McClatchy Reports Growth in Second Quarter 2012 Earnings
Posted: 7/27/2012  |  By: Press Release | PR Newswire
SACRAMENTO, Calif., July 27, 2012 -- /PRNewswire/ -- The McClatchy Company (NYSE: MNI) today reported net income in the second quarter of 2012 of $26.9 million or 31 cents per share.  In the second quarter of 2011 the company reported net income of $4.9 million or 6 cents per share.

Revenues in the second quarter of 2012 were $299.3 million, down 4.8% from the second quarter of 2011. Advertising revenues were $222.6 million, down 5.7% from 2011, and circulation revenues were $63.6 million, down 2.4%. Total digital advertising revenues grew 4.9% in the second quarter of 2012, with digital-only advertising revenues up 16.8% from the 2011 quarter. Digital advertising represented 22.5% of total advertising revenues compared to 20.2% of total advertising revenues in the second quarter of 2011.

Results in the second quarter of 2012 included the following items:

Income in the second quarter of 2012, excluding the net impact of these items, was $16.1 million compared to income in the second quarter of 2011 adjusted for similar items of $9.0 million. (Non-GAAP measurements are discussed below.)

Operating cash expenses, excluding charges associated with restructuring plans, declined $6.6 million, or 2.9%, from the 2012 quarter. Operating cash flow, a non-GAAP measure, was $75.1 million in the second quarter of 2012, down 10.0%.

First Six Months Results:

Net income in the first half of 2012 was $24.8 million, or 29 cents per share. Net income in the first half of 2011 was $3.0 million, or 3 cents per share. 

Revenues in the first six months of 2012 were down 4.9% to $587.6 million compared to $618.0 million in 2011.  Advertising revenues in the 2012 period totaled $432.3 million, down 6.2%, and circulation revenues were $130.0 million, down 1.0%.

Results in the first half of 2012 included the following items:

Income in the first six months of 2012 excluding the net impact of these items was $13.6 million compared to earnings in the first six months of 2011 adjusted for similar items of $5.7 million. (Non-GAAP measurements are discussed below).

Management's Comments on Second Quarter Results:

Commenting on McClatchy's second quarter results, Pat Talamantes, McClatchy's president and CEO, said, "Advertising revenues were down 5.7% in the second quarter.  Despite economic headwinds, we were encouraged to see sequential improvement in advertising trends in the second quarter compared to the first quarter of 2012 when ad revenues were down 6.8%. Not only did we experience calendar switches for certain holidays, but we continue to see the trend of advertisers consolidating their marketing budgets around specific holidays. This was evident in the second quarter around the Easter, Mother's Day and Fourth of July holidays, with the impact clearly evident in the revenue results in each month. Advertising revenues were down 8.2% in April, 0.5% in May and 7.9% in June.

"Revenue from our digital initiatives continues to grow at a very healthy rate.  Digital-only advertising revenue increased 16.8% in the quarter with retail and automotive fueling the performance.  Total digital advertising, which includes digital advertising both bundled with print and sold on a stand-alone basis, increased 4.9% compared to the 2011 quarter.  Total digital advertising now represents 22.5% of McClatchy's total advertising revenue compared to 20.2% in 2011.  Our digital traffic also grew in the quarter with daily average local unique visitors to our websites and mobile content up 2.1%.

"Beginning this month, we also launched in a few select markets a suite of online products that is designed to offer local businesses a comprehensive digital marketing solution. This product suite, impressLOCAL™, provides affordable packages that include website customization, search engine marketing and optimization, social media presence and marketing services, as well as branding opportunities on the web through mobile and e-mail campaigns. Early sales efforts have been very positive, and we plan to roll out these packages to all of our markets by early 2013.

"Direct marketing advertising continues to perform well; ad revenues in direct marketing products were up 1.8% in the second quarter of 2012, marking the ninth consecutive quarter of growth in this category.  Through June 2012, advertising in direct marketing products made up 13.7% of our total advertising revenues and when coupled with digital advertising, 36.0% of our advertising revenues were generated outside of the daily newspaper.

"Circulation revenues decreased in the quarter, down 2.4%. Daily circulation volume declined 6.0% while Sunday was down 5.2%.  We faced a difficult comparison this quarter compared to the second quarter of last year especially in Sunday single-copy sales, which were driven by strong interest in couponing that spurred Sunday circulation growth in 2011.  

"While circulation revenues and volumes showed declines in the second quarter, we are focused on developing strategies to generate additional subscription revenues and improve circulation volumes at our newspapers.  We recently completed an exhaustive study of circulation practices across our newspapers, and have begun implementing policies across the company to improve both print circulation volumes and revenues.

"We are also offering new subscription packages to our readers. After a number of experiments and analysis on pay models, we intend to roll out a metered plan in the third quarter in five of our markets.  We will offer readers a combined print and digital subscription package that will include access to web, certain mobile and replica editions for a relatively small increase to print home-delivery rates. We'll also offer online-only digital subscriptions to users after they read a certain number of pages. Once the first wave is launched, we intend to expand this model to our other markets beginning in the fourth quarter of this year. 

"Cash expenses, excluding restructuring costs, were down 2.9% in the quarter. We continue to carefully balance expense management with strategically investing in our products and doing so enabled us to generate another quarter of healthy operating cash flow.  As was the case throughout the recession, all of our papers remain profitable and all continue to publish daily, providing communities with needed news and information in whatever form they wish to receive it.

"Our share of income from all equity interests was $9.3 million in the second quarter of 2012.  McClatchy's investments, particularly our digital investments, are consistently producing strong results which speak to the staying power of the underlying products. They are strategically important to our newspaper websites and we continue to work closely with these companies to maximize financial and operational performance.

"Looking forward, we continue to see a very choppy economic recovery that is affecting our advertising customers, and therefore our visibility into our own advertising revenues.  We will continue to focus on our strong and growing set of products and revenue initiatives, especially in digital and direct marketing. We will carefully balance expense management with strategically investing in our products. We expect to continue to benefit from stability in newsprint pricing, recognizing that comparisons to 2011 get tougher in the third quarter even in a soft newsprint pricing environment. On balance, we expect cash expenses to be down in the low-single-digit percent range in the third quarter of 2012."

Elaine Lintecum, McClatchy's CFO said, "We reduced debt by $35.0 million in the second quarter to $1.564 billion and finished the quarter with a cash balance of $37.7 million. Our nearest-term maturity in November 2014 is approximately $66 million – not an issue given our free cash flow. Our leverage ratio at the end of the second quarter as defined in our credit agreement was 4.57 times cash flow and our interest coverage was 2.24 times."

Lintecum also said, "We also have good news on the pension front. New pension funding legislation signed into law in July as a part of the highway bill values pension obligations using normalized long-term bond yields rather than the unprecedented low rates we now see for long-term bonds. We believe this is a more appropriate valuation of pension obligations and expect the company's annual required pension contributions for at least the next two years will decline. We expect the new legislation will reduce our funding from about $78 million for 2013 and 2014 combined, to approximately $10 million in 2013 and $25 million in 2014, allowing us to focus more cash on debt repayment."

Non-GAAP Financial Measures:

In addition to the results reported in accordance with accounting principles generally accepted in the United States ("GAAP") included in this press release, the company has provided information regarding operating income, non-operating expenses and income, income taxes, and net income excluding certain items described in an attached schedule. In addition the company has presented operating cash flows (defined as operating income plus depreciation and amortization, restructuring related charges and other non-cash impairments) along with operating cash flow margins (operating cash flow divided by net revenues) that are reconciled to GAAP measures in the attached schedule. Management believes these non-GAAP measures, when read in conjunction with the company's GAAP financials, provide useful information to investors by offering:

Operating income, non-operating expenses and income, income taxes, and net income excluding certain items should not be considered a substitute or an alternative to these computations calculated in accordance with and required by GAAP.  In addition, operating cash flow and operating cash flow margins should not be considered replacements for cash provided by operating activities as shown in the company's statement of cash flows included in our financial statements.

The company's statistical report, which summarizes revenue performance for the second fiscal quarter and first half of fiscal 2012, follows. 

At noon Eastern time today, McClatchy will review its results in a conference call (877-278-1205 pass code 99542654) and webcast (www.mcclatchy.com).  The webcast will be archived at McClatchy's website.

About McClatchy

The McClatchy Company is a leading news and information provider, offering a wide array of print and digital products in each of the markets it serves.  As the third largest newspaper company in the country, McClatchy's operations include 30 daily newspapers, community newspapers, websites, mobile news and advertising, niche publications, direct marketing and direct mail services.  The company's largest newspapers include The Miami Herald, The Sacramento Bee, Fort Worth Star-Telegram, The Kansas City Star, The Charlotte Observer and The News & Observer in Raleigh, N.C.  McClatchy is listed on the New York Stock Exchange under the symbol MNI.

Additional Information:

Statements in this press release regarding future financial and operating results, including revenues, anticipated savings from cost reduction efforts, cash flows, debt levels, as well as future opportunities for the company and any other statements about management's future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including statements containing the words "believes," "plans," "anticipates," "expects," "estimates" and similar expressions) should also be considered to be forward-looking statements. There are a number of important risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including:  McClatchy may not generate cash from operations, or otherwise, necessary to reduce debt or meet debt covenants as expected; McClatchy may experience decreased circulation and diminished revenues from retail, classified and national advertising; McClatchy may not achieve its expense reduction targets or may do harm to its operations in attempting to achieve such targets; McClatchy's operations have been, and will likely continue to be, adversely affected by competition, including competition from internet publishing and advertising platforms; increases in the cost of newsprint; bankruptcies or financial strain of its major advertising customers; litigation or any potential litigation; geo-political uncertainties including the risk of war; changes in printing and distribution costs from anticipated levels, including changes in postal rates or agreements; changes in interest rates; changes in pension assets and liabilities; changes in factors that impact pension contribution requirements, including, without limitation, the value of the company-owned real property that McClatchy has contributed to its pension plan; increased consolidation among major retailers in our markets or other events depressing the level of advertising; our inability to negotiate and obtain favorable terms under collective bargaining agreements with unions; competitive action by other companies; and other factors, many of which are beyond our control; as well as the other risks detailed from time to time in the company's publicly filed documents, including the company's Annual Report on Form 10-K for the year ended Dec. 25, 2011, filed with the U.S. Securities and Exchange Commission. McClatchy disclaims any intention and assumes no obligation to update the forward-looking information contained in this release.  

 

THE McCLATCHY COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 24, June 26, June 24, June 26,
2012 2011 2012 2011
REVENUES - NET:
   Advertising $ 222,565 $ 236,022 $ 432,329 $ 461,135
   Circulation 63,568 65,144 129,971 131,311
   Other 13,161 13,084 25,295 25,538
299,294 314,250 587,595 617,984
OPERATING EXPENSES:
   Compensation 108,086 119,735 220,735 244,092
   Newsprint, supplements and printing expense 34,968 36,947 69,307 72,323
   Depreciation and amortization 30,822 30,353 61,563 61,584
   Other operating expenses 82,483 82,082 165,080 174,397
256,359 269,117 516,685 552,396
OPERATING INCOME 42,935 45,133 70,910 65,588
NON-OPERATING (EXPENSES) INCOME:
   Interest expense (30,630) (44,696) (73,107) (85,643)
   Interest income 36 26 50 47
   Equity income in unconsolidated companies, net 9,334 9,500 15,352 12,672
   Gain (loss) on extinguishment of debt 1,653 (1,214) 6,086 (2,479)
   Other - net 5 159 43 225
(19,602) (36,225) (51,576) (75,178)
INCOME (LOSS) BEFORE INCOME TAX PROVISION  (BENEFIT) 23,333 8,908 19,334 (9,590)
INCOME TAX PROVISION (BENEFIT) (3,532) 3,961 (5,444) (12,575)
NET INCOME  $   26,865 $     4,947 $   24,778 $     2,985
NET INCOME PER COMMON SHARE:
   Basic 0.31 0.06 0.29 0.04
   Diluted 0.31 0.06 0.29 0.03
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
   Basic 85,739 85,114 85,617 85,075
   Diluted 86,323 85,948 86,441 85,975

 

***The McClatchy Company***
Consolidated Statistical Report
(In thousands, except for preprints)
Quarter  2
Combined Print Only Digital
Revenues - Net: 2012 2011 % Change 2012 2011 % Change 2012 2011 % Change
Advertising  $114,919 $120,941 -5.0% $94,456 $102,087 -7.5% $20,463 $18,854 8.5%
Retail 15,190 18,541 -18.1% 10,757 13,774 -21.9% 4,433 4,767 -7.0%
National 60,960 65,612 -7.1% 35,812 41,518 -13.7% 25,148 24,094 4.4%
Classified Total 20,536 20,648 -0.5% 9,809 11,344 -13.5% 10,727 9,304 15.3%
Automotive 9,660 11,804 -18.2% 6,110 8,075 -24.3% 3,549 3,728 -4.8%
Real Estate 12,588 14,001 -10.1% 5,744 6,690 -14.1% 6,844 7,311 -6.4%
Employment 18,176 19,159 -5.1% 14,148 15,408 -8.2% 4,028 3,751 7.4%
Other 31,326 30,778 1.8% 31,326 30,778 1.8%
Direct Marketing 170 150 13.3% 170 150 13.3%
Other Advertising $222,565 $236,022 -5.7% $172,521 $188,307 -8.4% $50,044 $47,715 4.9%
Total Advertising
63,568 65,144 -2.4%
Circulation 13,161 13,084 0.6%
Other $299,294 $314,250 -4.8%
Total Revenues
Advertising Revenues by Market: $37,507 $41,124 -8.8% $29,735 $33,011 -9.9% $7,772 $8,113 -4.2%
California 32,547 32,495 0.2% 26,047 26,112 -0.2% 6,500 6,383 1.8%
Florida 23,858 26,407 -9.7% 18,240 20,999 -13.1% 5,618 5,408 3.9%
Texas 63,989 67,685 -5.5% 48,847 53,616 -8.9% 15,142 14,069 7.6%
Southeast 39,714 41,716 -4.8% 30,717 33,126 -7.3% 8,997 8,590 4.7%
Midwest 24,767 26,572 -6.8% 18,935 21,443 -11.7% 5,832 5,129 13.7%
Northwest 183 23 695.7% 0 0 0.0% 183 23 695.7%
Other $222,565 $236,022 -5.7% $172,521 $188,307 -8.4% $50,044 $47,715 4.9%
Total Advertising
Advertising Statistics for Dailies: 4,479.7 4,788.2 -6.4%
Full Run ROP Linage
1,108.5 1,170.0 -5.3%
Millions of Preprints Distributed
Average Paid Circulation:* 1,999.8 2,128.0 -6.0%
Daily 2,659.9 2,807.2 -5.2%
Sunday
      Columns may not add due to rounding
*    Reflects average paid circulation based upon number of days in period. Does not reflect ABC reported figures.

 

 

***The McClatchy Company***
Consolidated Statistical Report
(In thousands, except for preprints)
June Year-to-Date
Combined Print Only Digital
Revenues - Net: 2012 2011 % Change 2012 2011 % Change 2012 2011 % Change
Advertising 
Retail $222,049 $235,378 -5.7% $182,781 $199,541 -8.4% $39,268 $35,837 9.6%
National 30,320 36,637 -17.2% 22,080 26,884 -17.9% 8,240 9,753 -15.5%
Classified Total 120,397 130,447 -7.7% 71,300 82,975 -14.1% 49,097 47,472 3.4%
Automotive 41,034 41,256 -0.5% 19,968 22,717 -12.1% 21,066 18,539 13.6%
Real Estate 19,073 23,447 -18.7% 12,260 16,147 -24.1% 6,813 7,300 -6.7%
Employment 24,932 27,481 -9.3% 11,508 13,150 -12.5% 13,424 14,331 -6.3%
Other 35,359 38,263 -7.6% 27,565 30,961 -11.0% 7,794 7,302 6.7%
Direct Marketing 59,242 58,268 1.7% 59,242 58,268 1.7%
Other Advertising 321 405 -20.7% 321 405 -20.7%
Total Advertising $432,329 $461,135 -6.2% $335,724 $368,073 -8.8% $96,605 $93,062 3.8%
Circulation 129,971 131,311 -1.0%
Other 25,295 25,538 -1.0%
Total Revenues $587,595 $617,984 -4.9%
Advertising Revenues by Market:
California $73,533 $80,191 -8.3% $58,401 $64,537 -9.5% $15,132 $15,654 -3.3%
Florida 64,056 65,805 -2.7% 51,581 53,151 -3.0% 12,475 12,654 -1.4%
Texas 46,758 52,387 -10.7% 35,951 41,890 -14.2% 10,807 10,497 3.0%
Southeast 125,118 132,722 -5.7% 95,588 105,401 -9.3% 29,530 27,321 8.1%
Midwest 75,315 78,922 -4.6% 58,028 62,375 -7.0% 17,287 16,547 4.5%
Northwest 47,238 51,070 -7.5% 36,175 40,719 -11.2% 11,063 10,351 6.9%
Other 311 38 718.4% 0 0 0.0% 311 38 718.4%
Total Advertising $432,329 $461,135 -6.2% $335,724 $368,073 -8.8% $96,605 $93,062 3.8%
Advertising Statistics for Dailies:
Full Run ROP Linage 8,718.2 9,284.3 -6.1%
Millions of Preprints Distributed 2,213.9 2,347.7 -5.7%
Average Paid Circulation:*
Daily 2,042.7 2,163.5 -5.6%
Sunday 2,734.4 2,809.5 -2.7%
     Columns may not add due to rounding
*    Reflects average paid circulation based upon number of days in period. Does not reflect ABC reported figures.

 

THE McCLATCHY COMPANY
Reconciliation of GAAP Measures to Non-GAAP Amounts
(In thousands)
Reconciliation of Operating Income  to Operating Cash Flows
 Three Months Ended   Six Months Ended 
June 24,  June 26,  June 24,  June 26, 
2012 2011 2012 2011
REVENUES - NET:
   Advertising $ 222,565 $ 236,022 $ 432,329 $ 461,135
   Circulation 63,568 65,144 129,971 131,311
   Other 13,161 13,084 25,295 25,538
299,294 314,250 587,595 617,984
OPERATING EXPENSES:
   Compensation excluding restructuring charges 107,811 112,121 219,288 231,929
   Newsprint, supplements and printing expense 34,968 36,947 69,307 72,323
   Other cash operating expenses 81,461 81,820 163,171 163,833
   Cash operating expenses excluding
     restructuring charges 224,240 230,888 451,766 468,085
   Restructuring related compensation  275 7,614 1,446 12,163
   Restructuring charges 1,022 - 1,910
   Impairment charges related to asset sales - 262 - 10,564
   Depreciation and amortization 30,822 30,353 61,563 61,584
   Total operating expenses 256,359 269,117 516,685 552,396
OPERATING INCOME  42,935 45,133 70,910 65,588
Add back:
   Depreciation and amortization 30,822 30,353 61,563 61,584
   Restructuring related compensation charges 275 7,614 1,446 12,163
   Restructuring charges 1,022 - 1,910 -
   Impairment charges related to asset sales - 262 - 10,564
OPERATING CASH FLOW $   75,054 $   83,362 $ 135,829 $ 149,899
OPERATING CASH FLOW MARGIN 25.1% 26.5% 23.1% 24.3%
Reconciliation of Net Income to Adjusted Net Income
Net Income: $   26,865 $      4,947 $   24,778 $      2,985
Add back certain items, net of tax:
   Loss (gain) on extinguishment of debt (1,045) 749 (3,847) 1,530
   Restructuring related charges 805 4,003 2,035 6,393
   Gain on sale of internet asset - - - (1,207)
   Accelerated depreciation on equipment 1,338 - 2,538
   Non-cash impairments - 166 - 6,707
   Reversal of interest on tax items (4,848) - (4,848) (2,313)
   Certain discrete tax items (6,981) (818) (7,046) (8,396)
Adjusted net income $   16,134 $      9,047 $   13,610 $      5,699

 

SOURCE The McClatchy Company