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THOMSON REUTERS STREETEVENTS EDITED TRANSCRIPT MDP - Q1 2013 Meredith Corporation Earnings Conference Call

EVENT DATE/TIME: OCTOBER 25, 2012 / 03:00PM GMT

OVERVIEW: MDP reported 1Q13 total revenue growth of 8% and EPS growth of 15%. Expects FY13 EPS to be $2.60-2.95 and 2Q13 EPS to be $0.80-0.85.

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call

CORPORATE PARTICIPAN TS Mike Lovell Meredith Corporation - Director of IR Steve Lacy Meredith Corporation - Chairman, CEO Joe Ceryanec Meredith Corporation - CFO Tom Harty Meredith Corporation - President, National Media Group Paul Karpowicz Meredith Corporation - President, Local Media Group

CONFERENCE CALL PART ICIPANTS John Crowther Piper Jaffray & Company - Analyst Richard Ingrassia Roth Capital Partners - Analyst Jason Bazinet Citigroup - Analyst Matt Chesler Deutsche Bank - Analyst Barry Lucas Gabelli & Company - Analyst

PRESENTATION

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Meredith Corp fiscal 2013 first quarter earnings release conference call. (Operator Instructions). At this time we will turn the conference call over to your host Director of Investor Relations, Mr. Mike Lovell. Please go ahead, sir.

Mike Lovell - Meredith Corporation - Director of IR

Good morning and thanks everyone for joining us. We will start the call this morning with comments from Chairman and Chief Executive Officer, Steve Lacy, and Chief Financial Officer, Joe Ceryanec, then we will turn the call over to questions. Also on the line this morning are Paul Karpowicz, President of our Local Media Group and Tom Harty, President of our National Media Group. An archive of today's discussion will be available later this afternoon on our IR website and a transcript will follow that.

Our remarks today include forward-looking statements and actual results may differ from forecasts. Some of the reasons why are described at the end of our news release issued earlier today and in some of our SEC filings, and with that, Steve will begin.

Steve Lacy - Meredith Corporation - Chairman, CEO

Good morning everyone. I hope you have a chance to see our news release issued earlier today detailing our fiscal 2013 first quarter results. I am pleased to report a strong first quarter and start to our new fiscal 2013. Let me take a moment and share some of our business highlights.

We delivered increased earnings per share of 15% when compared to the prior year period. Total Company revenues grew by 8%, and total advertising revenues were up a very strong 12%. Our results were led by record first quarter revenue and profit performance by our Local Media Group. We delivered year -over-year growth in nonpolitical revenues for the 12th straight quarter. We also generated a record $12 million in political advertising revenue in the quarter. The Local Media Group's EBITDA margin was 39%, also a record high for a first fiscal quarter.

National Media Group revenues increased 3%, including 7% growth in advertising revenue and 13% growth in circulation revenue. We are successfully integrating Allrecipes.com, EveryDay with Rachael Ray and the FamilyFun brands into the Meredith portfolio, and their results are exceeding our original financial expectations.

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call

We also faced challenges including comparable magazine advertising as well as Meredith's 's accelerated marking performance. And I will cover those in a moment in more detail during the operating group discussion.

And finally, I'm pleased to report that digital advertising revenues for the entire Company nearly doubled. Also reaching a record high for a fiscal first quarter. Total Company digital advertising revenues accounted for nearly 10% of our total ad revenues in the first quarter and that is almost double where we were two years ago at this time.

Stepping back for a moment to look at the current media and marketing environment, we see several encouraging trends. First, we anticipated a strong television political advertising season and it is certainly meeting our expectations. In addition to that heavy Presidential Election spending, in battleground states such as Nevada, we are benefiting from hotly contested statewide races in Connecticut, Arizona and Nevada as well. We are also seeing record spending from special interest groups .

Second, nonpolitical television advertising at our station continues to grow. We are seeing strong demand even as political advertising is tightening the available inventory. Local television continues to prove its unique ability to drive consumers into retail establishments. That is a selling point that we will again emphasize for the upcoming holiday shopping season immediately after the election.

Third, our national media brands continue to demonstrate their relevance with consumers and new digital media platforms are enhancing the brand vibrancy. Readership of our magazine stands at an all time high of 116 million. Meanwhile traffic to our 30 national media websites is up more than a 100% for the fiscal first quarter compared with the prior year. We are seeing continued growth in our tablet audience as well as strong engagement across social media and our mobile apps.

Fourth our recent acquisitions are performing ahead of our original financial expectations. We are very focused on maximizing the value of these businesses particularly allrecipes.com as demand for food related advertising will reach its annual peak during the approaching holiday season.

And finally, our diverse multi platform business model continues to generate strong and sustainable cash flow. We generated approximately $190 million in cash flow during the trailing 12- month period. Our total shareholder return strategy announced exactly one year ago today is predicated on that strong cash flow. Since announcing our TSR strategy, Meredith's stock price has increased nearly 40%, and our dividend has yielded 6%, equaling a return to shareholders of nearly 45% for the prior 12- month period.

As we have pointed out on prior calls, our goal is to consistently deliver above median to top quartile total shareholder return. To that end we are aggressively positioning Meredith for growth in shareholder value over time through multi platform consumer and client engagement strategies that extend across all of our businesses through initiatives that possess significant digital components and through activities that capitalize on our broad content creation and marketing capabilities.

So now let us review our progress in more detail starting with our local media business. As I mentioned a few moments ago, our Local Media Group continued its strong performance in the first quarter of fiscal 2013. Nonpolitical advertising revenues rows 5%, again marking the 12th straight quarter of year-over-year growth. From a market standpoint performance was strongest at our stations in Las Vegas, Nashville, Atlanta, Portland and Kansas City. Automotive our largest ad category grew 12%. And professional services, our number two ad category, increased by 6%.

Political advertising was strong due to the very competitive races in several of our markets that I mentioned a few moments ago. We have made special efforts to educate media buyers and campaigns about our powerful local news presence resulting in increased political dollars. With the election just 12 days away, we expect to deliver total net political advertising revenues at or slightly above our previous estimate of $25 million to $30 million for this entire election cycle counting both our first and second quarters of fiscal 2013.

Local media digital advertising grew 17% in our fiscal first quarter. I will tell you more about how we are maximizing our digital opportunities in just a few moments. Other revenues increased 35% due to growth in retransmission fees and our operation of Turner 's Peachtree television station in the Atlanta market place. As a result of these accomplishments, the Local Media Group delivered record operating profit of $28 million in the first quarter and that is 150% increase over the year ago time period.

While we often discuss our national media digital initiatives, I would like to take a few moments and expand on what we are doing in digital at the local level. First, we are very focused on enhancing the consumer experience through the launch of mobile apps across the entire group. These apps are great for brand building and are now contributing 10 million more page views per month on average than in the prior year.

Second, we are doing a good job monetizing this added traffic by bundling advertising packages across the desktop, mobile, and on air platforms. And third, we are adding more sophisticated advertising services for clients in the form of behavioral and geo-targeting. These new capabilities allow us to offer premium forms of reach.

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call

A recent report by (Inaudible). Associates confirmed or digital initiative our driving results. It ranked Meredith's local media group number seven nationally of the fastest growing entities selling digital marketing products to local advertisers. In fact, we are the top ranking media company on the list which includes well known internet brands such as Angie's List, Yelp and Pandora. Once again we are pleased with our Local Media Group's continue excellent performance, and we are looking forward to a strong finish to this year's political election cycle.

Now let us turn to our National Media Group and start our conversation with a look at advertising results for the first quarter of fiscal 2013. Total advertising revenues grew 7% driven by the recent acquisitions of Allrecipes.com, EveryDay with Rachael Ray and the FamilyFun brandsWe saw gains from the retail media and entertainment and pets categories, but these gains were offset by continued weakness in prescription drug related advertising. This was expected due to the limited number of new prescription drugs coming to market and certain popular medications coming off patent. Food, our largest advertising category was up slightly.

Our total share of magazine industry advertising revenues grew to 10.9%, and our average net revenue per magazine page increased about 5%. Total digital advertising revenues were up nearly 115%. Digital growth was particularly strong in the food, retail, and financial services category.

But as I mentioned earlier, the National Media Group continues to operate in a difficult overall advertising market place and comparable advertising revenues declined 9% in the first quarter of fiscal 2013. We are addressing the core magazine advertising issue head on. First we are adding scale through acquisition and continued operational excellence. We now offer our advertising and marketing clients access to 100 million unduplicated American women, a reach that is unmatched in the industry. We are the number one digital and print advertising company in the food category and also the clear leader in parenthood and the home categories.

Second, we are developing new tools to measure the effectiveness of print advertising. Our Meredith sales guaranteed today have 13 participants including brands from Johnson & Johnson, Kimberly-Clark and Tyson Foods. We have recently expanded the program to include pharmaceutical company brands directly addressing industry weakness in that category.

Third, we are pursuing expansion of advertising categories that outperform the industry as a whole and these include beauty, retail, and financial services. Together these categories posted growth of 5% in our fiscal first quarter and represented approximately 30% of our total magazine advertising. That is up from 20% of our total magazine advertising revenue just two years ago. So strong progress in our category diversification initiative.

And fourth, we are continuing to enhance the creative side of our business. This strengthens our consumer connection and helps advance the advertising category diversification initiative that I just mentioned. In the fiscal first quarter we launched fresh new designs for the Fitness brand and FamilyFun and a new look for Parents.com. These come on the heels of recent updates to Parents, Ladies' Home Journal, Traditional Home, Midwest Living and EatingWell. We have been very pleased with the reception we are receiving from consumers to our creative enhancements as witnessed by record high readership across our magazine portfolio. As an example of this increased engagement, we will grow the rate base for EatingWell to 750,000 in January of 2013. It was 350,000 when we purchased it just 16 months ago.

I am sure many of you saw the story in the New York Times on Monday of this week regarding EatingWell's growth and success under Meredith ownership. In addition, last week, Traditional Home was named to Advertising Age's 2012 magazine A-List. Ad Age cited Traditional Home's success in finding younger and more affluent readers while also growing the magazine's advertising. Traditional Home's ad pages were up 10% in the first quarter of fiscal 2013.

As I mentioned, we are delivering record high traffic to our digital properties. Social media is a big part of this growing digital connection. Betterhomesandgardens.com continues to be the leading publishing site for downstream traffic from Pinterest with Allrecipes close behind. Parents is building strong social engagement via contest that harness Instagram and Facebook, and our food sites regularly host online cooking chats and sessions with our creative leaders.

We are also continuing to expand our tablet and mobile presence. Our national brands now have more than 350,000 tablet consumers, approximately half of whom are digital-only customers. Over 20 of our brands are now available across the six major digital news stands including Next Issue Media which launched its innovative digital news stand for the iPad in July of this year. Our goal is to have tablet issues comprise 2% of our guaranteed rate base by the end of the current year, fiscal 2013. We are using our growing digital audience for e-commerce opportunities as well. Most notably we are using our digital channels to generate subscription orders for our magazine. We generated 1 million orders on line during the first quarter of fiscal 2013, up more than 40% from what we delivered a year ago at this time. As I'm sure you recall, this lowers our subscription acquisition costs, but more importantly increases our opportunities to upsell and cross sell other properties at digital check out. Taken together, these factors help us realize an incremental $5 in operating profit per digital order over the average life of the subscription.

Equally as exciting, response rates to our recent direct mail offerings and other consumer marketing efforts increased in the first quarter of fiscal 2013 when compared to prior year results. The strength of our consumer connection can also be seen at retail through continued growth with our licensing program of Better Homes and Gardens branded products at Wal-Mart stores across the countryWe currently have more than 3,000 SKUs available, and we are working with Wal-Mart to execute a

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call plan further expanding the scope of the Better Homes and Gardens brand in Wal-Mart stores. These new products are hitting the stores now, and we are confident that they will receive strong consumer reception as we move to the all important fourth calendar quarter and beyond.

I'll close our National Media Group discussion this morning with update on Meredith 's accelerated marketing. As I'm sure you recall, we first experienced weak ness at MXM in early calendar 2012 as certain of our major client grew more cautious in spending and reduced the scale of some of their programs. The good news is that RFP activity has picked up significantly, and we recently landed some great new clients including Hallmark and the Health Alliance. I haven't seen the pipeline for new business at MXM stronger over the last ten years that we have worked aggressively to build this business. Depending upon how successful we are in closing new business in that pipeline, we expect to deliver growth in the first half of calendar 2013 that will be driven by new wins along with recent program expansions from existing clients that we have already under our belt including Kraft and the National Educational Association. We remain highly confident that Meredith accelerated marketing can grow revenues in the double digit rates annually over the longer term as it has delivered for Meredith over the last decade.

Now I'll turn the discussion over to Joe Ceryanec our Chief Financial Officer for some additional financial information and our outlook.

Joe Ceryanec - Meredith Corporation - CFO

Thanks, Steve, and good morning everybody. As Steve mentioned, today is of significance as it marks the one year anniversary that we announced our total shareholder return strategy. And remind everyone key elements of our TSR program are a current annual dividend of $1.53 per share. A $100 million dollars share repurchase program, and ongoing strategic investments to help us scale our business and increase shareholder value over time. Consistent with our TSR strategy, we repurchased 530,000 shares of Company stock in the first quarter of fiscal 2013. At September 30th, we had about $70 million remaining under our current repurchase authorization.

Since we announced our TSR strategy, one year ago, our stock price has increased almost 40% and our dividend has yielded an average of 6% which equals a return of almost 45% to our shareholders over the past year. As of September 30th, our debt to EBITDA ratio continues at a conservative 1.6 to 1.

We recently completed the extension of our two revolving credit facilities. The first is our $150 million unsecured revolver which we extended for a new five year term. And the second is our $100 million asset backed revolving bank facility which we extended for a new two year term. Both of these facilities were renewed at lower rates than our previous facilities we are carrying. So we are well financed and have plenty of capacity for future acquisitions which we continue to pursue on a very strategic basis. We have a strong commitment to our shareholders, a history of prudent capital management and a long track record of returning a meaningful portion of our free cash flow to investors in the form of both dividends and share repurchase s.

Now, turning to our outlook for the second quarter and the full fiscal year. We expect fiscal 2013 second quarter earnings to range from $0.80 to $0.85. As we look more closely at the second quarter of fiscal 2013, compared to the year ago period, we expect total Company ad revenues to increase in the high teens.

Local Media Group ad revenues are expected to be up more than 20%. Now, that includes political ad revenues of between $18 million and $20 million which would put us at between $30 million and $32 million for the first two fiscal quarters which as Steve mentioned is slightly above the range for political ad revenue that we forecasted in July. Nonpolitical ad revenues are expected to be flat, to down slightly reflecting the strong political ad revenues which are crowding out nonpolitical ad inventory. National Media Group ad revenues are expected to be up in the mid teens which includes the recent acquisitions and down in the mid single digits excluding recent acquisitions.

Now, one item that I would like to further address relates to our second quarter guidance of the range of $0.80 to $0.85. And while we have a fairly large range of Q2 estimates, due in large part to the volatility of political revenue in the second quarter, there is one analyst who has an incorrect share count assumption in their model. And if you removed that estimate, that would put our consensus under $0.84 which would be well within the range of our guidance for Q2. But actually more importantly, and consistent with what we have said in July, we continue to expect our fiscal 2013 earnings per share to range from $2.60 to $2.95 per share.

With that, now we would be happy to open up the call for questions. QUESTION AND ANSWER

Operator

Thank you very much. (Operator Instructions). First question in queue will come from Mark Zgutowicz from Piper Jaffray. Please go ahead.

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call

John Crowther - Piper Jaffray & Company - Analyst

This is John Crowther on for Mark. First question if we just dive into a couple of the sectors within your National Media Group in terms of advertising dollars, how is CPG trended I know that was area you called out last quarter as potentially facing some difficulties here, how is that turn it over to quarter and then on pharma, this is we have had a couple quarters of weakness now, I am wondering if the outlook there is that as soon as we get to easier comps that could improve or is really the lack of new drugs in that pipeline going to continue to make that weak for a couple more quarters?

Steve Lacy - Meredith Corporation - Chairman, CEO

Tom, do you want to take those two category questions on advertising for us ?

Tom Harty - Meredith Corporation - President, National Media Group

Sure. Yes, to your point in the first quarter, the CPG counts have been weak, especially in the food and household supplies area. And to your point on the drug category, it has been very difficult for about 18 months now. As we look to the fiscal second quarter we are seeing improving trends, and we believe we will actually be up slightly in the pharmaceutical category for the second fiscal quarter.

John Crowther - Piper Jaffray & Company - Analyst

Great. And then I really appreciate the detail you guys gave in terms of the acquisitions in terms of the contribution there. Looking forward, I think when you acquired both the magazines Rachael Ray and FamilyFun and then as well Allrecipes, you highlighted these were properties that you thought could get to better than break even 12 months out from acquisition. I'm wondering how that is trending here. Obviously Allrecipes is seasonally weighted to the December quarter which should help but wonder if you could give an update there?

Steve Lacy - Meredith Corporation - Chairman, CEO

Well, those acquisitions are in fact, positive to operating profit in the first quarter of fiscal 2013in the aggregate, and certainly as we look at the second quarter because of the heavy emphasis of fourth quarter advertising for Allrecipes will also add to operating profit compared to the prior year. And in both of these periods, the results of these three acquisitions are well ahead of what we would have expected as we did our acquisition modeling. And really, John , a lot of that has to do with what I call bringing these businesses into the big Meredith machine which from an operating perspective is exceedingly efficient, and we always surprise ourselves with the cost efficiencies we find when we really get into running these businesses day to day.

Joe Ceryanec - Meredith Corporation - CFO

So, John, just to pile on a little bit to what Steve said, the magazine acquisitions, Rachael Ray, FamilyFun have been accretive from day one. As we try to be very clear with Allrecipes, that business was going to be dilutive. We made some investments in that business, but as Steve said, it is on plan. It will be accretive of in our second quarter, and we expect it to be accretive for the full fiscal 2013.

Steve Lacy - Meredith Corporation - Chairman, CEO

Did we get your questions, John?.

John Crowther - Piper Jaffray & Company - Analyst

Yes, that is great. Just one last one. In the call you mentioned that average revenue per page was up 5% in the quarter and I think you are quoting a PIB stat there . Obviously the page trends have been difficult, but what is sort of driving that revenue increase year over year?

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call

Steve Lacy - Meredith Corporation - Chairman, CEO

So let me start and then I will ask Tom to give you a little more color. First of all, that is not a PIB statistic. That is a Meredith statistic that we calculate internally. And there is really two factors at play. Part of it is that some of weakness in certain of these categories are more of our low margin products or low margin pages, if you will, and obviously the ability to increase that is changing the mix by adding these newer categories that I mentioned that are at a much higher net per pa ge. Tom, do you want to add a little color to that in terms of why that is so important to the business ?

Tom Harty - Meredith Corporation - President, National Media Group

Yes, to the point of Steve a lot of it is driven by mix, so the pharmaceutical category which is down is a lower rate per page category because they have disclaimer ads and big units that they usually run. So the business that we have actually been replacing that with has been coming in at a much higher rate. And then also our acquisitions are delivering us a better yield also.

Steve Lacy - Meredith Corporation - Chairman, CEO

Did that help, John.

John Crowther - Piper Jaffray & Company - Analyst

It does, yes. Thank you very much.

Operator

Thank you our next question in queue will come from Richard Ingrassia with Roth Capital Partners. Thanks go ahead.

Richard Ingrassia - Roth Capital Partners - Analyst

Good morning guys.

Steve Lacy - Meredith Corporation - Chairman, CEO

Hi Rich. How are you?

Richard Ingrassia - Roth Capital Partners - Analyst

I am good thank you. Steve, you have been obviously active in M&A over the past year, can you give us an update on what areas of the business do you feel you can build most effectively now and most synergistically from here?

Steve Lacy - Meredith Corporation - Chairman, CEO

Yes, Rich, I would say a couple things. One of the areas that we are very excited about -and I'm going to tie back to some things we have done and some things we would like to do. Okay. One of the things we are very, very excited about is a small investment that we made in an e-commerce company called ShopNation. I'm sure you recall that the acquisition of Allrecipes.com reallyput us on the map from a digital perspective and made us a scale player that importantly allows us to bid for much, much larger advertising buys. But in addition to that, it gives us this very large digital audience that we can sell our own products to, but we also believe we can sell other people 's products too because the consumer online in digital views that as service journalism. Very much like our traditional service journalism. So that is very much in its infancy just getting launched into this season. But if you listen to what I said about our ability to sell our magazine subscriptions online and how that

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call went up 40% in the quarter, I think that speaks to what we can do to further monetize the digital audience which I am sure as you know has been difficult for the industry taken as a whole.

In addition to that, I strongly believe that we will continue to see industry consolidation. And as I said a few moments ago, every time we have the opportunity to bring another one of these brands into the Meredith magazine machine, we see very, very strong financial results. We would clearly be interested in brands that add to the categories that Tom and his team are working so hard to develop. So that would be beauty , that would be fashion, that would be retail, and across the board, you get some financial services opportunities. So I don't have something like right on the boards today that I can speak to but time and time again when we get the opportunity to bring another brand into our portfolio, we can deliver really strong financial results.

You know that we have been very active on the TV side, but we have not been able to close a transaction yet because Paul is very disciplined as an owner / operator in terms of what he will pay. And from an MXM perspective, you might recall that about 18 months ago, we made a 20% investment in an international digital company that is called Iris. So we are sort of in the dating before you get married phase and working to cross sell our clients and their clients, and if we feel good about that transaction, we have a very well define purchase option that runs through December of 2013 and that would basically double the size of MXM and make it a real scale player in the market place. Does that help, Rich ?

Richard Ingrassia - Roth Capital Partners - Analyst

That's great, Steve. I appreciate the detail. One other quick one, and I don't know if this is for you or Joe, but nice reduction in SG&A in the quarter, sequentially and year over year, actually not a reduction sequentially, but just a nice lower number than I expected and gross margins do seem to be inching up slightly. Can you give us a general going forward perspective on EBITDA margins, I am not asking for to you make any promises here but is a consistent 20% a realistic goal you think over the next two years ?

Joe Ceryanec - Meredith Corporation - CFO

Yeah, I do, Rich. Obviously as you know, we are always focused on cost. You may remember, we took some actions back in April, especially on the national media side, to focus on costs. The other thing that I mentioned earlier to John is the impact of Allrecipes which initially was dilutive at the operating profit line clearly dilutive at the gross margin line as we continue to grow that business and bring it in, I'll say bring it in house with the other businesses, we would expect to create some incremental costs synergies there. So barring a broader macro economic issue that would be out of our control, we feel really good about taking these acquired businesses and continue to making them more efficient as well as manage our current infrastructure. So the short answer to your question is yes, we feel good about our ability to improve margins.

Richard Ingrassia - Roth Capital Partners - Analyst

Okay. Thanks, Joe.

Steve Lacy - Meredith Corporation - Chairman, CEO

Thank you Rich. Thanks for being on the call.

Richard Ingrassia - Roth Capital Partners - Analyst

My pleasure.

Operator

Thank you our next question in queue will come from Jason Bazinet with Citi. Please go ahead.

Jason Bazinet - Citigroup - Analyst

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call

I have one question for Mr. Ceryanec one for Mr. Lacy. Given your relatively lean balance sheet and the high dividend yield and the rate environment, I was wondering, do you guys as a corporation think at all about any sort of incremental buy back essentially being neutral or positive from a free cash perspective after the dividend? That is my first question. And second, given the progress you are making on acquiring new customers at a lower cost, via the digital channel, offset by the declining organic ad revenues on the magazine side. How do those two swirl together to influence how you think about the rate base, because it seems like there. are some cross currents going on there if you could add color that would be helpful ?

Steve Lacy - Meredith Corporation - Chairman, CEO

Let me start with that second question and then I will I come back to Joe on how he manages s the buy back program. I think your question is really, really an excellent one. I am going to step back for a minute. I think it is quite intriguing that through everything that has happened in the economic downturn and shifts in media spend by platform and all of that, the one line item and part of the business that has been absolutely solid as a rock has been circulation and circulation profitability.

And Tom's team is about a very, very diligent effort right now to really further study that audience and to study that audience maybe dissecting it in a way that is a bit different than what we would have done historically to find the most economic cost, to find a new or renew a subscriber. We think we have got an interesting opportunity going forward knowing that loyalty and that persistency in readership to look at some increases in revenue that might and might not result in some changes in rate base . But as we have seen that part of the business continue to be so very strong, we are now going to put some real stringent additional stringent work around how much elasticity might in fact, there be in the pricing model for that business .

We do look, Jason, at every rate base and equally as important, the frequency of these titles every year. And make determinations around that based on profitability. But I think we are really enthused with this continued persistency. So not only have we had this real success in beginning to sell more subs on line, but I also mentioned our direct mail activities the traditional part of the business, we continue to see really strong results. And I think that points to optimism. I ca not exactly to date connect the dots for you between that and future magazine ad revenue that I am not at good at predicting, but I think it really speaks to the health and vitality of the audience as we look forward.

Jason Bazinet - Citigroup - Analyst

Can I just, just to make sure I understood what you said, are you saying that your cost of acquisition is dropping enough that it affords you the opportunity to charge less to the consumer for a title and potentially expand the rate base is that what you are saying?

Steve Lacy - Meredith Corporation - Chairman, CEO

No, no, no. I'm sorry then I was not clear. What I'm saying the digital activities have allowed the cost of acquisition to drop. That is Roman numeral I. The strength of the renewal s and the direct mail and the digital activity are causing us to study really hard could we charge more.

Jason Bazinet - Citigroup - Analyst

Okay.

Steve Lacy - Meredith Corporation - Chairman, CEO

Going forward. And we are going to start to do some aggressive testing on that into early calendar 2013 and beyond with some different, I would say, audience segmentation on pricing than maybe we would have done it historically. So it is a new project, but I think the continued strength of that audience gives us cause to believe that we could push the top line up.

Jason Bazinet - Citigroup - Analyst

Understood. Okay. Thank you.

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call

Steve Lacy - Meredith Corporation - Chairman, CEO

Okay.

Jason Bazinet - Citigroup - Analyst

Thank you.

Steve Lacy - Meredith Corporation - Chairman, CEO

Now, Joe, why don't you talk about the buy back program.

Joe Ceryanec - Meredith Corporation - CFO

Jason, that is a fairly easy one. And I am going to walk you through some quick math which might help everybody kind of understand the way we like at our cash flow . We said on the call this morning, our trailing 12-month cash from operations was $190 million. Any of you who have seen our analyst presentations know we have a chart that shows historical operating cash flow and that number has been quite consistent, even in tough years like 2009. So we feel very good about the consistency about our ability to generate cash.

So you take $190 million, our CapEx runs about 25 to 35, 25 to 30 this year. So you got about $160 million to $165 million of free cash flow. At our current dividend rate of $1.53 that translates to a little under $70 million of annual dividend payments. That leaves me $90 million to $95 million of cash after our dividend commitment which we have got nominal debt service requirements which leaves me quite a bit of cash, whether it is M&A, whether it is share buy backs. As you know we look at the buy backs as kind of a lever that we can use when there is not much M&A activity on the horizon. So we feel really good about our ability to continue on the dividend track and sustain those dividends over the foreseeable future. I do not know if that exactly gets to your question.

Jason Bazinet - Citigroup - Analyst

Well, my question is, if your dividend yield is 4.7% and you can borrow money at 5% which is like 3.5% or something after tax it almost seems like a buy back would be self funding because it avoids paying the dividends. My question is when you think about how much to buy back, does the dividend payment influence your decision at all or is it excluded from your calculus?

Joe Ceryanec - Meredith Corporation - CFO

I would say the dividend payment is separate from the calculus on the buy back program. But you are absolutely right with our dividend yielding over 4% and the cost of funds, it is an attractive use of cash.

Jason Bazinet - Citigroup - Analyst

Okay. Thank you.

Steve Lacy - Meredith Corporation - Chairman, CEO

We just had a philosophy, Jason, of increasing it over time and we did the 50% bump a year ago and also not actually going out and borrowing money to fund a one time buy back. But the persistency of it and regular appropriate increases I think are what the market should count on.

Jason Bazinet - Citigroup - Analyst

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call

Okay. Thank you very much.

Steve Lacy - Meredith Corporation - Chairman, CEO

Thank you Jason.

Operator

Thank you. Our next question in queue will come from Matt Chesler with Deutsche Bank. Please go ahead.

Matt Chesler - Deutsche Bank - Analyst

Good morning everyone.

Steve Lacy - Meredith Corporation - Chairman, CEO

Hi, Matt, how are you?.

Matt Chesler - Deutsche Bank - Analyst

I am doing great. Steve, I think one of the plays for the Company over time is to wean the consumer off of their print addiction in favor of digital. And there is some real nice cost saving opportunities for you, if and when you are able to do that. Are you feeling any more or less comfortable with the ability in timing of being able to do that ?

Steve Lacy - Meredith Corporation - Chairman, CEO

Well, I think the most important thing that we always remember is that the beauty of print compared with digital is that we get paid for the content, and she is pretty happy with the content. So what we are trying to do so is create the digital addition and enrich it in such a way that she would continue to be willing to pay for it and over time would let her print issue go. Or a new consumer comes in and would be happy enough to pay and not take a print addition. I continue to believe that we will accomplish that over time as we started to accomplish moving the consumer from direct mail to a digital interface to buy and pay for the subscription, but we are going to do it in the way that the consumer responds positively.

And that is why we set the objective that we have been very public about to say every year we are going to try to make that happen by an incremental 2%, where the print goes away and the digital component increases. Some people think that is more modest than it should be, but I continue to believe that we have to serve the customer on the format she wants to be served on. So I think we are equally as optimistic as we have been. We are quite excited. I don't know if you have gone and played with the Next Issue Media digital store front that allows you to test and eat a lot of content, but it is going to take consumer adoption and going to be a time period where she like that content.

Matt Chesler - Deutsche Bank - Analyst

A quick question for Paul and Joe. So, Paul, when you guys think about the crowding out and the guidance that you have offered for TV nonpolitical, what is the assumption for what happens after the election ? What is baked in for guidance in terms of dollars coming back, and then is there any update, Joe, that you can provide in terms of how you are performing in re-trans on a net basis in the first quarter here? To what extent are you already starting to pay out the reverse re-trends and what kind of progressions throughout the year might we see?

Steve Lacy - Meredith Corporation - Chairman, CEO

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call

Paul, why don't you speak to post election how you feel about nonpolitical and then, Matt, we will have Joe give you update where we are with re-trans and net re- trans. Okay. Paul, you go first.

Paul Karpowicz - Meredith Corporation - President, Local Media Group

First I think there are really two pieces to that. I think post election there is going to be a lot of displaced advertising that is going to need to be put back into the system. We truly do believe that as we get into the rest of November and December that we will be able to clear a lot of the inventory that was cleaned out or bumped for political reasons. On top of that, we of still seeing a pretty strong push from automotive. And that has really been what is driving our nonpolitical advertising. So it is a combination of the spots that have been preempted that will filler back in November and December. And then automotive, and then other holiday advertisers. We do hear about some pretty positive retail business that may be coming up for November and December to get us into the holiday season.

Joe Ceryanec - Meredith Corporation - CFO

So Matt, I'll try and explain what is going on with the re-trans. It's in line with what I have been saying all along. The re-trans revenue number is in our Local Media Group Other. Within that number it was, I think, almost $13 million this quarter versus about $9.5 million. So that line was up a little over $3 million, about a little over two - thirds of that increase was due to increased re trans revenue. That reflects some of the renegotiation we have had with MSO s and some of the satellite providers.

They are on a net basis, however, we are starting to pay reverse re-trans to the networks and in the local media cost on our P&L, there was about $3 million of expense in the first quarter that would have been zero last quarter. So the quick math was re-trans revenue was up around 2.5, the expense was up over 3. So we actually had a slight degradation in the operating profit that we would have had a year ago, which is exactly what we have been saying. By the end of the year, because the MSO agreements are up for negotiation throughout the year, we expect that that number for fiscal 2013 will be about what it was in fiscal 2012 which was on a net basis, kind of around $28 million.

Steve Lacy - Meredith Corporation - Chairman, CEO

So we know a little bit more math than we did when we were on the call a quarter ago, and we continue to believe that the earlier thought process that we had that said that is kind of transitional year we take a little step back in the first couple quarters and it goes ahead in the back half, we come out about the same or a little better, then we have some growth opportunity in net re-trans as we go into fiscal 2014 and beyond. Same story, but a little more confidence around that story. Okay.

Matt Chesler - Deutsche Bank - Analyst

Yes, that was helpful. Thank you.

Steve Lacy - Meredith Corporation - Chairman, CEO

Thank you, Matt ?

Operator

Thank you very much. (Operator Instructions). Next in queue is Barry Lucas with Gabelli & Company. Please go ahead.

Barry Lucas - Gabelli & Company - Analyst

Thanks and good morning. If we look at the magazine picture, Steve, and I think in the outlook Joe mentioned down mid single digits, ex-M&A, maybe you could just drill down a bit in terms of bookings that you have seen so far for the December quarter, how do you stand and is that down mid single digits, sort of what you have seen so far or what your expectations may be with one book left to go ?

Steve Lacy - Meredith Corporation - Chairman, CEO

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call

Well, we definitely have one book left to go, and I'll ask Tom to give you a little bit more color. But it is really volatile month to month. And the categories in fact move around from period to period. So in aggregate, a bit better than what we had in the first quarter, but not completely finalized because the January issues, which are December revenue for us, are not closed. And, Tom, any other color you would like to provide about that, go right ahead.

Tom Harty - Meredith Corporation - President, National Media Group

Yes, I just think that we feel confident about the guidance that Joe gave you that up mid teens and down single digits and we do have one more issue to go, the January issue.

Barry Lucas - Gabelli & Company - Analyst

Okay. That is great. Just come back to the balance sheet issue which you have had several questions on. Maybe just refresh at least my memory on what your tolerance for leverage might be, whether it is M&A or share repurchase related or what have you, especially given the cost of capital these days.

Joe Ceryanec - Meredith Corporation - CFO

Sure, Barry. In fact, we actually posted on our website about a year ago when we announced the TSR strategy because we got a lot of questions about leverage capacity and appetite, and what we have said and we have been consistent is that we are comfortable at a leverage ratio of 2.5 times. For specific strategic acquisition, we would push that number to 3 times. But we would clearly want to see a path to deleverage over a relatively short time. And we have not changed our tune on that at all.

Barry Lucas - Gabelli & Company - Analyst

Okay. Just to be clear that stretching for 3X does not include share repurchase.

Steve Lacy - Meredith Corporation - Chairman, CEO

No .

Joe Ceryanec - Meredith Corporation - CFO

No, that does not.

Steve Lacy - Meredith Corporation - Chairman, CEO

Does not.

Barry Lucas - Gabelli & Company - Analyst

Great. Thanks very much.

Steve Lacy - Meredith Corporation - Chairman, CEO

Thank you.

Operator

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OCTOBER 25, 2012 / 03:00PM GMT, MDP - Q1 2013 Meredith Corporation Earnings Conference Call

Thank you. At this time there are no additional questions in queue. Please continue.

Steve Lacy - Meredith Corporation - Chairman, CEO

Thank you all for participating today. We appreciate the questions and the input. And we will get back to work here at Meredith. So thank you very much.

Operator

Thank you. Ladies and gentlemen, this conference call will be available for replay after 1 PM Eastern Time today running through November 8, 2012 at midnight. You may access the AT&T Executive playback service at any time by dialing 800-475-6701 and entering the access code of 267138. International participants may dial 320- 365-3844. Once again those phone numbers are 800-475-6701 and 320-365-3844 using the access code of 267138. That does conclude our conference call for today. We do thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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