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Journal Communications Reports Fourth Quarter and Full Year 2014 ResultsJournal Communications, Inc. (NYSE:JRN): Fourth Quarter 2014 Highlights and Changes from Fourth Quarter 2013:
Full Year 2014 Highlights and Changes from Full Year 2013:
Journal Communications, Inc. (NYSE:JRN) today announced results for its fourth quarter and full year ended December 31, 2014. As previously reported, we changed our fiscal year to a calendar year basis effective in the fourth quarter of 2014. All reported results below were impacted by the change in our fiscal year in 2014 which added 3 days in the fourth quarter and full year 2014 compared to 2013. "Journal Communications delivered a solid fourth quarter. Results were driven by political and issue advertising, gains in retransmission revenue and local revenue growth in radio. Consolidated revenue of $122.0 million was up 13.6% compared to 2013, though up 11.1% excluding the change in our fiscal year in 2014," said Steven J. Smith, Chairman and CEO of Journal Communications. "Within the television group, revenue was up 33%, or 30% excluding the fiscal year change and radio revenue was up almost 8%, or more than 5% excluding the fiscal year change. Television retransmission revenue grew to $9.8 million in the quarter. Publishing saw revenue down 4%, or more than 6% excluding the change in fiscal year. Publishing also remained focused on cost cutting efforts, resulting in almost $2 million in workforce reduction charges in the quarter with annualized savings of more than $3.2 million from our workforce actions in 2014. Publishing costs were down more than 6%, excluding these charges and the change in the fiscal year. "The balance sheet of the company remained strong as we reduced debt by almost $78 million and increased cash balances to more than $13 million, leaving us net debt of just over $117 million at the end of 2014." Fourth Quarter 2014 Results (Continuing Operations) Note that unless otherwise indicated, all comparisons are to the fourth quarter ended December 29, 2013. The fourth quarter of 2014 contained three additional days as compared to the same period in 2013. The estimated impact on revenue of the extra three days in the fourth quarter of 2014 is summarized in Table 4. In the fourth quarter, revenue of $122.0 million increased 13.6%, or 11.1% excluding the fiscal year change. Excluding political and issue revenue and the fiscal year change, revenue increased 0.4%. Digital revenue of $5.3 million declined 3.3%. Operating earnings of $28.2 million increased 41.4% driven primarily by higher political and issue revenue. Included in operating earnings were the following special items:
Excluding the special items, operating earnings increased 58.2%. Total expenses of $93.8 million increased 7.3%. Excluding the special items, total expenses increased 3.0%. The operating margin was 23.1% compared to 18.6%. Adjusted EBITDA, as defined in Table 5, was $38.7 million, an increase of 50.1%. Net earnings were $15.6 million, an increase of 38.2%. In the fourth quarter, basic and diluted earnings per share of class A and B common stock were $0.31 compared to $0.22 in 2013. The net impact of the special items had a $0.08 and a $0.01 negative impact on our basic earnings per share of class A and B common stock from continuing operations in 2014 and 2013, respectively. Full Year 2014 Results (Continuing Operations) Note that unless otherwise indicated, all comparisons are to the full year ended December 29, 2013. The full year ended December 31, 2014 includes three extra days as compared to the same period in 2013. The estimated impact on revenue of the extra three days in fiscal year 2014 is shown in Table 4. For the full year, revenue of $428.4 million increased 7.8%, or 7.2% excluding the fiscal year change. Excluding political and issue revenue, Olympics and the fiscal year change, revenue increased 2.3%. Digital revenue of $20.4 million grew 5.2%. Operating earnings of $71.7 million increased 39.8% driven by higher political and Olympics revenue. Included in operating earnings were the following special items:
Excluding the special items, operating earnings increased 47.2%. Total expenses of $356.7 million increased 3.1%. Excluding the special items, total expenses increased 1.6%. The operating margin was 16.7% compared to 12.9%. Adjusted EBITDA, as defined in Table 5, was $103.1 million, an increase of 34.0%. Net earnings were $45.2 million, an increase of 72.5%. Net earnings from Palm Springs discontinued operations in 2014 were $5.9 million, driven primarily by the gain on sale of the stations. For the full year, diluted earnings per share from continuing operations of class A and B common stock were $0.77 compared to $0.52. Diluted earnings per share of class A and B common stock from discontinued operations in 2014 was $0.12. The net impact of the special items had a $0.16 and $0.04 negative impact on our diluted earnings per share of class A and B common stock from continuing operations in 2014 and 2013, respectively. Segment Results Television In the fourth quarter, revenue increased 32.9% to $60.0 million. Excluding the change in the fiscal year, revenue increased 29.9%. Television political and issue revenue was $11.2 million compared to $0.3 million. Excluding political and issue revenue, total revenue was up 8.7% primarily due to our continued growth in retransmission revenue. Local revenue decreased 0.5%, partially due to political displacement, while national revenue was flat. Retransmission revenue was $9.8 million compared to $5.9 million. In the fourth quarter, operating expenses increased 6.7% and were up over 1% excluding network fees. Excluding special items, expenses were up 6.0%. Operating earnings were $23.4 million, including $0.3 million from the fiscal year change. For the full year, revenue increased 20.5% to $200.8 million. Excluding the change in the fiscal year, revenue increased 19.7%. Television political and issue revenue and Olympics revenue was $19.8 million compared to political and issue revenue of $1.3 million in 2013. Excluding political and issue and Olympics revenue, total revenue increased 9.5%, again, primarily driven by retransmission revenue growth. Local revenue decreased 0.6% and national revenue decreased 2.8%. Retransmission revenue was $39.0 million, up 78.0%. For the full year, operating expenses increased 4.6% and were down nearly 1% excluding network fees. Excluding special items, expenses increased 5.6%. Operating earnings were $59.5 million, including $0.3 million from the fiscal year change. Radio In the fourth quarter, revenue increased 7.7% to $22.1 million. Excluding the change in the fiscal year, revenue increased 5.5%. Radio political and issue revenue was $0.7 million compared to $0.1 million. Excluding political and issue, total revenue increased 4.9%, local revenue increased 6.5%, though national revenue decreased 0.9%. Automotive revenue, up 13%, was a driver of local growth. In the fourth quarter, operating expenses increased 7.2%. Excluding special items, expenses increased 4.8%. Operating earnings were $4.7 million, including $0.1 million from the fiscal year change. For the full year, revenue increased 3.0% to $79.1 million. Excluding the change in the fiscal year, revenue increased 2.4%. Radio political and issue revenue was $1.3 million compared to $0.4 million. Excluding political and issue revenue, total revenue increased 1.8%, local revenue increased 2.6%, though national revenue, a small component of our revenue, decreased 6.6%. For the full year, operating expenses increased 2.2%. Excluding special items, expenses increased 2.7% due to higher employee costs. Operating earnings from radio were $14.9 million, including $0.1 million from the fiscal year change. Publishing Revenue of $40.0 million decreased 4.3% for the fourth quarter. Excluding the change in the fiscal year, revenue declined 6.5%. Advertising revenue of $21.3 million was down 7.2%, with classified revenue down 7.5%. At the daily newspaper, classified employment revenue was down 13.7% and classified auto revenue was down 14.7%. Circulation revenue of $12.8 million was down 1.4%. Other revenue of $5.9 million was up 0.6%. Digital advertising revenue of $3.3 million decreased 8.6%. Expenses increased 1.2% in the fourth quarter due to almost $2.0 million in workforce reduction charges, that when combined with previous workforce actions in 2014, we expect to generate $3.2 million in annualized savings. Excluding special items, expenses decreased 6.4% in the fourth quarter. Total newsprint and paper expense decreased 11.5% in the fourth quarter driven by lower volume and lower newsprint prices. Operating earnings were $4.4 million in the fourth quarter, including $0.1 million from the change in the fiscal year. For the full year, revenue of $149.0 million decreased 3.6%. Excluding the change in the fiscal year, revenue declined 4.2%. Advertising revenue of $77.9 million was down 4.5%. Within advertising, classified revenue was down 5.7%, the lowest annual decline in more than eight years. At the daily newspaper, classified employment was down 13.7% and auto was up 1.8%. Circulation revenue of $48.4 million was down 3.4%. Other revenue of $22.7 million was down 1.1%. Digital advertising revenue of $12.9 million was essentially flat. For the full year, expenses decreased 1.5%. Excluding special items, expenses decreased 3.4% for the full year. Total newsprint and paper expense decreased 8.4% for the year driven by lower volume and lower newsprint prices. Operating earnings were $10.2 million, including $0.1 million from the fiscal year change. Corporate The operating loss for the fourth quarter was $4.4 million compared to $1.9 million. The increase in the operating loss was driven by $2.8 million in transaction costs in 2014. For the full year, the operating loss was $12.9 million, compared to $7.9 million, driven by $6.4 million in transaction costs. Discontinued Operations Discontinued operations reflect the after-tax results of our two Palm Springs television stations which we sold effective January 1, 2014. For the full year 2014, there were $5.9 million in earnings from discontinued operations, primarily due to the gain on the sale of the stations, net of tax. Non-Operating Items Other expense, which primarily consists of interest expense, was $1.3 million in the fourth quarter compared to $1.8 million due to a lower average debt balance in 2014 and lower interest rates. For the full year, other expense was $5.9 million compared to $7.9 million driven by a lower average debt balance in 2014 and lower interest rates. The fourth quarter and full year effective tax rates were 41.8% and 40.3% in 2014, respectively, compared to 38.9% and 39.5% in 2013, respectively. The higher effective tax rates in 2014 were primarily the result of non-deductible transaction costs incurred in 2014. Notes Payable to Banks and Cash Flows At year end, total debt was $130.6 million, a decrease of $77.6 million from year-end 2013. Of the $130.6 million debt, $120.0 million was drawn on our senior secured credit facilities and an additional $10.6 million remained outstanding in unsecured subordinated notes payable to the former holders of our class C shares. We chose to increase our cash position to $13.2 million instead of making payments on our term loan, which puts our net debt at $117.4 million. Our consolidated funded debt ratio, as defined in our credit agreement, was 1.32-to-1. Cash from operating activities in 2014 was $82.9 million, an increase of 54.0%, driven by higher operating earnings. Capital expenditures in 2014 were $9.1 million compared to $12.4 million. Conference Call and Webcast The company will not hold an earnings conference call due to the pending transaction with The E.W. Scripps Company. Please see an expanded Q&A section below. Expanded Q&A Broadcast Television and Radio 1. Discuss political and issue and Olympics revenue performance. We were very pleased with political and issue advertising revenue of over $18 million this year, $17 million on television and $1 million on radio. This total exceeded what we saw in our last non-presidential election year. Our Olympics revenue of $2.6 million also exceeded our expectations, above the levels we saw back in the 2010 Winter games. 2. Discuss local and national advertising performance. Local television revenue was down 0.5% and down 0.6% for the year, primarily driven by the displacement of incremental political advertising. National revenue was flat in the quarter and down for the year, attributable to both political displacement and pullbacks earlier in the year experienced across the industry. We finished the year strong in the important local category for radio, up 6.5% in the quarter and 2.6% on the year. While we did see some declines in national, it is important to remember that national is a very small component of radio spot revenue. 3. How was automotive advertising revenue on both television and radio? Television automotive revenue was down 1% in the fourth quarter primarily due to political displacement. Pre-election, we experienced declines but after the election we saw a return to healthy growth for December that nearly offset the displacement impact. For the year, television automotive revenue was up 1%. Automotive revenue was a significant growth factor for radio, particularly in the fourth quarter, up 13%, and also on the year, up 3%, which helped propel our strong local revenue performance. 4. Did you have any major cable or satellite renewals in 2014? We announced the Dish Network renewal in December. The Dish Network renewal was our only significant renewal in 2014. Publishing 5. Discuss advertising revenue performance for fourth quarter and full year 2014. Advertising revenue performance slowed in the fourth quarter, down 7.2%, as retailers grew cautious about heavy promotional spending in the face of stronger-than-expected holiday sales that began in October. Gains in ROP spending by department stores in the fourth quarter could not offset preprint losses in the same category, as faster-paced promotional decisions were made weekly with efficiencies in mind. ROP declines in finance, auto dealers, communications and entertainment impacted business at the daily newspaper for the quarter. Preprint losses were impacted by the loss of two major insert advertisers we discussed last quarter. The challenges we faced in the second half of the year and overall industry headwinds led to advertising revenue being down 4.5% for the full year. The Milwaukee Journal Sentinel appointed Dani Longoria, managing director of national media sales at Scripps, as VP Advertising Sales. Dani joined us from Knoxville and began her new duties in Milwaukee this week. 6. What was impacting your digital results? Publishing digital advertising revenue was down 8.6%. We experienced declines in remnant/refresh advertising and in retail display sponsorships, which have been challenged by the growth of third-party networks with aggressive rating programs. Audience retargeting programs and classified upsells were digital bright spots where we saw some growth. Annual digital advertising revenue for publishing was virtually flat, down 0.2%. 7. Discuss circulation revenue performance for the fourth quarter and full year 2014. Circulation revenue was down 1.4% in the quarter and 3.4% for the year. We saw volume declines in both home delivery and single copy. Circulation revenue declines were also impacted by a previously discussed change in our methodology to defer revenue during the subscription grace period. While this impacts revenue, it has minimal impact to earnings. Excluding this change, the decline would have been more moderate. 8. What expense savings did you realize or put into effect in the fourth quarter? Newshole reductions for the daily newspaper were implemented in the fourth quarter as well as call center changes and reductions in wire services and marketing expected to yield in excess of $1.0 million in annual savings. 9. What was your workforce reduction charge in the fourth quarter and full year 2014? Severance in the fourth quarter was $1.9 million, with annualized anticipated payroll savings of $2.6 million. For the year, total severance was $2.7 million, with $3.2 million in anticipated annualized savings tied to the reduction of approximately 43 FTEs. Other 10. Can you give an update on pension? We were not required to make a contribution in 2014 to our qualified defined benefit pension plan. The underfunded status of the qualified defined benefit pension plan increased by $29.7 million in the year ended December 31, 2014 to $72.6 million at December 31, 2014 due primarily to: (1) an unfavorable effect of $16.8 million from a decrease in discount rates; (2) an unfavorable effect of $13.0 million from an increase in life expectancies, resulting in an increase in the benefit obligations; (3) interest cost of $7.1 million; and (4) other actuarial adjustments of $0.5 million; partially offset by (5) a favorable effect of $7.7 million from actual returns on plan assets. 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 or provide services to 14 television stations and 34 radio stations in 11 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, the possibility that the proposed spin and merger transactions with The E. W. Scripps Company do not close (including, but not limited to, due to the failure to satisfy closing conditions), disruption from the proposed transactions making it more difficult to maintain our business and operational relationships, and the risk that unexpected costs will be incurred during this process; changes in network affiliation agreements, including increased costs; the availability of quality broadcast programming at competitive prices; 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; changes in video programming distribution channels, including new Internet and mobile programming competitors; 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; 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); effects of the loss of commercial inventory resulting from uninterrupted television news coverage and potential advertising cancellations due to war or terrorist acts, or other significant events; changes in advertising demand or the buying strategies of advertisers or the migration of advertising to digital platforms; changes in newsprint prices and other costs of materials; and, changes in legislation or customs relating to the collection, management and aggregation and use of consumer information through telemarketing and electronic communication efforts. 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 and Quarterly Report on Form 10-Q, as filed with the Securities and Exchange Commission. Tables Follow
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