Newspaper & Mailroom

McClatchy Reports First Quarter 2014 Earnings

Thursday 24. April 2014 - - Total revenue trend improves compared to Q1 2013 - Digital-only revenues up 11.6% from Q1 2013 with digital-only ad revenues up 11.0% - Advertising revenues from nontraditional sources now 41.6% of total ad revenues - Received $147 million pre-tax cash distribution from Classified Ventures' Apts.com sale on 4/1/14

The McClatchy Company (NYSE-MNI) today reported a net loss, excluding the net impact of certain items discussed below, of $5.9 million for the first quarter of 2014 compared to a net loss in the 2013 first quarter, adjusted for similar items, of $0.7 million.
On a GAAP basis, the net loss in the first quarter of 2014 was $15.8 million, or 18 cents per share compared to a net loss in the 2013 first quarter of $12.7 million, or 15 cents per share.
Commenting on McClatchy’s 2014 first quarter results, Pat Talamantes, McClatchy’s president and CEO, said, “The total revenue trend improved this quarter compared to the first quarter of 2013. We consider this a meaningful result accomplished in the face of the unusual snow and ice storms that hit the Midwest and Southeast during the quarter and the shift in the Easter holiday from the first quarter last year to the second quarter this year. Importantly, we continue to see revenue growth from direct marketing, digital advertising and circulation. Our digital audience is showing healthy growth. Monthly unique visitors were up 33.0% in the quarter compared to the same quarter last year and mobile users represented 43.0% of total monthly unique visitors in the quarter compared to 40.0% in the fourth quarter of 2013.”
Talamantes added, “We ended the first quarter with $96.4 million in cash and our financial position has strengthened even more since that date. At the beginning of our second quarter, we received the distribution from Classified Ventures related to the sale of Apartments.com. The additional liquidity furthers our ability to continue to reduce debt and to focus more resources on accelerating our digital transformation.”
First Quarter Results
Total revenues in the first quarter of 2014 were $287.2 million, down 2.7% from the first quarter of 2013. Advertising revenues were $183.9 million, down 6.7%, and circulation revenues were $90.8 million, up 5.8% from the same quarter in 2013. Circulation revenues were up approximately 0.7% for the quarter excluding the $4.3 million in revenue related to the transition to fee-for-service circulation delivery contracts at certain newspapers. Total digital-only revenues, which include digital-only revenues from advertising and circulation, were up 11.6% compared to the same quarter last year.
Results in the first quarter of 2014 included the following items:
Severance charges totaling $1.8 million ($1.0 million after-tax);
Accelerated depreciation totaling $13.5 million ($8.3 million after-tax) related to newspaper production equipment associated with outsourcing or relocation initiatives;
Non-cash impairment charge totaling $0.9 million ($0.6 million after-tax) related to owned real estate associated with an outsourcing initiative;
Other charges totaling $0.2 million ($0.1 million after-tax); and
A reversal of interest on tax items and a net decrease in tax expense related to a state audit settlement totaling $0.04 million ($0.1 million after-tax).
Operating cash expenses, excluding severance and other charges discussed above, increased approximately $6.3 million, or 2.6%, from the first quarter of 2013. Cash expenses this quarter included $2.8 million in investments related to new revenue initiatives and digital infrastructure such as enterprise-wide operating systems. First quarter operating cash expenses also included $4.3 million in expenses related to the transition to fee-for-service circulation delivery contracts at certain newspapers (with a similar increase in circulation revenues, and thus, had no net impact on operating cash flow.) Excluding the impact of this change in contracts, operating cash expenses were up $2.0 million in the quarter, or 0.8% from the same quarter last year, and include additional investments made in our digital infrastructure and products.
Operating cash flow was $39.1 million in the first quarter of 2014, down 26.7% compared to the first quarter last year, partially reflecting the impact of weather challenges and the Easter switch in our fiscal calendar. (Non-GAAP measurements are discussed below.)
Business and Financial Highlights
Advertising revenues were down 6.7% in the first quarter compared to the first quarter of 2013. Despite weather related issues and the shift in the Easter holiday to the second quarter this year, first quarter revenues from direct marketing and digital advertising increased 1.3% and 0.4%, respectively, compared to the same quarter last year. Total digital and direct marketing advertising represented 41.6% of first quarter 2014 total advertising revenues on a combined basis. Digital-only advertising was up 11.0% in the quarter and total digital-only revenues, which includes both digital-only advertising and circulation revenues, finished up 11.6% compared to the first quarter of 2013.
The company’s circulation revenues increased 5.8% in the first quarter, and were up 0.7% compared to the first quarter of 2013, excluding the $4.3 million in revenue related to the transition to fee-for-service circulation delivery contracts at newspapers that changed to fee-for-service contracts.
McClatchy’s focus on growing its digital audience continues to be rewarded. Monthly unique visitors grew 33.0% in the first quarter of 2014 compared to the first quarter of 2013. Mobile users represented 43.0% of total monthly unique visitors in the quarter compared to 40.0% in the fourth quarter of 2013.
Strong operating results from the company’s internet investments again contributed to the solid performance in income from equity investments. Net income from equity investments was $9.6 million in the first quarter, up 4.3% compared to the same quarter last year.
The company finished the quarter with $96.4 million in cash. Total debt at the end of the first quarter was $1.556 billion. The leverage ratio at the end of the first quarter as defined in the company’s credit agreement was 5.04 times cash flow and the interest coverage was 2.43 times cash flow. On a net debt basis (debt net of cash on hand) the leverage ratio was 4.73 times cash flow. On April 1, 2014, the company received a $147 million cash distribution from Classified Ventures related to Classified Venture’s previously announced sale of Apartments.com to CoStar Group. McClatchy expects that proceeds on an after-tax basis will be approximately $92 million. Proforma cash, as of the end of the quarter and including the $92 million after-tax distribution from Classified Ventures, was approximately $188 million.
On April 8, 2014, McClatchy announced that it had reached a definitive agreement to sell the Anchorage Daily News to Alaska Dispatch Publishing LLC for $34 million. After-tax proceeds are estimated at approximately $24 million. The transaction is expected to close in the second quarter of 2014.
Outlook
The company expects the shifting of the Easter holiday into the second quarter to improve retail advertising revenues trends. For full-year 2014, McClatchy expects double-digit growth in digital-only advertising revenues along with low single-digit growth in both direct marketing and circulation revenues. Expenses are expected to be down in the low single-digits in 2014 compared to 2013, excluding the impact of circulation-related expense increases as a result of moving to fee-for-service delivery contracts at several newspapers.