Analysts Worry Over McClatchy’s Q1 Results

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By: Jennifer Saba

While McClatchy’s Q1 conference call was upbeat, analysts registered concern over the company’s weak performance.

Merrill Lynch said in a report that after McClatchy’s successful bid on Knight Ridder the company’s optimism is understandable and yet ” a nod to secular issues would have added some realism to the discussion.”

McClatchy fell short of Merrill Lynch’s estimate for Q1 ad revenue by $1.3 million prompting the research firm to say it was an “uncharacteristic miss.”

There is some doubt that real estate will continue to drive growth as McClatchy’s is forecasting. Merrill Lynch has concerns “that McClatchy doesn’t acknowledge a bubble could burst.”

However, online ad revenue at the company continues to “sizzle” with a 30.1% gain in the quarter. Online represents more of McClatchy’s total revenue share — 6.9% in Q1 compared with 5.3% for the same period last year.

“No ad momentum,” — McClatchy estimates that Q2 results will come in similar to Q1 — “concerns about real estate advertising prospectively, and some building skepticism on divestitures keeps us neutral,” said Merrill Lynch analysts.

Meanwhile, Prudential Equity Research has similar doubts about slower than anticipated revenue growth and — especially about McClatchy selling 12 Knight Ridder papers for a premium. “The sale of 12 Knight Ridder properties could be a significant discount to the total purchased multiple of about 9.5 times, which would dampen investor interest,” according to a report.

McClatchy is estimating it can wring $60 million in savings from the Knight Ridder deal. But Prudential analysts want to see more: “If the figure is not in the $80 million range over the first year, we think investors will be disappointed.”

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