Business News
McClatchy Reports Growth in Second Quarter 2009 Earnings
Wednesday 22. July 2009 - - Reports earnings per share of 50 cents and adjusted earnings per share from continuing operations(1) of 30 cents - Reduces cash expenses by 29.3%, or $112.9 million, from second quarter 2008, excluding restructuring-related charges - Reduces principal of publicly traded bonds by $106 million to $1.07 billion
The McClatchy Company (NYSE-MNI) today reported net income from continuing operations in the second quarter of 2009 of $42.0 million, or 50 cents per share – more than double the earnings per share in the second quarter of 2008. Adjusted earnings from continuing operations,(1) excluding several unusual items in the second quarter of 2009, were $25.2 million, or 30 cents per share, up 42.9% from the 2008 quarter. Total net income including discontinued operations was $42.2 million, or 50 cents per share.
The company’s second-quarter 2008 earnings from continuing operations were $20.1 million, or 24 cents per share. Adjusted earnings from continuing operations,(1) excluding several unusual items in the second quarter of 2008, were $17.3 million, or 21 cents per share. Total net income including discontinued operations was $19.7 million, or 24 cents per share.
Unusual items affecting the second-quarter results in each year are discussed below.
Revenues in the second quarter of 2009 were $365.3 million, down 25.4% from revenues from continuing operations of $489.7 million in the second quarter of 2008. Advertising revenues were $283.7 million, down 30.2% from 2008, and circulation revenues were $69.4 million, up 5.0%.
First Six Months Results:
Income from continuing operations in the first half of 2009 was $4.3 million, or 5 cents per share. Adjusted earnings from continuing operations,(1) excluding several unusual items discussed below, were zero cents per share. Total net income, including discontinued operations, was $4.7 million, or 6 cents per share.
Income from continuing operations for the first six months of 2008 was $19.1 million, or 23 cents per share, and was affected by the issues discussed below. Adjusted earnings from continuing operations(1) were 24 cents per share in the first half of 2008. The company’s total net income for the first six months of 2008, including the results of discontinued operations, was $18.8 million, or 23 cents per share.
Revenues from continuing operations in the first six months of 2009 were down 25.3% to $731.0 million compared to $978.0 million in 2008. Advertising revenues in 2009 totaled $568.4 million, down 29.9%, and circulation revenues were $137.8 million, up 2.9%.
Management’s Comments:
Commenting on McClatchy’s results, Gary Pruitt, chairman and chief executive officer, said, “We are extremely pleased to post earnings per share growth of 42.9% after adjusting for unusual items in the quarter, particularly given the impact of the recession in our markets. While our advertising revenues in the second quarter of 2009 were down in the same range as the first quarter, we saw an improving trend within the quarter. Advertising revenues were down 31.1% in April, 30.7% in May and 28.3% in June. So far, July’s performance is similar to June’s.
“Our second-quarter results also reflect our hard work on the expense side. We continue to restructure and permanently reduce expenses to better align our costs with our revenues. We reduced cash expenses in the second quarter of 2009 by 29.3%, excluding severance and other benefit charges related to our restructuring plan, resulting in operating cash flow of $92.4 million.
“Our operating cash flow margin for the quarter was a healthy 25.3% compared to 21.2% for the 2008 quarter. Our company remains profitable and each of our newspapers is contributing positive cash flow.
“McClatchy continues its transition to a successful hybrid print and online company. Our digital audience continues to grow impressively. Average monthly unique visitors to our websites were up 30.1% in the second quarter following 26.7% growth in the first quarter of 2009. Still, the recession is impacting our digital business. Our digital advertising was down 2.9% in the second quarter of 2009, hurt particularly by declining employment advertising. Excluding employment advertising, which has declined nationally both in print and online, our online advertising revenue grew 24.7% in the second quarter of this year.
“Our digital performance has been aided by ownership stakes in CareerBuilder, Cars.com, and Apartments.com, leading companies in the digital classified advertising arena. And our growth in digital retail advertising of 50.7% in the first half of 2009 is fueled in part by our partnerships with Yahoo! and other technology companies.
“As we continue our successful migration to a multimedia company, we are less vulnerable to print declines and the secular shifts of advertising to digital media. Digital advertising represented 16.5% of total advertising in the second quarter, up from 11.8% in the second quarter of 2008. In June, digital advertising represented 17.3% of total advertising.
“We are among the leaders in our industry in online advertising revenue performance and online advertising as a percentage of total advertising. Those who think of McClatchy as just a newspaper company need to take a fresh look. We are quickly becoming a 24-7 news and advertising company that can deliver in print, online, and to handheld devices.
“As we look to the second half, we will remain vigilant in our efforts to become more efficient and permanently reduce costs. Through the first six months of 2009, cash expenses, excluding restructuring charges, are down 23.6%, and we expect cash expenses to be down in the mid-20s percent range for the remainder of the year.
“Our challenge in this extremely tough environment is to stabilize cash flow, reduce debt and continue a transition to an integrated multimedia company. I’m happy to report that in the second quarter, we moved forward on all three fronts. Looking ahead, we know that economic slowdowns do not last forever, and our 152-year-old company has been successful by taking a long-term view and staying true to our strategic plan. So we are focused on continuing to be the leading local media company in some of the best markets in the nation. We are working to put ourselves in a good position to weather this downturn and to create value for all of our stakeholders.”
Pat Talamantes, McClatchy’s chief financial officer, said, “In addition to the outstanding efforts made by our papers to permanently reduce costs, we believe our recent bond exchange offer has further improved our financial standing. We were able to reduce our overall debt principal by about $75 million as a result of this offer. In addition, on April 15, 2009, we repaid principal of $31 million on unsecured notes that had matured.
“At the end of the second quarter, the principal due on our bank debt and public notes was down more than $100 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 from 5.9 times cash flow in the first quarter to 5.8 times at the end of the second quarter and our interest coverage ratio was about the same at 2.8 times. 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 at least 2.0 times. At the end of June, we had approximately $143.5 million available under our bank credit lines. McClatchy has no debt maturities until 2011.”
Pruitt added, “There has been a steady drumbeat in recent media and analyst reports about the prospects of McClatchy violating bank covenants this year. We think it is important to note that even if our advertising performance does not improve from its current run rate for the rest of the year, we would not breach our bank covenants. In the meantime, we will continue to reduce debt.”
(1)Adjusted Earnings From Continuing Operations and EPS:
The company entered into several transactions and reported several unusual events in the second quarters of fiscal 2009 and 2008 that affected results:
— On March 31, 2008, McClatchy and its partners completed the sale of SP
Newsprint Company, of which McClatchy was a one-third owner. The
company received $60 million in proceeds ($5 million in 2009), which
was used to repay debt.
— In May 2008, the company purchased $300 million aggregate principal
amount of its outstanding publicly traded debt securities for $282.4
million.
— On June 16, 2008, the company announced a restructuring plan to
permanently reduce its workforce by about 10%.
— On June 30, 2008, the company sold its 15.0% interest in ShopLocal,
LLC for $7.875 million and used the proceeds to reduce debt and
recorded a write-off in the second quarter of 2008 related to its
carrying value. In addition, one of the internet companies in which
McClatchy has an investment incurred an impairment charge on a product
and as a result, the company recognized a charge related to this
investment in the second quarter.
— In March 2009, the company announced additional restructuring efforts
which included, among other things, reducing the workforce by
approximately 15%, the freezing of the company’s pension plans and a
temporary suspension of the company matching contribution to the
401(k) plan as of March 31, 2009.
— On May 21, 2009, the company launched a private debt exchange offer
for all of its outstanding debt securities for a combination of cash
and new debt securities. The offer closed on June 25, 2009, and the
company exchanged $3.4 million in cash and $24.2 million of newly
issued senior notes for $102.8 million of debt securities.
— In connection with the debt tender offer described above, the company
entered into an agreement on May 20, 2009, to amend its credit
agreement which, among other things, allows it to use its revolving
credit facility for up to $60 million to repurchase its unsecured
notes due in 2011 or unsecured notes due in 2014, subject to certain
conditions.
— During the second quarter of 2009, the company recorded $10.6 million
of accelerated depreciation on production equipment associated with
the outsourcing of printing at various newspapers.
— Both the 2009 and 2008 second quarters included charges for certain
discrete tax items.
The impacts of these items on the 2009 and 2008 results are summarized below (dollars in thousands, except per share amounts):
Three Months Ended Six Months Ended
—————— ——————–
June 28, June 29, June 28, June 29,
2009 2008 2009 2008
——– ——– ——– ——–
(Dollars in thousands,
except per share amounts)
Income from continuing
operations $42,003 $20 051 $4,279 $19,057
Unusual items, net of tax:
Sale of SP Newsprint
Company interest 407 (19,393) 496 (19,393)
Gain on extinguishment of
debt (28,332) (12,299) (28,332) (12,299)
Restructuring related
charges 2,874 13,188 16,769 14,373
Impairment related charges – 13,532 – 13,532
Write-off of financing
costs 258 – 258 1,914
Accelerated depreciation
on equipment 7,460 – 7,460 –
Certain discrete tax items 492 2,245 (930) 2,851
— —– —- —–
Adjusted income from
continuing operations $25,162 $17,324 $Nil $20,035
======= ======= ======== =======
Earnings per share:
Income from continuing
operations $0.50 $0.24 $0.05 $0.23
Adjusted income from
continuing operations $0. 30 $0.21 $0.00 $0.24
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 provided information regarding operating income, non-operating expenses and income, income taxes, net income and diluted earnings per share (EPS) excluding certain special or unusual items described in the table above. In addition the company has presented operating cash flows (defined as operating income plus depreciation and amortization, any non-cash impairment charges and restructuring related charges) along with operating cash flow margins (operating cash flow divided by net revenues) which are reconciled to GAAP measures in an 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 on-going 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 results of
operations against investor and analyst financial models.
Operating income, non-operating expenses and income, income taxes, net income and diluted earnings per share (EPS) excluding certain special or unusual items should not be considered a substitute or an alternative to these computations calculated in accordance with and required by GAAP. Nor are operating cash flow and operating cash flow margins to be considered replacements for cash provided by operating activities as shown in the company’s statement of cash flows.
In addition, the company’s statistical report, which summarizes revenue performance for the second fiscal quarter and first half of 2009, follows.