Journal Communications Reports Second Quarter 2013 Results

Journal Communications, Inc. (NYSE:JRN) today announced results for its second quarter ended June 30, 2013.

“Journal Communications had a solid second quarter, driven by revenue gains in our broadcast group, as well as improving advertising revenue trends in publishing. Total revenue of $101.2 million was up 6% year over year,” said Steven J. Smith, Chairman and CEO of Journal Communications. “Operating earnings decreased 2.6% as lower political revenue offset operating earnings increases in broadcast, driven by NewsChannel 5 in Nashville, as well as higher earnings at our daily newspaper.”

“Within the Broadcast group, we continue to see core revenue growth. On a same-station basis and excluding political advertising, revenue was up 6%, with television up 7% and radio up 5%.”

“On the publishing side of the business, we continue to align costs with revenue. An emphasis on cost savings, coupled with improved revenue, drove second quarter operating earnings for the Milwaukee Journal Sentinel of $2.7 million, up nearly 36% year over year.”

Second Quarter 2013 Results

Note that unless otherwise indicated, all comparisons are to the second quarter ended June 24, 2012. Same-station comparisons exclude the operations of NewsChannel 5 in Nashville, Tennessee, which we purchased in December 2012.

For the second quarter, revenue of $101.2 million increased 6.0% and operating earnings of $13.1 million decreased 2.6%. Net earnings were $6.6 million, a decrease of 13.3%.

In the second quarter, basic and diluted net earnings per share of class A and B common stock were $0.13 in both years.

The operating margin was 13.0% for the second quarter compared to 14.1%. Adjusted EBITDA, as defined in Table 4, was $20.4 million, a decrease of 1.6% from $20.7 million.

Consolidated and Segment Results

The following table presents our revenue and operating earnings (loss) by segment for the second quarters of 2013 and 2012 (dollars in millions).
  Q2   Q2   %
    2013   2012   Change
Revenue:            
Broadcasting   $ 62.9   $ 54.5   15.3
Publishing     38.4     41.1   (6.5)
Corporate eliminations     (0.1)     (0.1)   (3.4)
Total Revenue   $ 101.2   $ 95.5   6.0
             
Operating earnings (loss):            
Broadcasting   $ 12.3   $ 13.1   (6.1)
Publishing     3.1     2.4   27.0
Corporate     (2.3)     (2.0)   (9.5)
Total operating earnings   $ 13.1   $ 13.5   (2.6)
 

For the second quarter, total expenses of $88.1 million increased 7.4% compared to $82.0 million, driven by the acquisition of NewsChannel 5 in Nashville.

Broadcasting

For the second quarter, broadcasting revenue increased 15.3% to $62.9 million, or 6.1% on a same-station basis, excluding political. Total broadcast political advertising revenue decreased 94.3% to $0.3 million, compared to $5.7 million. Local advertising revenue, excluding political, was up 25.7%, or 6.0% on a same-station basis. National advertising revenue, excluding political, increased 23.3%, and declined 1.8% on a same-station basis. Retransmission revenue increased 103.3% to $5.5 million, or 51.7% on a same-station basis. Broadcasting operating earnings of $12.3 million decreased 6.1%, and 37.8% on a same-station basis, excluding acquisition costs, both due to the loss of high-margin political revenue in 2013.

Television

Revenue from television stations for the second quarter increased 22.5% to $43.0 million, or 6.9% on a same-station basis, excluding political. Television political advertising revenue was $0.2 million compared to $5.2 million. Local advertising revenue, excluding political, increased 43.2%, or 6.8% on a same-station basis, primarily due to an increase in automotive advertising. National advertising revenue, excluding political, increased 31.0%, and declined 1.0% on a same-station basis, primarily due to decreases in media and restaurant advertising. Operating earnings from television stations were $8.5 million, a decrease of 2.2%, or a decrease of 48.2% on a same-station basis, excluding acquisition costs, both due to the loss of high-margin political revenue in 2013. Television operating expenses increased 30.6%, or 4.9% on a same-station basis, excluding acquisition costs, primarily due to increases in network fees and employee-related costs.

Radio

For the second quarter, revenue from radio stations increased 2.3% to $19.9 million, or 4.7% excluding political revenue. Radio political advertising revenue was $0.1 million, compared to $0.5 million. Local advertising revenue, excluding political, increased 5.0%, primarily due to an increase in retail advertising. National advertising revenue, excluding political, decreased 4.9% to $1.8 million, primarily due to a decrease in media advertising. Operating earnings from radio stations were $3.8 million compared to $4.4 million, a decrease of 13.8% or a decrease of 19.0% excluding acquisition costs in both years. Radio operating expenses increased 7.1%, or 9.3% excluding acquisition costs in both years, primarily due to employee-related expense increases and the impact of credits received from an industry-wide music licensing fee settlement in 2012.

Publishing

For the second quarter, publishing revenue decreased 6.5% to $38.4 million, or 0.5% excluding the sale of the northern Wisconsin community publications in December 2012. Operating earnings from publishing were $3.1 million, an increase of 27.0%. Total newsprint and paper expense of $3.9 million decreased 7.2% driven mainly by a reduction in newsprint consumption.

Daily Newspaper

Revenue at the daily newspaper for the second quarter decreased 1.9% to $34.6 million. Total advertising revenue of $18.7 million increased 0.6%. Retail advertising revenue increased 2.8% due to successful programs that have grown share with local advertisers. Classified advertising revenue decreased 5.4% driven by a decrease in employment and automotive advertising. Digital advertising revenue of $3.3 million increased 10.7%, primarily due to an increase in sponsorship revenue. Circulation revenue of $11.9 million was down 5.4% driven by volume declines. Other revenue of $3.9 million decreased 2.4%. Operating earnings from the daily newspaper were $2.7 million, an increase of 35.7%, primarily due to lower depreciation expense and employee-related costs. Daily newspaper operating expenses decreased 4.1%.

Community Newspapers

Community newspapers revenue for the second quarter decreased 34.1% to $3.8 million, primarily due to the sale of the northern Wisconsin community publications in December 2012. Excluding revenue of $2.5 million related to the northern Wisconsin community publications in 2012, revenue increased by 13.8%, driven by commercial print revenue from the northern Wisconsin publications that we continue to print following the sale. Operating earnings from community newspapers and shoppers were $0.4 million in both years. Operating expenses declined to $3.5 million compared to $5.4 million as a result of the divestiture.

Corporate

The operating loss for the second quarter was $2.3 million compared to $2.0 million.

Non-Operating Items

For the second quarter, other expense, which primarily consists of interest expense, was $2.1 million compared to $0.7 million. The increase in interest expense was driven by an increase in average borrowings for the quarter as the result of the Nashville NewsChannel 5 acquisition in December 2012.

The second quarter effective tax rate was 40.1% compared to 40.5%.

Notes Payable to Banks and Cash Flows

At the end of the second quarter, total debt was $231.4 million. Of the $231.4 million debt, $215.5 million was drawn on our senior secured credit facilities and an additional $15.9 million was outstanding in unsecured subordinated notes payable to the former holders of our class C shares. Year-to-date through the second quarter, we reduced our total debt by $14.6 million as compared to the 2012 year-end, after funding the acquisition of WNOX-FM in Knoxville, Tennessee. Our consolidated funded debt ratio, as defined in our credit agreement, was 2.28-to-1. Year-to-date cash from operating activities was $25.2 million compared to $27.2 million due to a decrease in net earnings. Year-to-date capital expenditures were $5.6 million compared to $5.1 million.

Third Quarter 2013 Outlook

In the third quarter of 2013, on a same-station basis excluding political, Olympic and retransmission revenue, we expect total broadcast revenue to be up in the mid-single digits as compared to the third quarter of 2012. This outlook excludes any potential negative impact of the Time Warner Cable negotiations. In publishing, excluding the northern Wisconsin community publications, we anticipate revenue declines in the low-single digits as compared to the third quarter of 2012.

Conference Call and Webcast

The company will hold an earnings conference call today at 10:00 a.m. Central Time (11:00 a.m. ET, 8:00 a.m. PT). To access the call, dial (877) 280-4960 (domestic) or (857) 244-7317 (international) at least 10 minutes prior to the scheduled start of the call. The access code for the conference call is 19642190. A live webcast of the second quarter conference call will be accessible through the Journal Communications’ website at www.journalcommunications.com/investors, also beginning at 10:00 a.m. CT this morning. An archive of the webcast will be available on this site today through August 7, 2013. Replays of the conference call will also be available through August 7, 2013. To hear the replay, dial (888) 286-8010 (domestic) or (617) 801-6888 (international) at least one hour after the completion of the call. The access code for the replay is 45837849. Pre-registration for the conference call is now available at www.journalcommunications.com/investors.

About Journal Communications

Journal Communications, Inc., headquartered in Milwaukee, Wisconsin, was founded in 1882. We are a diversified media company with operations in television and radio broadcasting, publishing and digital media. We own and operate 15 television stations and 35 radio stations in 12 states. We publish the Milwaukee Journal Sentinel, which serves as the only major daily newspaper for the Milwaukee metropolitan area, and several community publications in Wisconsin. Our digital media assets build on our strong publishing and broadcasting brands.

Forward-looking Statements

This press release contains certain forward-looking statements related to our businesses that are based on our current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from the expectations expressed in the forward-looking statements, including, but not limited to, changes in advertising demand or the buying strategies of advertisers or the migration of advertising to the internet; changes in newsprint prices and other costs of materials; changes in federal or state laws and regulations or their interpretations (including changes in regulations governing the number and types of broadcast and cable system properties, newspapers and licenses that a person may control in a given market or in total or changes in spectrum allocation policies); changes in legislation or customs relating to the collection, management and aggregation and use of consumer information through telemarketing and electronic communication efforts; the availability of quality broadcast programming at competitive prices; changes in network affiliation agreements, including increased costs as networks seek a greater share of retransmission revenue; quality and rating of network over-the-air broadcast programs, including programs changing networks and changing competitive dynamics regarding how and when programs are made available to viewers; effects of the loss of commercial inventory resulting from uninterrupted television news coverage and potential advertising cancellations due to war or terrorist acts; and the effects of the rapidly changing nature of the publishing, broadcasting and printing industries, including general business issues, competitive issues and the introduction of new technologies. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Our written policy on forward-looking statements can be found in our most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

Tables Follow
       
Table No. 1
Journal Communications, Inc.
Consolidated Statements of Operations (unaudited)
(dollars in thousands, except for shares and per-share amounts)
 
 
Second Quarter (A) Two Quarters (B)
2013 2012 % Change 2013 2012 % Change
 
 
Revenue:
Broadcasting $ 62,904 $ 54,542 15.3 $ 121,074 $ 98,916 22.4
Publishing 38,398 41,053 (6.5 ) 74,978 79,074 (5.2 )
Corporate eliminations   (91 )   (88 ) (3.4 )   (145 )   (217 ) 33.2
Total revenue 101,211 95,507 6.0 195,907 177,773 10.2
 
Operating costs and expenses:
Broadcasting 29,976 22,970 30.5 58,178 45,396 28.2
Publishing 25,249 26,354 (4.2 ) 50,302 52,506 (4.2 )
Corporate eliminations   (88 )   (88 ) -   (142 )   (217 ) 34.6
Total operating costs and expenses 55,137 49,236 12.0 108,338 97,685 10.9
 
Selling and administrative expenses   32,962     32,811   0.5   66,001     60,888   8.4

Total operating costs and expenses and selling and administrative expenses
  88,099     82,047   7.4   174,339     158,573   9.9
 
Operating earnings 13,112 13,460 (2.6 ) 21,568 19,200 12.3
 
Other income and (expense):
Interest income - 6 - 11
Interest expense (1,907 ) (684 ) (4,040 ) (1,417 )
Other   (188 )     -     (188 )     -  
Total other income and (expense) (2,095 ) (678 ) U (4,228 ) (1,406 ) U
 
Earnings from continuing operations before income taxes 11,017 12,782 (13.8 ) 17,340 17,794 (2.6 )
 
Provision for income taxes   4,416     5,171   (14.6 )   6,946     7,264   (4.4 )
 
Net earnings $ 6,601   $ 7,611   (13.3 ) $ 10,394   $ 10,530   (1.3 )
 
Weighted average number of shares-Class A and B common stock:
Basic 50,246,867 50,022,960 50,188,007 50,189,905
Diluted 50,462,970

#
50,022,960 50,437,111

#
50,189,905
 
Weighted average number of shares-Class C common stock - 3,264,000 - 3,264,000
 
Net earnings per share:
Basic - Class A and B common stock: $ 0.13 0.13 $ 0.21 0.18
Diluted - Class A and B common stock: $ 0.13 0.13 $ 0.21 0.18
Basic and diluted - Class C common stock: $ - 0.28 $ - 0.46
 
 

# The two-class method of diluted EPS is no longer applicable in the second quarter and two quarters ended of 2013, therefore the impact of non-vested restricted shares is included in diluted weighted average shares.

 
 
(A) 2013 second quarter: April 1, 2013 to June 30, 2013
2012 second quarter: March 26, 2012 to June 24, 2012
(B) 2013 two quarters: December 31, 2012 to June 30, 2013
2012 two quarters: December 26, 2011 to June 24, 2012
U Greater than 100% unfavorable variance

           
Table No. 2
Journal Communications, Inc.
Segment Information (unaudited)
(dollars in thousands)
 
 
 
 
Second Quarter (A) Two Quarters (B)
2013 2012 % Change 2013 2012 % Change

Revenue
Broadcasting $ 62,904 $ 54,542 15.3 $ 121,074 $ 98,916 22.4
Publishing 38,398 41,053 (6.5 ) 74,978 79,074 (5.2 )
Corporate eliminations   (91 )   (88 ) (3.4 )   (145 )   (217 ) 33.2
$ 101,211   $ 95,507   6.0 $ 195,907   $ 177,773   10.2
 

Operating earnings (loss)
Broadcasting $ 12,327 $ 13,129 (6.1 ) $ 21,848 $ 19,838 10.1
Publishing 3,065 2,413 27.0 3,938 3,157 24.7
Corporate   (2,280 )   (2,082 ) (9.5 )   (4,218 )   (3,795 ) (11.1 )
$ 13,112   $ 13,460   (2.6 ) $ 21,568   $ 19,200   12.3
 

Depreciation and amortization
Broadcasting $ 3,903 $ 3,293 18.5 $ 7,860 $ 6,377 23.3
Publishing 1,738 2,434 (28.6 ) 3,485 4,906 (29.0 )
Corporate   173     166   4.2   345     331   4.2
$ 5,814   $ 5,893   (1.3 ) $ 11,690   $ 11,614   0.7
 
 
(A) 2013 second quarter: April 1, 2013 to June 30, 2013
2012 second quarter: March 26, 2012 to June 24, 2012
(B) 2013 two quarters: December 31, 2012 to June 30, 2013
2012 two quarters: December 26, 2011 to June 24, 2012

                 
Table No. 3
Journal Communications, Inc.
Broadcasting and Publishing Segment Information (unaudited)
(dollars in thousands)
 
Second Quarter of 2013 (A) Second Quarter of 2012 (B)
 

Broadcasting:
% Change % Change % Change
Television Radio Total Television Radio Total Television Radio Total
 
 
Revenue $ 43,049 $ 19,855 $ 62,904 $ 35,138 $ 19,404 $ 54,542

22.5
2.3 15.3
 
Operating earnings $ 8,509 $ 3,818 $ 12,327 $ 8,698 $ 4,431 $ 13,129 (2.2 ) (13.8 ) (6.1 )
 
 

Publishing:
Daily Community Daily Community % Change % Change % Change
Newspaper Newspapers Total Newspaper Newspapers Total Daily CN Total
Advertising revenue:
Retail $ 14,704 $ 1,670 $ 16,374 $ 14,302 $ 3,784 $ 18,086 2.8 (55.9 ) (9.5 )
Classified 3,344 498 3,842 3,536 764 4,300 (5.4 ) (34.8 ) (10.7 )
National 669 - 669 768 - 768 (12.9 ) N/A (12.9 )
Direct Marketing   7   -   7   9   -   9 (22.2 ) N/A (22.2 )
Total advertising revenue 18,724 2,168 20,892 18,615 4,548 23,163 0.6 (52.3 ) (9.8 )
Circulation revenue 11,901 293 12,194 12,574 448 13,022 (5.4 ) (34.6 ) (6.4 )
Other revenue   3,927   1,385   5,312   4,024   844   4,868 (2.4 ) 64.1 9.1
Total revenue $ 34,552 $ 3,846 $ 38,398 $ 35,213 $ 5,840 $ 41,053 (1.9 ) (34.1 ) (6.5 )
 
Operating earnings $ 2,685 $ 380 $ 3,065 $ 1,979 $ 434 $ 2,413 35.7 (12.4 ) 27.0
 
 
Two Quarters of 2013 (C) Two Quarters of 2012 (D)
 

Broadcasting:
% Change % Change % Change
Television Radio Total Television Radio Total Television Radio Total
 
 
Revenue $ 85,353 $ 35,721 $ 121,074 $ 64,641 $ 34,275 $ 98,916 32.0 4.2 22.4
 
Operating earnings $ 15,608 $ 6,240 $ 21,848 $ 12,549 $ 7,289 $ 19,838 24.4 (14.4 ) 10.1
 
 

Publishing:
Community Community
Daily Newspapers Daily Newspapers % Change % Change % Change
Newspaper & Shoppers Total Newspaper & Shoppers Total Daily CN&S Total
Advertising revenue:
Retail $ 26,903 $ 3,097 $ 30,000 $ 25,981 $ 6,949 $ 32,930 3.5 (55.4 ) (8.9 )
Classified 6,535 923 7,458 7,116 1,363 8,479 (8.2 ) (32.3 ) (12.0 )
National 1,249 - 1,249 1,567 - 1,567 (20.3 ) N/A (20.3 )
Direct Marketing   24   -   24   27   -   27 (11.1 ) N/A (11.1 )
Total advertising revenue 34,711 4,020 38,731 34,691 8,312 43,003 0.1 (51.6 ) (9.9 )
Circulation revenue 23,915 649 24,564 24,854 880 25,734 (3.8 ) (26.3 ) (4.5 )
Other revenue   8,978   2,705   11,683   8,680   1,657   10,337 3.4 63.2 13.0
Total revenue $ 67,604 $ 7,374 $ 74,978 $ 68,225 $ 10,849 $ 79,074 (0.9 ) (32.0 ) (5.2 )
 
Operating earnings $ 3,506 $ 432 $ 3,938 $ 2,848 $ 309 $ 3,157 23.1 39.8 24.7
 
 
(A) 2013 second quarter: April 1, 2013 to June 30, 2013
(B) 2012 second quarter: March 26, 2012 to June 24, 2012
(C) 2013 two quarters: December 31, 2012 to June 30, 2013
(D) 2012 two quarters: December 26, 2011 to June 24, 2012
 
 
NOTE:

Broadcasting and publishing segment information is provided to facilitate comparison of our broadcasting and publishing segments results with those of other broadcasting and publishing companies and is not representative of the overall business of Journal Communications or its operating results.

 

       
Table No. 4
Journal Communications, Inc.
Reconciliation of Consolidated Net Earnings to Consolidated EBITDA and Adjusted EBITDA (unaudited)
(dollars in thousands)
 
Second Quarter (A) Two Quarters (B)
2013 2012 2013 2012
 
Net earnings $ 6,601 $ 7,611 $ 10,394 $ 10,530
Provision for income taxes 4,416 5,171 6,946 7,264
Total other expense, net 2,095 678 4,228 1,406
Depreciation 5,053 5,325 10,167 10,665
Amortization 761 568 1,523 949
EBITDA $ 18,926 $ 19,353 $ 33,258 $ 30,814
 
Acquisition and integration-related costs 767 381 1,554 436
Impairment of long-lived assets - - 238 -
Workforce reduction charges 716 1,014 748 1,052
Adjusted EBITDA $ 20,409 $ 20,748 $ 35,798 $ 32,302
 
 
(A) 2013 second quarter: April 1, 2013 to June 30, 2013
2012 second quarter: March 26, 2012 to June 24, 2012
(B) 2013 two quarters: December 31, 2012 to June 30, 2013
2012 two quarters: December 26, 2011 to June 24, 2012
 
We define EBITDA as net earnings excluding earnings from discontinued operations, net, provision for income taxes, total other expense (which is comprised of interest income and expense), depreciation, and amortization; and we define Adjusted EBITDA as EBITDA excluding non-cash impairment charges, acquisition and integration-related costs, and workforce reduction charges. Our management uses EBITDA and Adjusted EBITDA, among other things, to evaluate our operating performance, and to value prospective acquisitions. EBITDA and Adjusted EBITDA are not measures of performance calculated in accordance with accounting principles generally accepted in the United States. EBITDA and Adjusted EBITDA should not be considered in isolation of, or as substitutes for, net earnings as indicators of operating performance or cash flows from operating activities as measures of liquidity. EBITDA and Adjusted EBITDA, as we calculate them, may not be comparable to EBITDA and Adjusted EBITDA reported by other companies.

   
Table No. 5
Journal Communications, Inc.
Calculation of Diluted Earnings Per Share - Class A and B (unaudited)
(dollars and shares in thousands)
 
Second Quarter (A) Two Quarters (B)
2013 2012 2013 2012
 
Numerator for diluted earnings per share:
Dividends on class A and B common stock $ - * $ - * $ - * $ - *
Dividends on class C common stock - 464 - 928
Dividends on non-vested restricted stock - - - -
Total undistributed earnings
Class A and B 6,601 * 6,670 * 10,394 * 8,946 *
Class C - 435 - 581
Non-vested restricted stock   - #   42   - #   75
Net earnings $ 6,601 $ 7,611 $ 10,394 $ 10,530
 
Denominator for diluted earnings per class A and B share:
Weighted average shares outstanding - Class A and B 50,247 50,023 50,188 50,190
Impact of non-vested restricted shares 216 - 249 -
Conversion of class C shares   -   -   -   -
Adjusted weighted average shares outstanding for class A and B   50,463 *   50,023 *   50,437 *   50,190 *
 
Diluted net earnings per share of class A and B: $ 0.13 * $ 0.13 * $ 0.21 * $ 0.18 *
 
 
* Included in calculation of diluted earnings per share - class A and B
 
# The two-class method of diluted earnings per share is not applicable for the second quarter and two quarters ended of 2013, therefore undistributed earnings are not allocated to stock other than class A and B.
 
(A) 2013 second quarter: April 1, 2013 to June 30, 2013
2012 second quarter: March 26, 2012 to June 24, 2012
(B) 2013 two quarters: December 31, 2012 to June 30, 2013
2012 two quarters: December 26, 2011 to June 24, 2012

   
Table No. 6
Journal Communications, Inc.
Consolidated Condensed Balance Sheets
(dollars in thousands)
 
June 30, 2013 December 30,
(unaudited) 2012
ASSETS
Current assets:
Cash and cash equivalents $ 1,898 $ 2,430
Receivables, net 62,106 65,265
Inventories, net 2,699 2,944
Prepaid expenses and other current assets 4,724 3,980
Syndicated programs 2,391 2,446
Deferred income taxes   2,758   3,053
Total current assets 76,576 80,118
Property and equipment, net 166,528 171,354
Syndicated programs 4,422 5,200
Goodwill 124,430 125,818
Broadcast licenses 135,409 129,566
Other intangible assets, net 61,211 62,734
Deferred income taxes 38,051 43,019
Other assets   6,763   7,994
Total assets $ 613,390 $ 625,803
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,211 $ 26,861
Accrued compensation 8,916 10,715
Accrued employee benefits 6,260 5,155
Deferred revenue 16,099 16,277
Syndicated programs 2,234 2,686
Accrued income taxes 1,433 3,756
Other current liabilities 5,344 6,821
Current portion of unsecured subordinated notes payable 2,656 2,656
Current portion of long-term liabilities   88   126
Total current liabilities 66,241 75,053
Accrued employee benefits 91,558 92,907
Syndicated programs 4,766 5,477
Long-term notes payable to banks 215,450 230,095
Unsecured subordinated notes payable 13,279 13,279
Other long-term liabilities 3,788 3,491
Shareholders' equity   218,308   205,501
Total liabilities and equity $ 613,390 $ 625,803

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