Business News

McClatchy Reports Second Quarter 2010 Earnings

Friday 30. July 2010 - The McClatchy Company (NYSE: MNI) today reported net income in the second quarter of 2010 of $7.3 million, or 9 cents per share. Adjusted earnings(1) in the second quarter of 2010, excluding several unusual items, were $8.6 million, or 10 cents per share.

The company’s earnings from continuing operations in the second quarter of 2009 were $42.0 million, or 50 cents per share. Adjusted earnings from continuing operations(1) in the second quarter of 2009, excluding several unusual items, were $25.2 million, or 30 cents per share. Total net income including discontinued operations was $42.2 million, or 50 cents per share.

Unusual items affecting the second-quarter results in each year are discussed below.

Revenues in the second quarter of 2010 were $342.0 million, down 6.4% from revenues of $365.3 million in the second quarter of 2009. Advertising revenues were $260.5 million, down 8.2% from 2009, and circulation revenues were $67.7 million, down 2.4%.

Second quarter 2010 cash operating expenses, excluding severance costs, declined $24.8 million, or 9.1%, from the 2009 second quarter. As a result, operating cash flow, a non-GAAP measure, was $93.9 million, up 1.6% from the second quarter of 2009 (Non-GAAP measurements are discussed below).

First Six Months Results:

Income from continuing operations in the first half of 2010 was $5.3 million, or 6 cents per share. Adjusted earnings from continuing operations,(1) excluding several unusual items discussed below, were 15 cents per share. Total net income, including discontinued operations, was $9.5 million, or 11 cents per share.

Income from continuing operations for the first six months of 2009 was $4.3 million, or 5 cents per share, and was affected by the unusual items discussed below. Adjusted earnings from continuing operations(1) were zero cents per share in the first half of 2009. The company’s total net income for the first six months of 2009, including the results of discontinued operations, was $4.7 million, or 6 cents per share.

Revenues in the first six months of 2010 were down 7.3% to $677.6 million compared to $731.0 million in 2009. Advertising revenues in the 2010 period totaled $513.5 million, down 9.7%, and circulation revenues were $137.4 million, down 0.3%.

Management’s Comments:

Commenting on McClatchy’s second quarter results, Gary Pruitt, chairman and chief executive officer, said, “Advertising revenue trends continued to improve as we anticipated. Advertising revenues declined year-over-year by 8.2% compared to declines of 11.2% in the first quarter of 2010 and 20.5% in the fourth quarter of 2009. We were also encouraged by the improving trends within the quarter: advertising revenues were down 10.2% in April, down 7.3% in May and down 6.4% in June.

“We continue to see signs of recovery. Notably, employment advertising, more than half of which is now online, was up 1.5% in May and 0.8% in June. In fact, May 2010 was the first month with growth in employment advertising revenue in four years.

“We also reported growth in both national and total classified advertising in several of our markets for the quarter. So while the economic recovery hasn’t been robust or smooth, we believe it is beginning to spread across the markets we serve.

“In addition to improving revenue trends, our second-quarter results reflect our hard work in permanently reducing our expenses. While we have concluded the major restructuring plans carried out in 2009, we still held cash expenses down 9.1% below the second quarter of 2009 and operating cash flow was up $1.5 million. Through the first six months of the year our operating cash flow grew $40.2 million, or 29.6%, to $175.8 million.

“As we look to the third quarter we expect continued improvement in advertising revenue trends. So far in July ad revenue trends are in the same range as June and we expect ad revenues to be down in the mid-single digits for all of the third quarter. We expect to reduce cash expenses in the third quarter in the low-single digits despite the impact of higher newsprint prices and having rolled over our major restructuring actions in 2009. As a result, we continue to believe we are on track to maintain, if not grow, operating cash flow in 2010.”

Pat Talamantes, McClatchy’s chief financial officer, said, “We were able to extend a majority of our debt maturities to 2017 with our debt refinancing in February this year, and we have continued to reduce our debt. We’ve repaid more than $113 million in debt in the first six months of 2010, and debt principal at the end of June was $1.836 billion. Our maturities through 2013 consist of only $35.7 million due in mid 2011 and $43.5 million due in mid 2013.

“Our leverage profile also continued to improve. McClatchy’s leverage ratio declined for the fifth consecutive quarter, ending the second quarter at 4.43 times cash flow, down from 4.65 times cash flow at the end of the first quarter. Our interest coverage ratio was 3.0 times cash flow at the end of the second quarter. Both of these measurements are well within our bank covenants.”

(1)Adjusted Earnings From Continuing Operations and EPS:

The company entered into several transactions and reported several unusual events in the second quarters and first halves of fiscal 2010 and 2009 that affected results:

The company incurred a loss related to its debt refinancing and debt repayments in the first quarter of 2010.
Compensation in 2010 and 2009 included pre-tax severance charges incurred in connection with the restructuring plans.
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. All but $375,000 of the newly issued senior notes were retired in the company’s February 2010 debt refinancing.
During the second quarters of 2010 and 2009, the company recorded accelerated depreciation on production equipment associated with the outsourcing of printing at various newspapers.
Both the 2010 and 2009 second quarters included charges for certain discrete tax items.