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I’ve taken a quick look at the R.H. Donnelley earnings release before the company’s much-anticipated earnings call this morning. Here are a few quick highlights:

  • The company posted ad sales of US$2,743 million, an increase of 0.4 percent. Net revenues were US$2,680 million, down from US$2,688 million in 2006.
  • The company is giving a gloomier outlook for 2008 ad sales, laying out an expectation of “mid single digit” declines in ad sales, citing the weakening economy.
  • Jake Winebaum, brought in to lead RHD’s digital efforts via its acquisition, is “stepping down from his day to day role as President of RHD Interactive (RHDi) to spend more time with his family.” Winebaum will be replaced by Brian Barnum, who came to RHD with Winebaum in the deal. RHD had hoped Winebaum, who spoke at our DDC conference last September, would bring a fresh perspective to the company’s digital strategy.
  • Citing the decline in its stock price, RHD will forgo a dividend and focus all its cash flow on paying down its debt.

We will provide a more detailed write-up of its earnings call in a Client Inquiry Brief in the coming days.

Update: It’s been a rough day, to say the least, with RHD’s stock losing almost half its value today (down 46 percent at this writing). Among the key messages from the call this morning was that things have deteriorated sufficiently since the company issued guidance in December that it had to revise it considerably downward, and RHD executives were very reluctant to predict when things would improve. The softness in Florida and Nevada related to the housing crisis has deepened, and the company said Arizona is beginning to show the same signs of housing-related stress.

Executives said the company is suffering a combination of impacts, with existing accounts failing to increase, while others are dropping because they cannot afford to pay. Slower business creation rates are failing to provide a pipeline of prospects to replace the losses. CFO Steve Blondy said the company’s analysis shows that very few lost accounts go to other media, which indicated the causes are economic, rather than migration to alternatives.

RHD CEO Dave Swanson said Winebaum is walking away from some of the money he earned from the sale of, but he made more than enough money to give him the luxury of choosing not to work. Swanson said Winebaum had been working tirelessly more or less for the past seven years, and he missed spending time with his children. He was asked if others from the team were leaving and his answer was no.

Lost in all this was the fact that 2007 results weren’t that bad. While the Embarq markets were down 1.5 percent, things have improved substantially in the AT&T markets, where RHD said it has achieved 60 percent digital penetration with its new online offerings. Blondy also noted that national revenues grew in 2007. We were a little taken aback when he said revenues was almost all print, since RHD’s systems have not yet been configured to accept online ads from the national channel. The bright side of that revelation is that national support for print would appear to be strong, and if RHD can begin selling online to national, that suggests some headroom.

Still, all in all this was a sobering look at what the next 12 to 18 months likely have in store for the U.S. directory business. It is true (or it has been in the past) that Yellow Pages rides out these storms better than other traditional media. We will have to wait and see if the dynamics have changed this time around. As Swanson himself acknowledged, “There are more advertising options out there.”

This Post Has 6 Comments

  1. These companies RHD and Idearc will very soon get to the point of negative equity.
    Companies lacking a strong network of traffic sources are in for a wild ride…

  2. Should be no surprise that Jake Winebaum resigned. Why would somebody with a few hundred millions of dollars want ot stick around and answer to a bunch of old Print guys. He probably sold all his RHD stocks months ago.

  3. Tory,
    There’s no doubt that Jake has plenty of walk away money, and he made use of the luxury that allows. My understanding is that there was a holding period on the RHD stock he purchased as part of the acquisition, so I believe he still has those shares.

  4. Charles, I don’t feel too sorry for Jake who might have walked away from 100s of millions now might only have 10s of millions. He is still laughing all the way to the bank. while the RHD folks figure out what exactly is the incremental benefit

  5. My question is, at what point do these companies stocks hit bottom? I can’t think of any other industry that has experienced such rapid sell offs.

  6. I am not sure where the bottom is, but it can’t be that far away, given how much these shares have declined. As for which other industries have experienced similar sell offs, I can’t think of one off hand, except perhaps the dumping of speculative Internet stocks a few years back. Directory stocks are anything but speculative, however. it’s worth noting that while directory shares outside the U.S. are also suffering, they are not getting hit quite as hard as RHD or Idearc.

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