McClatchy posts higher 2Q profit despite slump
SACRAMENTO, Calif. — Newspaper publisher McClatchy Co. said Tuesday that layoffs and other cost-cutting helped it double its second-quarter profit despite a continued plunge in advertising.
McClatchy’s results defied predictions of another quarterly loss and sent its shares up more than 40 percent. But they also reflected the painful cutbacks newspapers have resorted to as competition from the Internet has been compounded by the recession.
Like fellow publisher Gannett Co., which reversed a year-earlier loss with a $70.5 million profit in the second quarter, McClatchy’s earnings benefited from layoffs. The company has cut a third of its work force in the past year.
McClatchy, which owns The Miami Herald and 29 other dailies, said expenses fell 28 percent for the three months ended June 28.
That helped the company earn $42.2 million, or 50 cents per share, compared with $19.7 million, or 24 cents per share, a year ago.
Excluding asset sales and other unusual items, McClatchy says earnings would have come to $25.2 million, or 30 cents per share.
Analysts polled by Thomson Reuters, who typically exclude special items, expected a loss of 8 cents per share.
McClatchy’s revenue tumbled 25 percent to $365.3 million, with ad revenue down 30 percent. Analysts had forecast revenue of $369 million.
Much as Gannett did, McClatchy signaled modest improvement for advertising.
The company said ad revenue was down 31 percent in April from the same month in 2008, 31 percent in May and 28 percent in June. So far, this month looks about the same as June, McClatchy’s chief executive, Gary Pruitt, said in a statement.
The recession also cut into McClatchy’s online business, a closely watched revenue stream as newspapers transition to the Web. A drop in employment ads sent online ad revenue down 2.9 percent. Excluding job advertisements, McClatchy said, digital ad revenue would have been up nearly 25 percent.
A key question is whether McClatchy can overcome its debt of about $2 billion. Several other major newspaper publishers, including the owners of the Los Angeles Times, Chicago Tribune and Philadelphia Inquirer, have filed for bankruptcy protection since December.
McClatchy recently tried to whittle about $900 million from its debt in a complex bond exchange, and only 9 percent of the bondholders accepted the offer.
Even so, the company expressed confidence Tuesday in its ability to stay within the financial terms, known as covenants, that its lenders require.
McClatchy said the debt exchange offer had reduced the principal on its debt by about $75 million. The company also repaid $31 million in unsecured notes in the quarter.
“There has been a steady drumbeat in recent media and analyst reports about the prospects of McClatchy violating bank covenants this year,” Pruitt said in the statement.
“We think it is important to note that even if our advertising performance does not improve from its current run rate for the rest of the year, we would not breach our bank covenants. In the meantime, we will continue to reduce debt.”
McClatchy shares jumped 22 cents to 76 cents in morning trading.
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