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July 22, 2009
Share ThisAmid the secular and cyclical slowdown in print advertising, McClatchy Company (MNI), the third largest newspaper company in the U.S. and the publisher of 80 newspapers including the Miami Herald and Sacramento Bee, reported second quarter 2009 results.
The company is facing the same dramatic decline in advertising revenue, as the rest of the newspaper industry, reflecting the deepening economic recession. To combat the downturn, management undertook cost-cutting initiatives, focused on building internet operations and reduced debt load. McClatchy lowered its headcounts by 15%, or 1,600 employees, cut executive pay, suspended 401K matching contribution and dividend. The company was able to lower its cash expenses by 29.3% and operating expenses by 28.1%.
Consequently, EPS increased 42.9% year over year to $0.30. On a reported basis, EPS more than doubled to $0.50. Total revenue, however, plummeted 25.4% to $365.3 million, as the fall in total advertising revenue continued to accelerate, plunging 30.2% to $283.7 million, although an improving trend was seen in the reported quarter (down 31.1% in April, 30.7% in May and 28.3% in June). Circulation revenue stabilized (up 5%). Print advertising revenue declined 33.9%.
Like McClatchy Company, other newspaper companies like Washington Post Company (WPO), Journal Communications (JRN), Gannet Co. (GCI) and The New York Times Company (NYT) are also facing the brunt of falling advertising demand with readers migrating to the Internet and other alternative media.
McClatchy is transiting to a hybrid print and online model. Management has acknowledged that McClatchy’s ultimate business model will be nearly half Internet-based. To recapture readers who have migrated to the Internet, the company is investing in its online operations. The company has ownership stakes in CareerBuilder (14.4%), Classified Ventures (25.6%) that provides classified advertising websites such as cars.com and apartments.com, HomeFinder (33.3%), and has an alliance with Yahoo (YHOO).
The recession, however, adversely impacted the company’s online business. Employment advertising (off 54.8%), which has been hardest hit by the downturn, negatively affected the online advertising revenue (down 2.9%) – sans employment advertising, online advertising revenue soared 24.7%.
Speculation is rife in the market that McClatchy would breach its bank covenants, but the company was well within its covenant requirements, although operating cash flow declined 11% – leverage ratio was 5.8x cash flow as against 7.0x required, and interest coverage ratio was 2.8x as against 2.0x required.
We maintain a Hold rating on the stock.
Read the full analyst report on "MNI"
Read the full analyst report on "WPO"
Read the full analyst report on "JRN"
Read the full analyst report on "GCI"
Read the full analyst report on "NYT"
Read the full analyst report on "YHOO"
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