April 21, 2005
Belo reports results for first quarter 2005
Dallas, TX -- Belo Corp. (NYSE: BLC) today reported net earnings per share for the first quarter of 2005 of $0.20, an increase of $0.01 over the first quarter of 2004. Belo's consolidated revenue for the first quarter decreased 1.3 percent while total operating costs and expenses were one percent less than the prior year. Consolidated EBITDA increased slightly while earnings from operations decreased 2.7 percent versus the first quarter of 2004.
In the first quarter of 2005, had Belo expensed stock options, pro forma net earnings per share would have been $0.19 compared to the $0.20 reported today. Pro forma net earnings per share in the first quarter of 2004 would have been $0.17 compared to the reported net earnings per share of $0.19. The Company currently plans to begin expensing stock options in accordance with the new accounting rules in the first quarter of 2006.
First Quarter in Review
Robert W. Decherd, Belo's chairman, president, and chief executive officer, said, "We are pleased with Belo's first quarter results as net earnings per share of $0.20 exceeded first quarter 2004 results despite the absence of significant political revenue at our television stations and the financial impact related to the circulation matter at The Dallas Morning News. First quarter 2005 results reflect our newly-implemented strategic initiatives and effective cost controls.
"First quarter earnings per share were better than the guidance we provided in late February of $0.16 to $0.17 per share mostly due to lower total operating expenses and slightly better than expected revenue in the Newspaper Group.
"The decisive actions taken as a result of the Strategy Review we undertook in 2004 favorably affected first quarter results. The refinement of Texas Cable News operations and programming resulted in an improvement in TXCN's contribution to Other segment EBITDA from a loss of more than $400,000 in the first quarter of 2004 to almost breakeven in the first quarter of 2005. The November 2004 reduction-in-force resulted in a decrease of more than $3 million in direct compensation and benefits in the first quarter of 2005 and contributed significantly to Belo's overall expense reduction. And, eliminating $3.1 million in losses in the first quarter of 2004 from our discontinued cable news partnerships also favorably impacted comparisons.
"The early returns on our decision to integrate interactive media operations into Belo's legacy operating companies are very positive. Our operating teams have embraced the change and are taking advantage of the leverage created by combined operating and selling strategies. Interactive revenues increased a healthy 26 percent for full-year 2004 and grew at an impressive 47 percent rate in the first quarter of 2005."
Television Group revenue decreased 1.8 percent in the first quarter with a 1.5 percent decrease in spot revenues due to the absence of significant political and Super Bowl-related revenue. Political revenues were approximately $500,000 in the first quarter of 2005 compared to $4.5 million in the first quarter of 2004. Super Bowl-related revenues were approximately $100,000 on Belo's FOX affiliate in Tucson in the first quarter of 2005 versus $3.5 million on Belo's five CBS affiliates in the first quarter of 2004. Revenues from Belo's Television Group Web sites were 26 percent greater than the first quarter of the prior year.
Television Group operating costs and expenses decreased 1.6 percent with a one percent decrease in direct compensation and a 3.9 percent decrease in programming expense. All other expenses decreased 1.1 percent. Segment EBITDA for the Television Group decreased 2.9 percent in the first quarter, while earnings from operations decreased 2.2 percent.
Newspaper Group financial results in the first quarter reflect the impact of credit bank usage at The Dallas Morning News. In the first quarter, advertisers used approximately $2.8 million in advertising credits available to them through The Morning News' advertiser plan. We estimate that approximately 80 percent of these credits offset advertising that otherwise would have been recorded as revenue by The Morning News. There are approximately $400,000 in advertising credits remaining for use in the second through fourth quarters of 2005 as the majority of these credits expired at the end of February.
Newspaper Group total revenue decreased 0.4 percent in the first quarter of 2005, with a decrease of 4.1 percent at The Dallas Morning News, a 0.5 percent increase at The Providence Journal and an increase of more than 11 percent at The Press-Enterprise in Riverside. Advertising revenues for the Newspaper Group decreased 0.8 percent compared with the first quarter of 2004. Excluding classified automotive revenue, which decreased 15 percent, and adjusting for the estimate of revenues displaced by advertising credits at The Dallas Morning News, advertising revenues would have increased about 2.5 percent. Revenues associated with the Newspaper Group's Web sites increased 56 percent in the first quarter.
The retail and general categories decreased 10 percent and 6.7 percent, respectively, in the first quarter, both of which were affected by the use of advertising credits at The Dallas Morning News. Retail was soft in Providence but solid in Riverside. Classified revenues were up 8.4 percent in the first quarter led by a 26 percent increase in classified real estate revenue and a 20 percent increase in classified employment revenue.
The Newspaper Group's new products, principally Quick and al dia at The Dallas Morning News and the d at The Press-Enterprise in Riverside, grew impressively in the first quarter, generating $3.5 million of revenue, a 93 percent increase over revenue of $1.8 million in the first quarter of 2004. Expenses associated with the new products decreased from $4.5 million in the first quarter of 2004 to $3.9 million in the first quarter of 2005. The loss from operations related to these new products improved to a $400,000 loss in the first quarter of 2005 versus a $2.8 million loss in the first quarter of 2004.
Newspaper Group operating costs and expenses were less than the first quarter of 2004 by $2.9 million, or 1.8 percent. Salaries and benefits were $1.7 million less, or 2.4 percent, depreciation and amortization expense was 8.5 percent lower and newsprint expense was flat.
Segment EBITDA for the Newspaper Group increased 2.8 percent in the first quarter and earnings from operations increased 7.7 percent.
Revenues in Belo's Other segment, consisting primarily of NorthWest Cable News and Texas Cable News ("TXCN"), decreased 22 percent and expenses decreased 31 percent in the first quarter of 2005 due to the refinement of TXCN's operations and programming. TXCN's contribution to Other segment EBITDA improved by approximately $400,000 in the first quarter of 2005. Total Other segment EBITDA increased to $476,000 in the first quarter of 2005 from $90,000 in the first quarter of 2004. The loss from operations also improved significantly in the first quarter to $147,000 compared with $558,000 in the first quarter of last year.
Corporate operating costs and expenses in the first quarter of 2005 were 22 percent higher than the prior year due primarily to the allocation to the Corporate segment of interactive media expenses previously included in the Interactive Media segment. These expenses relate primarily to product development and the management of the current technology platform of Belo Web sites.
Belo's total depreciation and amortization expense decreased six percent in the first quarter of 2005 compared with the first quarter of 2004. Other income (expense), net is significantly less in the first quarter of 2005 due to the discontinuation in July 2004 of the cable news joint ventures with Time Warner in Charlotte, Houston and San Antonio.
Non-GAAP Financial Measures
A reconciliation of Consolidated EBITDA to net earnings is set forth in an exhibit to this release.
Second Quarter 2005 Outlook
Regarding Belo's outlook for the second quarter of 2005, Decherd said, "Belo's Television Group will cycle against $7.5 million of political revenue generated last year, and we currently expect about $800,000 of political revenue in 2005. In April, Television Group spot revenues, including political, are pacing down three to four percent. For the second quarter overall, we expect Television Group spot revenue to be down low-single digits with spot revenue excluding political up in the low-single digits. In addition, the revenues associated with the Television Group's Web sites should increase from $2 million in the second quarter of 2004 to approximately $3 million this year.
"Newspaper Group revenues are looking considerably stronger in the second quarter than the first quarter. The second quarter will not be significantly affected by advertising credits at The Dallas Morning News since most of the credits have expired. However, the effect of lower circulation levels on preprint revenue at The Dallas Morning News may be greater in the second quarter than the $250,000 effect in the first quarter as some preprint advertisers are expected to adjust to The Morning News' audited circulation figures when released in mid-May.
"We currently expect Newspaper Group advertising revenues to increase in the mid-single digits in April with retail up low-single digits, general flat and classified up mid teens versus the prior year. May advertising revenues are currently expected to increase in the low-single digits. For the second quarter overall, Newspaper Group advertising revenues should increase in the low-to-mid single digits with ad revenues up slightly at The Dallas Morning News, a high-single digit increase at The Providence Journal and a mid-teens increase at The Press-Enterprise.
"Second quarter operating costs and expenses for the total Company are expected to increase five to six percent. Advertising and promotion expense is expected to be significantly higher to support the incremental marketing initiatives in key Belo markets. Other sales-related costs, including direct marketing for newspaper subscription sales and television advertiser incentive costs, will be higher in the second quarter of 2005. And, we cycle against a $2.4 million property tax credit taken in Providence in the second quarter of last year.
"Belo's total depreciation and amortization expense in the second quarter is expected to be slightly lower than last year. Interest expense should be similar to the second quarter of 2004. The effective tax rate for the second quarter should be close to the first quarter 2005 rate of 37.6 percent.
"We continue to expect earnings per share for full-year 2005 to be in the range of $1.17 to $1.24 per share."
Belo expects to update expectations for revenues, operating costs and expenses and net earnings per share for the second quarter at the Mid-Year Media Review on Wednesday, June 22. The Company will also continue to provide information on operating trends in its monthly statistical reports.
As previously noted, the Company's interactive media operations were integrated into Belo's legacy operating companies effective January 1, 2005. For informational purposes, a schedule that restates Belo's 2004 results by segment is included as an attachment to this release.
The Company received a subpoena this week from the Dallas County District Attorney's office for documents related to the previously announced circulation overstatement at The Dallas Morning News. Decherd noted, "Since the circulation overstatement was announced last August, the Company has fully cooperated with an extensive internal investigation conducted by a national law firm under the supervision of the Audit Committee of the Company's Board of Directors, as well as with requests for information by the Securities and Exchange Commission, and the Company intends to similarly cooperate with this request.
"The Dallas Morning News has implemented many circulation process improvements over the past eight months and these changes will continue on an orderly schedule throughout 2005. The improvements are comprehensive in scope and are designed to result in a "best in class" system for distributing and counting newspapers at The Morning News when fully implemented.
"As The Morning News works through these important changes, circulation for the March 2005, September 2005 and March 2006 reporting periods will be affected by disruption to normal distribution processes in addition to the impact of the overstatement.
"Circulation figures for the March 2005 reporting period compare to March 2004 figures that were compiled prior to the August 2004 announcement of the circulation overstatement. The March 2005 figures, which we expect to be audited by the Audit Bureau of Circulations and released in mid-May, should be similar to the estimate we announced publicly in late February a decrease of approximately 9 percent daily and 13 percent Sunday.
"We expect circulation at both The Providence Journal and The Press-Enterprise to decrease slightly for the March 2005 reporting period. Circulation at The Journal will be down about one percent both daily and Sunday, and The Press-Enterprise will report a decrease of about two percent daily and three percent Sunday. Despite these decreases, circulation and readership remain strong at these newspapers. The Providence/New Bedford DMA has the second highest penetration rate for adult newspaper readership in the nation, according to Scarborough Research's latest measurement of 75 markets, including the top 50 DMA's. The Providence Journal is read by more than 60 percent of adults in this core market area daily and more than 70 percent of adults on Sunday. The Press-Enterprise has experienced significant growth in circulation over the past several years. Even with the decrease in the March 2005 period, the newspaper's circulation will have grown by 13 percent daily and 7 percent Sunday since the March 1999 reporting period."
Belo Corp. is one of the nation's largest media companies with a diversified group of market-leading television, newspaper, cable and interactive media assets. A Fortune 1000 company with 7,600 employees and $1.5 billion in annual revenues, Belo operates in some of America's most dynamic markets in Texas, the Northwest, the Southwest, Rhode Island, and the Mid-Atlantic. Belo owns 19 television stations, six of which are in the 15 largest U.S. broadcast markets. The Company also owns or operates seven cable news channels and manages one television station through a local marketing agreement. Belo's daily newspapers are The Dallas Morning News, The Providence Journal, The Press-Enterprise (Riverside, CA) and the Denton Record-Chronicle (Denton, TX). The Company also publishes specialty publications targeting young adults, affluent populations and the fast-growing Hispanic market, including Quick and al dia in Dallas/Fort Worth, and the d, El D and La Prensa in Riverside. Belo operates more than 30 Web sites associated with its operating companies. Additional information is available at www.belo.com or by contacting Carey Hendrickson, vice president/Investor Relations & Corporate Communications, at 214-977-6626.
Statements in this communication concerning Belo's business outlook or future economic performance, anticipated profitability, revenues, expenses, capital expenditures, investments, future financings or other financial and non-financial items that are not historical facts, are "forward-looking statements" as the term is defined under applicable federal securities laws. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements.
Such risks, uncertainties and other factors include, but are not limited to, changes in advertising demand, interest rates and newsprint prices; The Dallas Morning News circulation matters, including current and future audits of the newspaper's circulation by the Audit Bureau of Circulations; technological changes, including the transition to digital television and the development of new systems to distribute television and other audio-visual content; development of Internet commerce; industry cycles; changes in pricing or other actions by competitors and suppliers; regulatory changes; adoption of new accounting standards or changes in existing accounting standards by the Financial Accounting Standards Board or other accounting standard-setting bodies or authorities; the effects of Company acquisitions and dispositions; general economic conditions; and significant armed conflict, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K.