Publisher McClatchy Co. posted the latest in a string of worsening advertising declines, kicking off what is likely to be a grim week of earnings reports from newspaper companies.The publisher of 30 daily newspapers including the Sacramento Bee and Miami Herald reported a 19% drop in third-quarter advertising sales.
McClatchy reported net income of $4.2 million, or five cents a share, compared with a year-ago loss of more than $1.3 billion that was driven by an accounting charge. Stripping out items, profit from continuing operations was less than half the level of the third quarter last year.
McClatchy's results are stark evidence that newspaper advertising continues to deteriorate even after a two-year industry downturn. A 19.9% drop in September ad sales was McClatchy's worst monthly showing this year, and the company said October trends have been similar. The financial crisis is making many advertisers more wary -- and a recovery unlikely for publishers in the fourth quarter, typically their strongest period.
To bolster its financial standing, McClatchy has slashed jobs, won more-flexible debt terms and cut its dividend in half. Analysts have given McClatchy credit for curtailing expenses to offset advertising declines. Unless revenue begins to improve, however, it is unclear how much more the company can do.
There is debate about how much newspaper advertising will rebound with the economy. The fears have punished stock and bond prices for McClatchy and other newspaper publishers. McClatchy Chief Executive Gary Pruitt said investors have failed to fully recognize how much the advertising downturn stems from economic woes and therefore concluded that "we are going out of business," he said on a conference call. "I think they are wrong."
Roughly two-thirds of McClatchy's advertising declines this year are from classifieds, a highly profitable category the company said it expects will recover. "We believe the majority of the decline that we are currently seeing is cyclical and therefore temporary," Mr. Pruitt said. He cautioned "it may yet get worse before it gets better."
McClatchy continues to make a dent in its debt load. McClatchy had $2.07 billion in borrowings at the end of September, down about $400 million from the end of last year.
Much of the debt stems from an ill-timed deal to buy most of publisher Knight Ridder Inc. in 2006. At the time the deal was announced, McClatchy's Class A shares were above $51. In 4 p.m. New York Stock Exchange composite trading Tuesday, the shares fell 21 cents, or 6.2%, to $3.19, down 75% this year.
