McClatchy Q3 Profit Up As Deep Cuts Overcome Revenue Slide

By: Mark Fitzgerald The McClatchy Co. reported a third-quarter profit Thursday as deep cuts in expenses managed to overcome advertising revenues that fell 28.1% from the weak results of last year's third quarter.

McClatchy reported net income from continuing operations in the quarter of $23.6 million, or 28 cents a share, up from $4.2 million, or 5 cents a share, in the year-ago quarter.

Third-quarter revenue fell 23.1% from a year ago to $347.4 million. Ad revenue was $266.1 million, down 28.1% from 2008.

McClatchy's third-quarter report reflects an advertising environment that continues to be brutal for newspapers.

Retail advertising in the quarter fell 23.1%, national was off 28.% -- and classified plunged 37.7%.

Inside classified, automotive was down 34%, real estate 42.9% -- and employment 59.7%.

McClatchy managed to eke out a profit with deep cost cutting. Cash expenses plunged by 29.4%, a drop of $105.5 million in the quarter.

McClatchy Chairman/CEO Gary Pruitt said the advertising revenue decline is showing "some improvement" from the decline in the second quarter of this year, but that advertising remains weak. He warned that further cuts are likely in the near future.

"We still have a lot of hard work ahead of us," Pruitt said. "As long as we are experiencing revenue declines, we must maintain a tight rein on expenses. We expect to hold costs down in the mid-twenty percent range in the fourth quarter.?

There was good news for McClatchy in online advertising results. Online ad revenues increased 3.1% over the year-ago quarter, and were 17.6% of total advertising, compared with 12.2% in the third quarter of 2008.

And McClatchy wrung more revenue out of circulation, which jumped 6.7% to $69 million.

McClatchy?s Q3 net profit was boosted by several unusual items. Excluding the items, adjusted earnings from continuing operations were $11.0 million, or 13 cents per share, in the third quarter of 2009 compared to $10.4 million, or 13 cents per share, in the year-ago quarter.

The items include reducing the workforce by about 15%, freezing pension plans, suspending company matching contributions to the its 401(k) plan in March, executing a private debt exchange, accelerating depreciation on some production equipment as a result of outsourcing, and selling its stake in the SP Newsprint Co.

McClatchy CFO Pat Talamantes said the company?s debt was reduced below $2 billion during the quarter. Debt principal outstanding stood at $1.99 billion at the end of the period, down $134.3 million from the end of 2008.

?Based on our trailing 12 months of cash flow, our leverage ratio, as defined under our credit agreement, improved for the second consecutive quarter to 5.7 times at the end of the third quarter, and our interest coverage ratio was 2.8 times,? Talamantes said in a statement. ?Both of these ratios are well within the covenant requirements under our credit agreement of a leverage ratio of less than 7.0 times and an interest coverage ratio of greater than 2.0 times. At the end of the quarter, we had approximately $172.0 million available under our bank credit line."