Tribune Reports Strong 2nd Quarter

By: Jesse Hiestand (The Hollywood Reporter) Cost-cutting led by a significant work-force reduction helped Tribune Co. report strong second-quarter results Thursday, reflecting the benefit of a sector-wide belt-tightening undertaken in response to last year's advertising recession.

A host of other broadcast and media companies including E.W. Scripps Co., Media General, and The New York Times Co. have likewise cited expense reductions as a key factor in driving recent earnings, allowing the steadily rebounding ad market to translate into higher revenue and cash flow.

Analysts caution that the temporary relief brought by one-time cost cuts, which quickly run their course in terms of direct bottom-line benefit, make it all the more crucial that the ad rebound delivers as expected. While that is far from certain, a rebound would set the stage for even better results through the second half of 2002.

"After the first year of doing (the cuts), you're not going to have the comparative benefit," Barrington Research Associates analyst James Goss said. "Right now they're getting some margin improvement from cost controls, and hopefully later they can get it from revenue gains."

Tribune finance chief Donald Grenesko predicted Thursday in a conference call with analysts and investors that expense reductions will drive full-year company earnings toward the high end of Wall Street estimates, which currently stand at $1.50-$1.65 per share.

Since it merged with Times Mirror two years ago, the Chicago-based newspaper and television station group has eliminated 10% of its work force, or about 2,000 jobs. The bulk of the cuts came last year.

"It was a combination of everything from attrition to voluntary retirement to compensation initiatives, wage freezes, and hiring freezes," Tribune spokesman Gary Weitman said.

Second-quarter cash operating expenses, excluding acquisitions, decreased 3% in Tribune's broadcast and entertainment division and were down 5% in publishing.

Thursday's earnings announcement prompted investors to send Tribune's stock up 5.2% to 40.56.

Although quarterly revenue rose just 1% to $1.38 billion, net income rose 57% to $114.2 million -- even with a pretax loss of $99 million for its investments in AOL Time Warner Inc.

Operating profit company-wide was up 22% to $343 million, and broadcasting results from Tribune's 23 major-market TV stations saw operating profit rise 5% to $130 million on a 2% gain in revenue.

"The cost-control measures we put in place last year are having a solid impact on our cash flow, which continues to improve," Chairman and CEO John Madigan said. "Tribune is well-positioned for the second half of 2002."

Other sector companies -- both pure-play broadcasters and those with a mix of newspapers and TV stations -- have reported similar benefits.

Scripps said a week ago that reduced expenses had combined with improved advertising to drive cash flow up 12% in its second-quarter results.

Media General, which has 26 network-affiliated TV stations, said Tuesday that broadcast earnings rose 47.3% over a year ago on a 16.4% increase in revenue. "Most of that increase flowed to broadcast's bottom line as a result of continued expense management," Chairman and CEO Stewart Bryan said.

Also Tuesday, The New York Times Co., which has eight network-affiliated stations, cited "stringent cost measures" taken during the past year as a major contributor to the recent quarter's positive operating performance.

As far as predicting whether the ad rebound will continue on pace, companies like Tribune and Scripps -- with mixed assets including newspapers -- are having a tougher time predicting near-term demand than the pure broadcast groups that are already counting on the fall elections to deliver political ad revenue, analysts said. Also, the newspaper companies are expected to face higher newsprint prices if ad revenue continues to increase, putting a drag on overall results.

But generally weak earnings in last year's third and fourth quarters should make any improvements in the comparative periods this year appear all the more favorable, Gabelli Asset Management analyst Evan Carpenter said. But like cost-cutting, that too will only be of temporary benefit and must yield to authentic earnings growth, Carpenter said.

"As we reach the end of the year and the beginning of next year and those costs cycle through, then, hopefully, we'll be seeing revenue growth take their place to boost the bottom line," he said.