Newspaper & Mailroom

McClatchy Reports Second Quarter 2013 Earnings

Friday 26. July 2013 - - Total revenues down 3.5% from Q2 2012; improving trend expected to continue

– Circulation revenue up 4.8% from Q2 2012; Plus Program contributing as forecasted
– Total digital-only revenues up 10.6% from Q2 2012
– Advertising revenues from nontraditional sources now at 39.1% of total advertising revenues
– Expenses excluding severance and other charges decline 2.1% from Q2 2012
The McClatchy Company (NYSE: MNI) today reported second quarter 2013 earnings, excluding the net impact of certain items discussed below, of $11.1 million. Earnings in the second quarter of 2012, adjusted for similar items, were $16.1 million and included a favorable tax item of $7.9 million as noted below.
On a GAAP basis, net income in the second quarter of 2013 was $11.8 million or 14 cents per share. In the second quarter of 2012 the company reported net income of $26.9 million or 31 cents per share.
Total revenues in the second quarter of 2013 were $308.8 million, down 3.5% from the second quarter of 2012. Circulation revenues were $88.5 million, up 4.8% and advertising revenues were $207.7 million, down 6.7% from the same quarter in 2012. Total digital-only revenues, which include digital-only revenues from advertising and circulation, were up 10.6% compared to the same quarter last year.
Results in the second quarter of 2013 included the following items:
— accelerated depreciation totaling $1.8 million ($1.0 million after-tax)
related to relocating Miami newspaper operations;
— severance and other charges totaling $4.3 million ($2.7 million
after-tax);
— a write-off of production equipment at one newspaper totaling $3.2
million ($2.0 million after-tax); and
— a gain related to the sale of the Miami property of $10.0 million ($6.4
million after-tax).
The company also noted that adjusted earnings in the second quarter of 2012 included a favorable tax item of $7.9 million for the release of tax reserves and related interest resulting from the expiration of statutes for certain state tax years.
Operating cash expenses, excluding severance and other charges discussed above, declined approximately $5.2 million, or 2.1%, from the 2012 quarter. Operating cash flow was $68.9 million in the second quarter of 2013, down 8.2%. (Non-GAAP measurements are discussed below.)
First Six Months Results:
Earnings in the first six months of 2013, excluding the net impact of certain items, were $10.4 million. Earnings in the first six months of 2012 adjusted for similar items were $13.6 million and included a favorable tax item of $7.9 million for the release of tax reserves and related interest resulting from the expiration of statutes for certain state tax years. (Non-GAAP measurements are discussed below.)
On a GAAP basis, the net loss in the first half of 2013 was $1.0 million, or one cent per share. Net income in the first half of 2012 was $24.8 million, or 29 cents per share.
Total revenues in the first six months of 2013 were down 3.7% to $603.9 million compared to $626.8 million in 2012. Advertising revenues in the 2012 period totaled $404.8 million, down 6.4%, and circulation revenues were $174.3 million, up 3.0%.
Results in the first half of 2013 included the following items:
— a loss from the extinguishment of debt totaling $12.8 million ($8.1
million after-tax) related to the completion in early 2013 of both the
refinancing of the company’s 11.5% secured bonds due in 2017 and
open-market repurchases;
— accelerated depreciation totaling $3.9 million ($2.4 million after-tax)
related to relocating Miami newspaper operations;
— severance and other charges totaling $6.6 million ($4.2 million
after-tax);
— a write-off of production equipment at one newspaper totaling $3.2
million ($2.0 million after-tax);
— a gain related to the sale of the Miami property of $10.0 million ($6.4
million after-tax); and
— additional tax expense totaling $1.1 million for an increase in
liabilities related to tax positions taken in prior years.
Management’s Comments:
Commenting on McClatchy’s second quarter results, Pat Talamantes, McClatchy’s president and CEO, said, “Total revenue trends this quarter improved compared to the same quarter last year and to the first quarter of this year. Total company revenues were down 3.5% this quarter compared to down 3.8% in the first quarter of 2013 and down 4.9% in the second quarter of 2012. Growth in circulation revenues stemming from our new digital subscription packages helped to offset a portion of the decline in advertising revenues.
“For the quarter, total advertising revenues were down 6.7% compared to the second quarter of 2012 reflecting slower Mother’s Day and Memorial Day advertising. Digital-only advertising revenues were up 7.8% compared to the same quarter last year, although print advertising declines were a drag on bundled print and digital advertising. Still, total digital advertising at $50.1 million represented 24.1% of McClatchy’s total advertising revenues in the second quarter compared to 22.5% in the second quarter of 2012. Our digital-only revenues inclusive of both advertising and circulation grew 10.6% in the second quarter compared to the second quarter of 2012.
“We believe that we will continue to benefit in the future as our efforts to build our circulation revenues gain even more traction. The subscriber response to our new digital subscription packages, known as our Plus Program, exceeded our initial expectations and we are on target to meet our guidance of generating approximately $25 million in new revenues in 2013. In total, the Plus Program provided more than $8 million in incremental revenues contributing to the 4.8% growth in total circulation revenues for the quarter. Our digital audiences grew during the quarter, with new digital-only subscriptions from the Plus Program now totaling more than 25,000.
“Direct marketing advertising revenues were down 0.9% in the second quarter, a modest decline reflecting in part our continued culling of less successful products and the weaker Spring holiday spending. Nevertheless, year to date, direct marketing revenues continue to show growth, helping us to diversify our revenue sources, and accounting for 15.0% of total advertising revenues in the quarter. When combined with digital advertising, the two categories contributed more than 39% of our advertising revenues during the quarter.
“Cash expenses, excluding severance and certain other charges, were down 2.1% in the quarter compared to the second quarter of 2012. We were able to reduce cash expenses even as we continue to invest in new revenue initiatives and enterprise-wide operating systems and despite an increase in pension expense of $2.4 million.
“Our equity income was $12.0 million this quarter, up 28.2% compared to the same quarter last year. Importantly, Classified Ventures and CareerBuilder continue to show strong financial results.
“It was a busy quarter on the digital front. Building on the success we have enjoyed in Fort Worth and Kansas City, we launched impressLOCAL(TM) in eight additional markets in the second quarter of this year and an additional market in July. impressLOCAL(TM) provides a suite of online products designed to offer local businesses a comprehensive digital marketing solution. Cars.com continues to perform well as we roll out new products and display revenue is also showing momentum as we expand our sales reach through our audience extension partners, including Yahoo!, Centro and others.
“Our digital audience continues to grow. For the second quarter of 2013, daily average local unique visitors finished up 3.8% and our mobile daily unique visitor count was up 54% in the quarter compared to the second quarter of 2012. Mobile users represented 37% of total daily unique visitors in the second quarter of 2013. We launched iPad apps at a dozen newspapers in the first quarter of this year, and will follow with a second version of tablet apps on iOS and Android, and revamped smartphone apps for both platforms, in the second half of 2013.
“As we look to the third quarter, we again expect trend improvement in total company revenues compared to the third quarter of last year and to the second quarter of this year. We expect to see continued momentum from the roll-out of the Plus Program and double-digit growth in total digital-only revenues in the third quarter. On the expense side, we will continue to focus on controlling costs and we expect cash expenses to be down in the low-single digits in the third quarter from the same quarter in 2012.”
Elaine Lintecum, McClatchy’s CFO said, “Total debt at the end of the second quarter was unchanged from the $1.566 billion reported at the end of the first quarter of this year. A good portion of our excess cash flow from operations was focused on making seasonally large bond interest payments during the quarter. While debt did not decrease, interest expense related to debt declined by $6.4 million compared to the same quarter last year and we finished the quarter with $21.8 million in cash. Our leverage ratio at the end of the second quarter as defined in our credit agreement was 4.48 times cash flow and our interest coverage was 2.54 times, both well within the required limits of our credit agreement.
“We completed the relocation of the Miami Herald headquarters from downtown Miami to Doral, Fla., at the end of May. Since we completed the move this quarter we also recognized a $10.0 million gain that had been deferred on the sale of the Miami property in 2011. We look forward to continuing to serve the residents of South Florida from our new, state-of-the art facilities and providing the high-quality news and information that they have come to expect.”
The company’s statistical report, which summarizes revenue performance for the second fiscal quarter and first half of 2013, follows.
Non-GAAP Financial Measures:
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included in this press release, the company has presented non-GAAP financial measures such as adjusted net income (also called adjusted earnings), operating cash flows and operating cash flow margins. Adjusted net income is defined as net income excluding amounts (net of tax) for loss (gain) on extinguishment of debt, severance charges, accelerated depreciation on equipment, certain other charges, gain on sale of Miami property, reversal of interest on tax items and certain discrete tax items. Operating cash flow is defined as operating income plus depreciation and amortization, severance charges and certain other charges. Operating cash flow margin is defined as operating cash flow divided by net revenues. These non-GAAP financial measures are reconciled to GAAP measures in the attached schedule. Management believes these non-GAAP measures, when read in conjunction with the company’s GAAP financials, provide useful information to investors by offering:
— the ability to make more meaningful period-to-period comparisons of the
company’s ongoing operating results;
— the ability to better identify trends in the company’s underlying
business;
— a better understanding of how management plans and measures the
company’s underlying business; and
— an easier way to compare the company’s most recent operating results
against investor and analyst financial models.
These non-GAAP financial measures should not be considered a substitute or an alternative to these computations calculated in accordance with and required by GAAP. McClatchy’s non-GAAP financial measures may not be comparable to similarly titled measures presented by other companies.