Business News

McClatchy Reports Third Quarter 2013 Earnings

Monday 28. October 2013 - - Total revenues down 4.2% from Q3 2012 - Circulation revenues up 6.5%; Plus Program revenues continue to exceed expectations - Total digital-only revenues up 13.1% from Q3 2012 with digital-only ad revenues up 10.6% - Advertising revenues from nontraditional sources now 40.9% of total ad revenue - Operating cash expenses, excluding severance and other charges, down 1.9% from Q3 2012

The McClatchy Company (NYSE-MNI) today reported third quarter 2013 earnings, excluding the net impact of certain items discussed below, of $6.9 million. Earnings in the third quarter of 2012, adjusted for similar items, were $8.8 million.
On a GAAP basis, net income in the third quarter of 2013 was $7.3 million, or 8 cents per share. In the third quarter of 2012 the company reported net income of $5.1 million, or 6 cents per share.
Total revenues in the third quarter of 2013 were $293.6 million, down 4.2% from the third quarter of 2012. Advertising revenues were $194.9 million, down 8.1%, and circulation revenues were $87.0 million, up 6.5% from the same quarter in 2012. Total digital-only revenues, which include digital-only revenues from advertising and circulation, were up 13.1% compared to the same quarter last year.
Results in the third quarter of 2013 included the following items:
— severance and other charges totaling $2.3 million ($1.4 million
after-tax);
— a loss from the extinguishment of debt totaling $0.9 million ($0.6
million after-tax) related to open-market repurchases;
— other items associated with moving and outsourcing operations that
netted to a credit of $0.1 million (and $0.1 million after-tax);
— a gain related to the sale of the Miami property of $2.9 million ($1.9
million after-tax); and
— a reversal of interest on tax items of $0.1 million ($0.1 million
after-tax) and a reduction of tax expense of $0.3 million both related
to a state audit settlement.
Operating cash expenses, excluding severance and other charges discussed above, declined approximately $2.7 million, or 1.1%, from the 2012 quarter. Third quarter operating cash expenses also included a $1.8 million expense increase related to the transition at one newspaper to fee-for-service circulation delivery contracts. Excluding the impact of this change in operations, operating cash expenses were down $4.5 million in the quarter, or 1.9%, from the 2012 quarter.
Operating cash flow was $57.1 million in the third quarter of 2013, down 15.0%. (Non-GAAP measurements are discussed below.)
First Nine Months Results:
Earnings in the first nine months of 2013, excluding the net impact of certain items discussed below, were $17.3 million. Earnings in the first nine months of 2012 adjusted for similar items were $22.4 million and included a favorable tax item of $7.9 million for the release of tax reserves and related interest resulting from the expiration of statutes for certain state tax years in the second quarter of 2012. (Non-GAAP measurements are discussed below.)
On a GAAP basis, the net income in the first nine months of 2013 was $6.3 million, or 7 cents per share. Net income in the first nine months of 2012 was $29.9 million, or 35 cents per share.
Total revenues in the first nine months of 2013 were down 3.8% to $897.5 million compared to $933.1 million in 2012. Advertising revenues in the 2013 period totaled $599.6 million, down 6.9%, and circulation revenues were $261.3 million, up 4.2%.
Results in the first nine months of 2013 included the following items:
— a loss from the extinguishment of debt totaling $13.6 million ($8.6
million after-tax) related to the completion in early 2013 of both the
refinancing of the company’s 11.5% secured bonds due in 2017 and
open-market repurchases;
— severance and other charges totaling $8.9 million ($5.5 million
after-tax);
— accelerated depreciation totaling $4.1 million ($2.5 million after-tax)
related to relocating Miami newspaper operations and certain other
newspaper operations;
— a net write-off of production equipment at one newspaper totaling $3.0
million ($1.9 million after-tax);
— a gain related to the sale of the Miami property of $12.9 million ($8.2
million after-tax);
— a reversal of interest on tax items of $0.1 million ($0.1 million
after-tax) related to a state audit settlement; and
— a net increase in tax expense totaling $0.8 million for an increase in
liabilities related to tax positions taken in prior years, net of
favorable state tax audit settlements.
Management’s Comments:
Commenting on McClatchy’s third quarter results, Pat Talamantes, McClatchy’s president and CEO, said, “Our company-wide revenue performance again reflected an uneven print advertising environment. Revenue trends in the automotive and real estate classified advertising categories improved while we had larger declines in categories such as retail and national advertising compared to last quarter.
“Despite the advertising performance, our revenue diversification strategies are paying off. Growth in digital advertising, circulation and direct marketing revenues helped mitigate the overall decline in traditional newspaper advertising revenues in the 2013 third quarter.
“For the quarter, total advertising revenues were down 8.1% compared to the third quarter of 2012. This performance reflects the difficult print ad environment generally, as well as a shift in July 4(th) advertising into our second quarter of 2013 and slower Labor Day advertising compared to last year. Digital-only advertising revenues, however, were up 10.6% compared to the same quarter last year driven by 18.1% growth in the automotive category and 11.1% growth in the retail segment. Total digital advertising revenues at $49.0 million represented 25.1% of McClatchy’s total advertising revenues in the third quarter compared to 22.9% in the third quarter of 2012. Our digital-only revenues, inclusive of both advertising and circulation, grew 13.1% in the third quarter compared to the third quarter of 2012.
“Circulation revenues continue to grow, finishing up 6.5% for the quarter as our digital subscription package, known as the Plus Program, is again exceeding expectations. In total, the Plus Program provided more than $8 million in incremental revenues in the quarter and $22.6 million to date in 2013. We now expect the program to generate between $27 million and $30 million in new revenues in 2013. Our digital paid audiences grew during the quarter with new, digital-only subscriptions from the Plus Program now totaling more than 31,000. And despite the metered paywalls installed at our newspaper websites with the Plus Program launch last year, local unique visitors to our sites grew 5.4% in the third quarter compared to the third quarter of 2012.
“Direct marketing advertising revenues were up 5.3% in the third quarter. Direct marketing continues to be an important contributor to our diversification story as it accounted for 15.8% of total advertising revenues in the quarter. When combined with digital advertising, the two categories contributed nearly 41% of our advertising revenues during the quarter.
“We are making progress with our impressLOCAL(TM)( )digital marketing service and early results are promising. impressLOCAL(TM) has launched in 12 of our markets, and we expect to complete the rollout to all of our markets by the end of the year. impressLOCAL(TM)( )provides a suite of online products designed to offer local businesses a comprehensive digital marketing solution. Digital display revenue is also showing momentum as we expand our sales reach through our audience extension partners, including Yahoo!, Centro, simpli.fi and other ad exchanges.
“As I mentioned earlier, growth in our digital audience continues. For the third quarter of 2013, daily average local unique visitors finished up 5.4% and our mobile daily unique visitor count was up 62.5% in the quarter compared to the third quarter of 2012. Mobile users represented 42.3% of total daily unique visitors in the quarter.
“Cash expenses, excluding severance and certain other charges, were down 1.1% in the quarter compared to the third quarter of 2012. We were again successful in reducing cash expenses this quarter even with a $2.6 million increase in pension expense and while still making investments in new revenue initiatives and enterprise-wide operating systems. Third quarter operating cash expenses also included $1.8 million in expenses related to the transition at one newspaper to fee-for-service circulation delivery contracts in July, which was also accompanied by higher circulation revenues and, therefore, had no impact on operating cash flow. Excluding the impact of this change in operations, operating cash expenses were down $4.5 million in the quarter, or 1.9% from the 2012 quarter.
“Income from our equity investments was $14.0 million this quarter, up 19.2% compared to the same quarter last year. Classified Ventures and CareerBuilder in particular continue to provide impressive financial results.
“As we look to the fourth quarter, the Christmas holiday season will be the determining factor in retail advertising performance for the quarter, and we just don’t have much visibility on the holiday season yet. We expect ongoing positive momentum from the Plus Program and double-digit growth in total digital-only revenues. We’re seeing some expense pressure from tough comparisons to last year’s fourth quarter as well as higher costs (and offsetting increases in revenues) for the move to fee-for-service delivery contracts at certain newspapers so we expect cash expenses to be up in the low single-digit range. Cash expenses will be close to flat with prior year excluding the circulation change.”
Talamantes added, “We continue our focus on high-quality journalism. In September, The Charlotte Observer and The News & Observer of Raleigh won the coveted Robert F. Kennedy Journalism Award Grand Prize for ‘Prognosis: Profits,’ their joint examination into the soaring profits at North Carolina’s nonprofit hospitals and some of the questionable practices producing those profits. The RFK Awards, which salute outstanding reporting on human rights and social justice issues, are among the most prestigious prizes in journalism. McClatchy newsrooms have now won RFK Awards each of the last five years and seven of the last nine years.
“I’m extremely proud of our hard-working journalists throughout McClatchy who never lose sight of our core news mission and responsibility and continue to provide relevant and impactful journalism that is so important to our communities.”
Regarding McClatchy’s debt position, Elaine Lintecum, McClatchy’s CFO, said, “Total debt at the end of the third quarter was $1.556 billion, down $10 million from the end of the second quarter of this year. Interest expense related to debt declined by $5.2 million compared to the same quarter last year, and we finished the quarter with $45.4 million in cash, compared to $21.8 million at the end of the second quarter. Our leverage ratio at the end of the third quarter as defined in our credit agreement was 4.59 times cash flow and our interest coverage was 2.55 times. Both ratios are well within the required limits of our credit agreement.”