Business News

McClatchy Reports First Quarter 2013 Earnings

Friday 26. April 2013 - - Digital subscription packages, or Plus Program, exceeding expectations

– Total revenue trends improve from 2012
– Digital-only advertising revenues up 8.9% from Q1 2012
– Advertising revenues from nontraditional sources now at 38.5% of total advertising revenues
– Expenses excluding severance and other charges decline 1.8% from Q1 2012
The McClatchy Company (NYSE-MNI) today reported a net loss in the first quarter of 2013 of $12.7 million or 15 cents per share, including an $8.1 million after-tax loss related to debt refinancing and open-market debt repurchases. In the first quarter of 2012 the company reported a net loss of $2.1 million or 2 cents per share.
Total revenues in the first quarter of 2013 were $276.7 million, down 4.0% from the first quarter of 2012. Advertising revenues were $197.1 million, down 6.0% from 2012, and circulation revenues were $67.5 million, up 1.6%. Total digital advertising revenues grew 1.5% in the first quarter of 2013, with digital-only advertising revenues up 8.9% from the 2012 quarter. Total digital advertising represented 24.0% of total advertising revenues in the first quarter of 2013 compared to 22.2% of total advertising revenues in the first quarter of 2012.
Results in the first quarter 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 the
refinancing of the company’s 11.5% secured bonds due in 2017 and
open-market repurchases;
— accelerated depreciation totaling $2.1 million ($1.3 million after-tax)
related to relocating Miami newspaper operations;
— severance and other restructuring-related charges totaling $2.3 million
($1.4 million after-tax);
— the reversal of non-cash interest expense totaling $0.1 million ($.08
million after-tax) related to the release of tax reserves; and
— additional tax expense totaling $1.1 million for an increase to
liabilities related to tax positions taken in prior years.
The net loss in the first quarter of 2013, excluding the net impact of these items, was $0.7 million compared to a net loss in the first quarter of 2012 adjusted for similar items of $2.5 million. (Non-GAAP measurements are discussed below.)
Operating cash expenses, excluding severance and other restructuring-related charges, declined approximately $4.1 million, or 1.8%, from the 2012 quarter. Operating cash flow was $53.4 million in the first quarter of 2013, down 12.2%.
Management’s Comments:
Commenting on McClatchy’s first quarter results, Pat Talamantes, McClatchy’s president and CEO, said, “We were pleased to see growth in circulation revenues in the first quarter and sequential improvement in total revenues compared to the last quarter of 2012. Total company revenues were down 4.0% this quarter compared to down 5.3% in the fourth quarter of 2012 on a comparable 13-week basis and down 5.1% in the first quarter of 2012.
“For the quarter, total advertising revenues were down 6.0% compared to the first quarter of 2012. Total digital advertising revenues grew again, up 1.5%, compared to the same quarter last year while digital-only revenues were up 8.9%. Digital advertising represented 24.0% of McClatchy’s total advertising revenues in the first quarter compared to 22.2% in the first quarter of 2012.
“Direct marketing advertising revenues were up 2.6% in the first quarter. This category continues its growth with its 11(th) quarter of revenue growth out of the past 12 quarters. Direct marketing accounted for 14.5% of total advertising revenues in the quarter. Diversifying and growing our revenue sources is one of the keys to our success. In the quarter, advertising revenues from digital and direct marketing together contributed more than 38.5% of our advertising revenues.
“The company-wide rollout of our new digital subscription packages, known as our Plus Program, continues to exceed our expectations. We finished the quarter with over 22,000 digital-only subscribers. In total, the Plus Program provided $5.8 million in incremental revenues contributing to the 1.6% growth in total circulation revenues for the quarter compared to the same quarter last year. We now expect the Plus Program to generate approximately $25 million in new revenues in 2013.
“Cash expenses, excluding severance and other restructuring-related charges, were down 1.8% in the quarter compared to the first quarter of 2012. We were able to reduce cash expenses even though we invested approximately $1.9 million in new revenue initiatives and enterprise-wide operating systems and despite an increase in pension expense of $2.8 million.
“Our equity investments started off the year impressively as our equity income was up 52.2% to $9.2 million in the first quarter of 2013 compared to the same quarter last year. Importantly, Classified Ventures and CareerBuilder continue to provide our customers with valued products while at the same time providing us with strong financial results.
“As we look to the second quarter, we expect that the trend in total company revenues, aided by results from the Plus Program, will improve compared to the same quarter last year. We will remain vigilant in controlling costs and we expect cash expenses (excluding restructuring-related charges) to be down in the low-single digits in the second quarter versus the same quarter in 2012.”
Elaine Lintecum, McClatchy’s CFO said, “Total debt at the end of the first quarter was $1.566 billion, a $145.9 million decrease compared to the balance at the end of 2012. We completed the last stage of our refinancing in the first quarter by retiring the remaining $83.6 million of 11.50% Senior Secured Notes due 2017. The additional $62.3 million reduction was accomplished through open market repurchases during the quarter. The refinancing transaction, along with our continued focus on debt reduction, has given us immediate benefits — we have extended our debt maturities significantly and lowers our cash interest expense by about $15 million in the first year. For the quarter, cash interest expense related to bonds was down approximately $4.4 million compared to the same quarter last year.
“We contributed $7.5 million to our pension plan during the quarter and expect that there will be no substantial additional cash contributions made for the remainder of the year. Our leverage ratio at the end of the first quarter as defined in our credit agreement was 4.41 times cash flow and our interest coverage was 2.48 times.
“The relocation of The Miami Herald headquarters from downtown Miami to Doral, Fla., is going well. We will begin moving office operations to the new leased building in Doral at the end of the month. Construction of the adjacent printing facility is complete and we expect to complete the relocation by the end of May.”
Management also noted that given the changes in its circulation delivery contracts resulting from the rollout of the company’s digital subscription model and efforts to improve strategies and reduce costs associated with delivery of its print newspapers, it has begun a review of its delivery contracts to determine whether circulation revenues should continue to be reported net of delivery costs or reported at gross with delivery costs recorded as expenses. Neither method of accounting has an impact on the company’s operating income, operating cash flows or earnings. The company expects to complete this review before it files its Form 10-Q with the Securities and Exchange Commission (SEC) on or before May 10, 2013.
The company’s statistical report, which summarizes revenue performance for the first fiscal quarter 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, 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, restructuring-related compensation charges, accelerated depreciation on equipment, other restructuring charges, reversal of interest on tax items and certain other discrete tax items. Operating cash flow is defined as operating income plus depreciation and amortization, restructuring-related charges and other non-cash impairments. 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.
— 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.