Business News

McClatchy Reports First Quarter 2011 Results

Wednesday 27. April 2011 - The McClatchy Company (NYSE: MNI) today reported a net loss in the first quarter of 2011 of $2.0 million or 2 cents per share. In the first quarter of 2010 the company reported a net loss from continuing operations of $2.0 million, or 2 cents per share, and total net income including discontinued operations of $2.2 million or 3 cents per share.

Revenues in the first quarter of 2011 were $303.7 million, down 9.5% from the first quarter of 2010. Advertising revenues were $225.1 million, down 11.0% from 2010, and circulation revenues were $66.2 million, down 5.0%. Digital advertising revenues grew 2.2% in the first quarter of 2011 and were 20.1% of total advertising revenues compared to 17.5% of total advertising revenues in the first quarter of 2010.
Cash operating expenses, excluding severance associated with restructuring plans, declined $16.4 million, or 6.5%, from the 2010 quarter. Operating cash flow, a non-GAAP measure, was $66.5 million in the first quarter of 2011 (non-GAAP measurements are discussed below) compared to $81.9 million in 2010.
Results in the first quarter of 2011 included the following items:
— Impairment charges of $10.3 million ($6.5 million after-tax) recorded in
other operating expenses related to the value of real estate assets sold
for less than carrying value. Proceeds from the sale of these assets
totaling $7.1 million were received in the second quarter and the value
of the assets were written down to the sales price resulting in the
first quarter charge to earnings.
— A gain of $1.9 million ($1.2 million after-tax) for additional cash
received on a previously sold internet asset.
— Severance charges totaling $4.5 million ($2.4 million after-tax) related
to continued restructuring of the company’s newspaper operations.
— A loss on the extinguishment of debt totaling $1.3 million ($0.8 million
after-tax), primarily reflecting the non-cash write-off of discounts
related to bonds repurchased in the open market.
— A positive adjustment to the company’s net loss totaling $9.9 million
for a favorable tax settlement related to state tax positions previously
taken. A tax benefit of $7.6 million was recognized and related interest
expense was reduced by $3.7 million ($2.3 million after-tax).
The net impact of these items was to decrease McClatchy’s loss in the first quarter of 2011 by $1.4 million to the reported amount of $2.0 million.
Management’s Comments:
Commenting on McClatchy’s results, Gary Pruitt, chairman and chief executive officer, said, “The slowing in advertising revenue that we previously reported for January continued through the first quarter. National advertising continued to be one of the largest areas of decline, falling by 29.3% in the first quarter of 2011 compared to 2010. In addition, the shifting of the Easter holiday to a later date in April 2011 compared to 2010 had a negative impact on retail advertising in March. As a result advertising in March was down 12.7%, pulling down the overall ad revenues in the quarter to an 11.0% decline.
“Our digital advertising revenue grew 2.2% in the first quarter. Importantly, our digital-only advertising (digital advertising not sold as a part of a bundled sale with print) increased 10.2% in the first quarter of 2011 compared to 2010. Total digital advertising represented 20.1% of our advertising revenue in the first quarter, up from 17.5% in the first quarter of 2010.
“Our valuable equity investments continued to perform well in the first quarter of 2011. Our share of income from all equity interests was $3.2 million compared to a loss of $1.0 million in the first quarter of 2010.
“In response to this year’s weak start in advertising, we have increased our ad sales efforts companywide and have initiated expense cuts.
“In the first four weeks of the April fiscal period, advertising revenues are down approximately 9%.
“We expect cash costs to be down in the mid-single-digit percentage range in the second quarter of 2011 despite increases in newsprint prices year-over-year. And we look forward to using our cash flow in the second quarter to further reduce debt outstanding.”
Pat Talamantes, McClatchy’s chief financial officer, said, “We were pleased to be able to reduce debt by $20.6 million in the first quarter to $1.75 billion, despite large cash outlays for interest costs in the quarter. We repurchased $28.4 million of bonds using cash from operations and a small draw on our revolving line of credit. Our financial condition continues to be solid. Our leverage ratio as defined under our credit agreement was 4.71 times cash flow at the end of the quarter and our interest coverage ratio was 2.25 times cash flow. Both of these measures are well within the amounts required to be in compliance with our credit agreement.”
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, and net income excluding certain items described above. In addition the company has presented operating cash flows (defined as operating income plus depreciation and amortization, restructuring related charges and other non-cash impairments) along with operating cash flow margins (operating cash flow divided by net revenues) that 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 operating results
against investor and analyst financial models.
Operating income, non-operating expenses and income, income taxes, and net income excluding certain 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.