Pruitt Defends KR Deal After McClatchy Posts Q4 Loss

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By: Jennifer Saba

The nation’s second-largest newspaper company, McClatchy Co., reported a net loss of $279.3 million or $3.41 per share including discontinued operations in Q4 2006.

Still, McClatchy’s CEO Gary Pruitt said during a quarterly earnings call this afternoon that McClatchy “had no plans to sell other newspapers … or significant assets.”

Pruitt also shed some more light on why McClatchy decided to sell the Star Tribune in Minneapolis — a move that took many by surprise — even given the company’s two-year window to take any tax advantages from the sell off.

While the paper is profitable and had been “outperforming many metro papers,” Pruitt explained, its exposure to classified and national advertising, the “quasi-competitive market” and the higher cost structure associated with operating in a metro market contributed to the decision to sell Minneapolis at the end of 2006. “We felt it was in the best long-term interest of the company,” Pruitt said.

Revenues from continuing operations of the newly combined company, which includes the 20 papers acquired from Knight Ridder, were down 3.4% to $630.7 million in Q4 on a 13-week basis (2006 had one extra week during Q4, or a total of 14 weeks). On the same basis, advertising revenues dropped 3.1% to $539.5 million.

Retail advertising in Q4 slipped 0.7% to $256 million. National advertising fell 13% to $52.7 million. Classified decreased 5.5% to $181.7 million. Within the classified category, auto was down 4.1%, real estate was flat (down 0.1%), and employment declined 10.5%.

Circulation revenue in Q4 fell 3.1% to $71.7 million.

Pruitt acknowledged the challenging advertising environment especially the classified category, which is expected to take a massive hit. California and Florida are two states where classified real estate advertising is “tracking badly,” Pruitt confirmed.

In California, in Q1, real estate classified advertising was up 49%, in Q2 it was up 46%, in Q3 it was up 25% and in Q4 it fell 0.1%.

The drop-off in real estate advertising is one reason that McClatchy is forecasting ad revenue to be down during the first half of 2007.

For 2006, on a 52-week basis, McClatchy said total revenue was down slightly, 0.4% to $2.45 billion while advertising revenue grew 0.5% to $2.09 billion. Circulation revenue declined 4% to $290 million.

“We believe once the results are in that McClatchy will have outperformed the industry in advertising revenue growth for the sixth consecutive year,” Pruitt said in a statement.

Pruitt was still bullish on the Knight Ridder acquisition explaining that while the advertising environment is challenging, McClatchy “is better off” with the Knight Ridder papers, he said during the call. “The market will value [the deal] properly in the long term,” Pruitt responded when asked if he was frustrated by the market’s initial reaction to the transaction.

Online advertising revenue was also a topic during the call. When asked why McClatchy was building its own network with Tribune and Gannett as opposed to say joining the Yahoo alliance of newspapers, Pruitt said that building a national advertising platform was McClatchy’s “top priority” but the company has not made any decision which way to go.

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