those three-year, four-year contracts, came due in the last quarter of last year.
So that has an impact, along with, as you said, medical care costs and some Sarbanes-
Oxley.

Toby Sommer - SunTrust Robinson Humphrey - Analyst

Most of my questions have been answered, but on national advertising could you
compare and contrast how your local domestic newspapers are doing relative to USA
TODAY and the UK operations?


Well, in the UK national is not as significant a factor. We have all regional newspapers
and it's a factor, but it's an apples and oranges comparison. It's not as positive as USA
TODAY's numbers. As I mentioned earlier, USA TODAY was up 25 percent in March.
They are seeing a nice recovery and it's coming in most of their categories. Travel is still
a major category for USA TODAY and it's been picking up -- a little up-and-down --but
it's getting better. So the numbers are proportionately much greater at USA TODAY
than anywhere else, again because they went down a big number in 2003. But Gracia,
do you have any specifics?


As Doug was saying, USA TODAY was certainly a leader in March with 25 percent
revenue growth. But our folks at Newsquest in pounds also saw a very nice boost on
the national side. And our folks in our domestic newspapers also saw a high-single
digit boost in national advertising in March. So all of them saw good numbers on the
national side, probably USA TODAY leading the pack.


Keep in mind, on the domestic community newspapers it's 8 percent of revenue, so it's
not a great deal of money, although it has been growing over the last few years. And I
think the industry is doing a much better job in attracting national advertising.

Kevin Gruneich - Bear Stearns - Analyst

Just going back to what Doug was saying about the non-daily publication revenue
being up 25 percent, I was wondering if you could isolate for Q1 '04 and Q1 '03 the
revenue and profit impact from non-daily?


Well, what we can share with you is what we have shared with you in the past. That is
that the margin on the non-daily side in the first quarter of '04 in domestic newspapers
actually would be a little lower than those low 20s margins we've talked about in the
past, in part because it's the first quarter and in part because, as Doug said earlier, we
have been starting up additional youth publications in the early part of the quarter and
some other non-daily products. And as you can appreciate, some of those products start
out either in a loss situation or in a very small profit situation and those have to build as
we mature those products. So probably a little lower margin contributions on the non-
daily side in the first quarter this year than in the first quarter of last year. And then
their contribution to the total in terms of revenue, non-daily was probably about -- in
the US newspapers only, about 8 percent of total advertising in the first quarter of this
year versus probably 6.5 percent to 7 percent in the first quarter of last year.


Gracia, while you're in the sharing mode could you isolate the profit impact of Detroit
and then of CareerBuilder.


We won’t isolate the contribution or non-contribution of CareerBuilder. With respect to
Detroit, its contribution was lower in the quarter than it was in the first quarter of last
year for all the reasons we have talked about in terms of their still not seeing a recovery,
health-care costs and newsprint prices.


Finally, I was just wondering if you could comment on the current Q2 consensus.


What do you want us to comment on? It's a little early to get there, so you have got
your number and as you see our monthly reports we will fine-tune it and see if we can
make everybody happy or give them other goals.
By the way, going back to Detroit, as Gracia said, for the first quarter it was below last
year, but in March it had a nice pick up. So it's still not seeing the results we'd like to see
out of Detroit, but it did have a good March.


Were you still down in March year-over-year in Detroit.


No. We were up in March. But for the quarter, as Gracia indicated, we were down. But
again, those last two weeks of March since our meeting up in New York, picked up
some good results in Detroit. A significant number of pages can come in in a couple of
weeks, and with the size of that operation it can have a real positive impact on the
bottom line. They did see some good results in the last couple of weeks of March. But a
long way to go yet.


Just a follow-up on CareerBuilder. I think in terms of total job listings you're now
considerably ahead of Monster. The traffic numbers have closed significantly since the
AOL/MSN deal. So I guess the final piece of the puzzle is revenues where you're by our
calculations well less than 50 percent of Monster on the revenues side. Do you see that
gap closing in '04 and '05, and I guess how quickly?


I don't know what revenue numbers you have for Monster that are directly comparable
to CareerBuilder's revenue side, so I can't speak to the gap between CareerBuilder and
Monster. I can only tell you that CareerBuilder is enjoying some very good success. The
MSN and the AOL deals have added a lot of traffic which we would anticipate is going
to translate into good revenue growth for the CareerBuilder network. But I just simply
don't know what Monster's revenues are on a comparable basis.


Just as a follow-up to my question, are the CareerBuilder guys indicating accelerating
success with Fortune 1000 companies as a result of AOL and MSN or not?


I think as a general statement, Doug -- we can get into some specifics with you when
we get some more detail but everything we hear out of CareerBuilder is positive.
Everything they tell us in terms of the results with local newspapers, their results on the
national scene, their responses from AOL and MSN, everything is coming in more
positive than the business plan that we originally looked at when we went in with our
friends from Tribune and Knight-Ridder. So I don't know the answer to that specific
question, but we can get you some input on that.


We're hearing anecdotally that major advertisers are, with the addition of the AOL and
MSN deal, taking a real close look at CareerBuilder and in fact moving some things our
way. But that will evolve over the year.

Jim Goss - Barrington Research - Analyst

A couple of separate things. One, with regard to USA TODAY, in the third quarter you
will have both the Olympics and the conventions. Are you planning a number of special
supplements and what is the potential significance of those?
And with regard to the path you are on to add non-dailies and specialty products, the
UK emerged recently as a significant element of your cash flow stream. Do you think
this grouping is expected to be a significant sort of new event -- this is the UK of today?
And what sort of timeframe. And as you execute with these products, like Clipper and
Captivate and NurseWeek, are you linking them to the existing similar advertising type
products in their ad sales effort or are you taking a collection of individual approaches
with them?


You hit on all the points, and the quick answer is we're trying to do all of what you
have suggested. We have about $1 billion in annual revenues coming out of the UK
now. It will take us some time to get the non-daily and some of the other supplemental
activities up to that level, but they are moving all in the right direction. I wouldn't want
to say that they're all going to equal what the UK is doing for us now, but we're
certainly not investing in them just for the heck of adding another page to the annual
report. We're very positive about all of these activities. And keep in mind that a great
deal of the money that comes out of the UK and their success is with non-daily
products. So we're supplementing what we've done traditionally over here, but we're
still doing all of the normal things that we've been doing and we will keep adding all of
these products.
They do tend to be a little less profitable than a daily newspaper, at least in the United
States and at least at this point. As we add pieces, we will get those profit margins up,
as we mentioned earlier.
We are exploring the synergies that exist between the Clippers and other aspects of
Gannett, as well as some of the other pieces that we've been talking about. And there's a
lot to be considered, but we want to do it right. We don't want to just go off into many
directions at the same time and not have a game plan that brings money to the bottom
line.
So you're focusing on all the right things and we're trying to do so also. But to get back
to the macro question, I don't think they will be as big as the UK for a while. And keep
in mind, we're expanding in the UK. The UK brings in new products from time to time.
There are some small acquisition opportunities over there that we will look at too. So
the UK will keep on growing while these are growing.


As to your first question with regard to USA TODAY and the conventions and the
Olympics, certainly USA TODAY will cover the conventions and the whole political
season, as they always do. It doesn't bring in revenue necessarily. It costs money,

though, to cover those political activities. On the Olympics side, they should have a
little bit of benefit on the advertising revenue side, but there are costs associated with
covering the Olympics, particularly in Greece. So they won’t see the impact of the
Olympics as our folks in the broadcast side will see the positive impact.


Doug, just comment on the acquisition market so we can exclude Hollinger from
discussion at this point, probably. But what are you seeing in the US?


You can exclude Hollinger from the discussion at this point, at least from our point of
view. We're seeing a quiet marketplace, low-key conversations. Most folks are still
waiting to see what's going to happen out of the Philadelphia Courts, some of the other
rulings or political activities. So conversations that were much more active last year at
this time are in just sort of a hand-holding, say hello sort of status right now. Some
small things available, but relatively quiet.

Michael Kupinski - A.G. Edwards & Sons - Analyst

I was just wondering, in terms of television being very strong in most markets, it seems
that the Company had some leverage to raise prices for its newspaper advertising
categories again this year. And I think you've done that in the past, and I was just
wondering are there any particular trigger points that you're looking for in terms of
media or newspaper advertising price increases? And are you starting to plan that in
some of your markets? And then I just have two quick follow-up questions.


On that one, no, we're not doing that. We plan our price increases on the newspaper ad
side on a regular basis. Most of them are scheduled for the beginning of the year, but
some of them are staggered. Since our newspapers for the most part do very, very well
in the market, relative to what's happening in the television market, you have to be
competitive, especially on the automobile side. But that's not a significant factor for us.


On the preprints, I was wondering can you break out what preprints were up versus
retail and what does preprint now count as a percent of total retail?


I will see if we can find that for you.


I've got it for the newspaper division -- the US newspaper division preprint revenue for
the quarter was probably up in the 4 percent or 5 percent range.


And it's about 13 percent to 15 percent of all the advertising revenue for the quarter, if
that's what you're getting at.


Great. Have you guys provided any guidance on what you expected for political and
television?


That's a wonderful question. We're having a lot of in-house discussion here. I think our
television executives were more conservative than some of us at the corporate level
were, but the bottom line is they did better in the first quarter, as I mentioned earlier,
than either of us expected. So if the political revenue keeps coming in at the pace it
started at, we're looking at a very good year. But no, we haven't provided any specific
guidance.


Any thoughts about the number? Is it going to be above $90 million, or do you have
any range or anything you can give us in terms of color because obviously you're
talking to campaign folks as they try to hold inventory now, I would imagine?


Yes, but they're coming in very late. That's how they all came in, in the last two weeks
in March. But I will go out on a limb and say yes, we better be over $90 million.

Operator

Thank you. There are no further questions.


Thanks all.


Thanks very much.

###

Gannett Q1 2004 Conference Call Earnings Report

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Gannett Q1 2004 Conference Call Earnings Report