July 31, 2013 Last Updated 5:10 pm

Journal Communications reports strong broadcast revenue, but declining print revenue and overall profits

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

“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%.”
“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).

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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.

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