Knight Ridder 4Q Earnings Down 10%

By: E&P Staff

Knight Ridder reported Tuesday that its earnings per share took a 10.1% hit in the fourth quarter of 2005 because of last summer’s extraordinary three-way newspaper swap that left it without earnings from the Detroit Free Press and the Tallahassee (Fla.) Democrat.

Knight Ridder said it earned $1.24 per diluted share in the fourth quarter, down from $1.38 earned in the same period in 2004.

But the newspaper sales with Gannett Co. helped Knight Ridder’s earnings soar 57.9% to $6.52 per share from $4.13 in 2004.

As part of the Aug. 29 deal, Knight Ridder acquired The Idaho Statesman in Boise; The Olympian in Olympia, Wash.; and The Bellingham (Wash.) Herald in exchange for the Democrat and cash.

Gains from the Free Press and Democrat sales accounted for $2.87 per diluted share, the company said.

Knight Ridder hit the $3 billion mark in revenue in 2005, the company said, up 2.1% from 2004. Total advertising revenue increased 2.8% to $2.4 billion, while circulation revenue decreased 1.4% to $528.8 million.

The company also took on more debt in 2005. At year’s end, total debt was $2.1 billion, up $600 million from 2004.

“Despite flat revenue, we beat the Street’s consensus by two cents and faced by far the stiffest advertising comparisons of the year,” Chairman and CEO Tony Ridder said of the results. He said fourth-quarter costs were “down substantially” from their third-quarter level, and below average for the year.

Ridder noted the chain ended the quarter with classified ad revenues up 4.8%, the best performance of the year. But the retail category was down 1.1%, and national down 6.8%. “Auto classified turned in another soft performance,” he said.

For the year as a whole, total advertising revenue was up 1.7%. Retail was up 1.2%; national was down 2.3%; classified was up 4.2%. Help wanted was up 16.8%; real estate was up 8.6%; auto was down 10.3%.

In the fourth quarter, Knight Ridder said it repurchased approximately 857,000 shares of stock. For the year, repurchases totaled 10.4 million shares. Shares outstanding at the end of the year were 66.9 million.

In the fourth quarter, income from continuing operations was down only slightly to $1.24 per diluted share from $1.25 in 2004. Knight Ridder noted that the 2004 period per-share earnings included $0.09 from the favorable resolution of certain tax matters that were not included in 2005 earnings.

Other items were neutral in the year-over-year comparison, but noteworthy, Knight Ridder said. These included a gain of $0.12 per diluted share in 2005 for the resolution of a contingency concerning the 2004 sale of land in Seattle. Expenses in 2005 included $0.06 per diluted share for the balance of the severance payments related to work force reductions announced last September; $0.04 for “fees associated with the evaluation of corporate strategic alternatives,” including the possible sale of the company; $0.02 for additional expenses related to the bankruptcy of the Austin Co., the general contractor responsible for the now nearly completed new printing plant in Kansas City.

Total operating revenue in the fourth quarter was up 3.1% to $819.9 million, Knight Ridder said. Fourth-quarter was up 3.0% to $659.1 million, and circulation revenue also increased, up 2.3% to $135.8 million.

Knight Ridder said its newspapers in Philadelphia and Kansas City “were by far the hardest hit” from advertising downturns during 2005. It noted that the Philadelphia papers lost $2.5 million in state advertising compared to 2004, and said the Kansas City Star “has been particularly vulnerable to a downturn in telecom.”

Knight Ridder said its weeklies, free dailies, shoppers and other targeted publications “continued to show revenue increases in the double digits.” During the year, Knight Ridder bought the Palo Alto Daily News Group of free daily newspapers and Silicon Valley Community Newspapers in northern California, as well as two community weeklies in Texas.

During the year it launched 18 targeted publications and acquired 24 others, Knight Ridder noted Tuesday.

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