McClatchy 2Q earnings plunge but ad slump eases

McClatchy Co.'s second-quarter earnings plunged as the newspaper publisher shouldered higher costs on its debt to buy more time to recover from a bedeviling ad slump.

Despite an 83 percent drop in net income, the results announced Thursday offered at least one sign of hope: McClatchy's ad revenue, its lifeblood, fell by its lowest rate in more than three years. The 8 percent decrease for the April-June period compared with last year marked the least erosion in McClatchy's ad revenue since a 5 percent decline in the first three months of 2007 from the previous year's quarter.

Reducing the rate of decline has become easier at McClatchy and other newspaper publishers because their declining ad revenue over the past few years lowers the benchmark against which the latest numbers are compared.

The publisher of The Miami Herald, The Sacramento (Calif.) Bee and 28 other daily newspapers expects to make further progress in the third quarter, although ad revenue is expected to be down yet again. Management projected the decline will be in the 4 percent to 6 percent for the three months ending in September.

"While the economic recovery hasn't been robust or smooth, we believe it is beginning to spread across the markets we serve," McClatchy CEO Gary Pruitt said.

Investors seemed disheartened as McClatchy shares dipped 15 cents, or 4 percent, to close Thursday at $3.57.

The improving ad trends have been mirrored in the second-quarter reports and outlooks of several other major newspaper publishers, including Gannett Co., The New York Times Co. and Lee Enterprises Inc.

McClatchy and its peers have been stuck in a financial funk since the end of 2006 as changing readership habits and the worst recession since World War II have caused more marketing dollars to flow to less expensive alternatives on the Internet. Although newspapers also have websites, their online revenue remains a fraction of what they get from their print editions.

The downturn has been especially difficult for publishers weighed down by big debts, such as McClatchy, because they have been able to bring in less cash to repay their loans. The burden proved to be too much for several debt-laden newspaper companies that have filed for bankruptcy protection during the past 20 months.

McClatchy has stayed out of trouble so far by jettisoning thousands of workers and refinancing some of its debt to extend the repayment schedule by several years. To gain the financial wiggle room, McClatchy is paying higher interest rates, a cost that showed up in the second quarter. The company's second-quarter interest expenses rose 44 percent to $49 million, up from $34 million at the same time last year.

The higher interest expenses and a big gain recorded last year when the company paid off some other debt were the main reasons McClatchy's net income plummeted by so much.

The company earned $7.3 million, or 9 cents per share, in the quarter, down from $42.2 million, or 50 cents per share, at the same time last year. Excluding restructuring charges and other unusual items, McClatchy said it would have earned 10 cents per share in the latest quarter.

Total revenue fell 6 percent to $342 million. Besides bringing in less money from advertisers, McClatchy also collected slightly less revenue from its readers. Collectively, the company's newspapers sold about 200,000, or 8 percent, fewer copies on weekdays during this year's second quarter compared with a year ago. McClatchy offset some of the lost circulation with higher prices.