McClatchy Reports Growth in Second Quarter 2012 Earnings

- Advertising revenue trends in second quarter 2012 improved over first quarter 2012

- Digital-only advertising revenues up 16.8% from second quarter 2011

- Cash expenses declined by 2.9% from second quarter 2011, excluding restructuring-related charges

- Debt reduced by $35.0 million in second quarter and $70.5 million in first half 2012

Jul 27, 2012, 09:00 ET from The McClatchy Company

SACRAMENTO, Calif., July 27, 2012 /PRNewswire/ -- The McClatchy Company (NYSE: MNI) today reported net income in the second quarter of 2012 of $26.9 million or 31 cents per share.  In the second quarter of 2011 the company reported net income of $4.9 million or 6 cents per share.

Revenues in the second quarter of 2012 were $299.3 million, down 4.8% from the second quarter of 2011. Advertising revenues were $222.6 million, down 5.7% from 2011, and circulation revenues were $63.6 million, down 2.4%. Total digital advertising revenues grew 4.9% in the second quarter of 2012, with digital-only advertising revenues up 16.8% from the 2011 quarter. Digital advertising represented 22.5% of total advertising revenues compared to 20.2% of total advertising revenues in the second quarter of 2011.

Results in the second quarter of 2012 included the following items:

  • Accelerated depreciation totaling $2.2 million ($1.3 million after-tax) primarily related to relocating our Miami newspapers' operations.
  • Severance and other restructuring charges totaling $1.3 million ($0.8 million after-tax) related to continued restructuring of the company's operations.
  • A gain on the extinguishment of debt totaling $1.7 million ($1.0 million after-tax) related to debt reduction in the quarter.
  • Reversal of non-cash interest expense totaling $7.8 million ($4.8 million after-tax) related to the release of tax reserves.
  • A favorable adjustment to net income totaling $7.0 million for a tax settlement related to state tax positions previously taken.

Income in the second quarter of 2012, excluding the net impact of these items, was $16.1 million compared to income in the second quarter of 2011 adjusted for similar items of $9.0 million. (Non-GAAP measurements are discussed below.)

Operating cash expenses, excluding charges associated with restructuring plans, declined $6.6 million, or 2.9%, from the 2012 quarter. Operating cash flow, a non-GAAP measure, was $75.1 million in the second quarter of 2012, down 10.0%.

First Six Months Results:

Net income in the first half of 2012 was $24.8 million, or 29 cents per share. Net income in the first half of 2011 was $3.0 million, or 3 cents per share. 

Revenues in the first six months of 2012 were down 4.9% to $587.6 million compared to $618.0 million in 2011.  Advertising revenues in the 2012 period totaled $432.3 million, down 6.2%, and circulation revenues were $130.0 million, down 1.0%.

Results in the first half of 2012 included the following items:

  • Accelerated depreciation totaling $4.2 million ($2.5 million after-tax) primarily related to relocating our Miami newspapers' operations.
  • Severance and other restructuring charges totaling $3.4 million ($2.0 million after-tax) related to continued restructuring of the company's operations.
  • A gain on the extinguishment of debt totaling $6.1 million ($3.8 million after-tax) related to debt reduction in the quarter.
  • Reversal of non-cash interest expense totaling $7.8 million ($4.8 million after-tax) related to the release of tax reserves.
  • A favorable adjustment to net income totaling $7.0 million for a tax settlement related to state tax positions previously taken.

Income in the first six months of 2012 excluding the net impact of these items was $13.6 million compared to earnings in the first six months of 2011 adjusted for similar items of $5.7 million. (Non-GAAP measurements are discussed below).

Management's Comments on Second Quarter Results:

Commenting on McClatchy's second quarter results, Pat Talamantes, McClatchy's president and CEO, said, "Advertising revenues were down 5.7% in the second quarter.  Despite economic headwinds, we were encouraged to see sequential improvement in advertising trends in the second quarter compared to the first quarter of 2012 when ad revenues were down 6.8%. Not only did we experience calendar switches for certain holidays, but we continue to see the trend of advertisers consolidating their marketing budgets around specific holidays. This was evident in the second quarter around the Easter, Mother's Day and Fourth of July holidays, with the impact clearly evident in the revenue results in each month. Advertising revenues were down 8.2% in April, 0.5% in May and 7.9% in June.

"Revenue from our digital initiatives continues to grow at a very healthy rate.  Digital-only advertising revenue increased 16.8% in the quarter with retail and automotive fueling the performance.  Total digital advertising, which includes digital advertising both bundled with print and sold on a stand-alone basis, increased 4.9% compared to the 2011 quarter.  Total digital advertising now represents 22.5% of McClatchy's total advertising revenue compared to 20.2% in 2011.  Our digital traffic also grew in the quarter with daily average local unique visitors to our websites and mobile content up 2.1%.

"Beginning this month, we also launched in a few select markets a suite of online products that is designed to offer local businesses a comprehensive digital marketing solution. This product suite, impressLOCAL, provides affordable packages that include website customization, search engine marketing and optimization, social media presence and marketing services, as well as branding opportunities on the web through mobile and e-mail campaigns. Early sales efforts have been very positive, and we plan to roll out these packages to all of our markets by early 2013.

"Direct marketing advertising continues to perform well; ad revenues in direct marketing products were up 1.8% in the second quarter of 2012, marking the ninth consecutive quarter of growth in this category.  Through June 2012, advertising in direct marketing products made up 13.7% of our total advertising revenues and when coupled with digital advertising, 36.0% of our advertising revenues were generated outside of the daily newspaper.

"Circulation revenues decreased in the quarter, down 2.4%. Daily circulation volume declined 6.0% while Sunday was down 5.2%.  We faced a difficult comparison this quarter compared to the second quarter of last year especially in Sunday single-copy sales, which were driven by strong interest in couponing that spurred Sunday circulation growth in 2011.  

"While circulation revenues and volumes showed declines in the second quarter, we are focused on developing strategies to generate additional subscription revenues and improve circulation volumes at our newspapers.  We recently completed an exhaustive study of circulation practices across our newspapers, and have begun implementing policies across the company to improve both print circulation volumes and revenues.

"We are also offering new subscription packages to our readers. After a number of experiments and analysis on pay models, we intend to roll out a metered plan in the third quarter in five of our markets.  We will offer readers a combined print and digital subscription package that will include access to web, certain mobile and replica editions for a relatively small increase to print home-delivery rates. We'll also offer online-only digital subscriptions to users after they read a certain number of pages. Once the first wave is launched, we intend to expand this model to our other markets beginning in the fourth quarter of this year. 

"Cash expenses, excluding restructuring costs, were down 2.9% in the quarter. We continue to carefully balance expense management with strategically investing in our products and doing so enabled us to generate another quarter of healthy operating cash flow.  As was the case throughout the recession, all of our papers remain profitable and all continue to publish daily, providing communities with needed news and information in whatever form they wish to receive it.

"Our share of income from all equity interests was $9.3 million in the second quarter of 2012.  McClatchy's investments, particularly our digital investments, are consistently producing strong results which speak to the staying power of the underlying products. They are strategically important to our newspaper websites and we continue to work closely with these companies to maximize financial and operational performance.

"Looking forward, we continue to see a very choppy economic recovery that is affecting our advertising customers, and therefore our visibility into our own advertising revenues.  We will continue to focus on our strong and growing set of products and revenue initiatives, especially in digital and direct marketing. We will carefully balance expense management with strategically investing in our products. We expect to continue to benefit from stability in newsprint pricing, recognizing that comparisons to 2011 get tougher in the third quarter even in a soft newsprint pricing environment. On balance, we expect cash expenses to be down in the low-single-digit percent range in the third quarter of 2012."

Elaine Lintecum, McClatchy's CFO said, "We reduced debt by $35.0 million in the second quarter to $1.564 billion and finished the quarter with a cash balance of $37.7 million. Our nearest-term maturity in November 2014 is approximately $66 million – not an issue given our free cash flow. Our leverage ratio at the end of the second quarter as defined in our credit agreement was 4.57 times cash flow and our interest coverage was 2.24 times."

Lintecum also said, "We also have good news on the pension front. New pension funding legislation signed into law in July as a part of the highway bill values pension obligations using normalized long-term bond yields rather than the unprecedented low rates we now see for long-term bonds. We believe this is a more appropriate valuation of pension obligations and expect the company's annual required pension contributions for at least the next two years will decline. We expect the new legislation will reduce our funding from about $78 million for 2013 and 2014 combined, to approximately $10 million in 2013 and $25 million in 2014, allowing us to focus more cash on debt repayment."

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 in an attached schedule. 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 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 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.  In addition, operating cash flow and operating cash flow margins should not be considered replacements for cash provided by operating activities as shown in the company's statement of cash flows included in our financial statements.

The company's statistical report, which summarizes revenue performance for the second fiscal quarter and first half of fiscal 2012, follows. 

At noon Eastern time today, McClatchy will review its results in a conference call (877-278-1205 pass code 99542654) and webcast (www.mcclatchy.com).  The webcast will be archived at McClatchy's website.

About McClatchy

The McClatchy Company is a leading news and information provider, offering a wide array of print and digital products in each of the markets it serves.  As the third largest newspaper company in the country, McClatchy's operations include 30 daily newspapers, community newspapers, websites, mobile news and advertising, niche publications, direct marketing and direct mail services.  The company's largest newspapers include The Miami Herald, The Sacramento Bee, Fort Worth Star-Telegram, The Kansas City Star, The Charlotte Observer and The News & Observer in Raleigh, N.C.  McClatchy is listed on the New York Stock Exchange under the symbol MNI.

Additional Information:

Statements in this press release regarding future financial and operating results, including revenues, anticipated savings from cost reduction efforts, cash flows, debt levels, as well as future opportunities for the company and any other statements about management's future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including statements containing the words "believes," "plans," "anticipates," "expects," "estimates" and similar expressions) should also be considered to be forward-looking statements. There are a number of important risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including:  McClatchy may not generate cash from operations, or otherwise, necessary to reduce debt or meet debt covenants as expected; McClatchy may experience decreased circulation and diminished revenues from retail, classified and national advertising; McClatchy may not achieve its expense reduction targets or may do harm to its operations in attempting to achieve such targets; McClatchy's operations have been, and will likely continue to be, adversely affected by competition, including competition from internet publishing and advertising platforms; increases in the cost of newsprint; bankruptcies or financial strain of its major advertising customers; litigation or any potential litigation; geo-political uncertainties including the risk of war; changes in printing and distribution costs from anticipated levels, including changes in postal rates or agreements; changes in interest rates; changes in pension assets and liabilities; changes in factors that impact pension contribution requirements, including, without limitation, the value of the company-owned real property that McClatchy has contributed to its pension plan; increased consolidation among major retailers in our markets or other events depressing the level of advertising; our inability to negotiate and obtain favorable terms under collective bargaining agreements with unions; competitive action by other companies; and other factors, many of which are beyond our control; as well as the other risks detailed from time to time in the company's publicly filed documents, including the company's Annual Report on Form 10-K for the year ended Dec. 25, 2011, filed with the U.S. Securities and Exchange Commission. McClatchy disclaims any intention and assumes no obligation to update the forward-looking information contained in this release.  

 

THE McCLATCHY COMPANY

CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

(In thousands, except per share amounts)

Three Months Ended

Six Months Ended

June 24,

June 26,

June 24,

June 26,

2012

2011

2012

2011

REVENUES - NET:

   Advertising

$ 222,565

$ 236,022

$ 432,329

$ 461,135

   Circulation

63,568

65,144

129,971

131,311

   Other

13,161

13,084

25,295

25,538

299,294

314,250

587,595

617,984

OPERATING EXPENSES:

   Compensation

108,086

119,735

220,735

244,092

   Newsprint, supplements and printing expense

34,968

36,947

69,307

72,323

   Depreciation and amortization

30,822

30,353

61,563

61,584

   Other operating expenses

82,483

82,082

165,080

174,397

256,359

269,117

516,685

552,396

OPERATING INCOME

42,935

45,133

70,910

65,588

NON-OPERATING (EXPENSES) INCOME:

   Interest expense

(30,630)

(44,696)

(73,107)

(85,643)

   Interest income

36

26

50

47

   Equity income in unconsolidated companies, net

9,334

9,500

15,352

12,672

   Gain (loss) on extinguishment of debt

1,653

(1,214)

6,086

(2,479)

   Other - net

5

159

43

225

(19,602)

(36,225)

(51,576)

(75,178)

INCOME (LOSS) BEFORE INCOME TAX PROVISION  (BENEFIT)

23,333

8,908

19,334

(9,590)

INCOME TAX PROVISION (BENEFIT)

(3,532)

3,961

(5,444)

(12,575)

NET INCOME 

$   26,865

$     4,947

$   24,778

$     2,985

NET INCOME PER COMMON SHARE:

   Basic

0.31

0.06

0.29

0.04

   Diluted

0.31

0.06

0.29

0.03

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:

   Basic

85,739

85,114

85,617

85,075

   Diluted

86,323

85,948

86,441

85,975

 

***The McClatchy Company***

Consolidated Statistical Report

(In thousands, except for preprints)

Quarter  2

Combined

Print Only

Digital

Revenues - Net:

2012

2011

% Change

2012

2011

% Change

2012

2011

% Change

Advertising 

$114,919

$120,941

-5.0%

$94,456

$102,087

-7.5%

$20,463

$18,854

8.5%

Retail

15,190

18,541

-18.1%

10,757

13,774

-21.9%

4,433

4,767

-7.0%

National

60,960

65,612

-7.1%

35,812

41,518

-13.7%

25,148

24,094

4.4%

Classified Total

20,536

20,648

-0.5%

9,809

11,344

-13.5%

10,727

9,304

15.3%

Automotive

9,660

11,804

-18.2%

6,110

8,075

-24.3%

3,549

3,728

-4.8%

Real Estate

12,588

14,001

-10.1%

5,744

6,690

-14.1%

6,844

7,311

-6.4%

Employment

18,176

19,159

-5.1%

14,148

15,408

-8.2%

4,028

3,751

7.4%

Other

31,326

30,778

1.8%

31,326

30,778

1.8%

Direct Marketing

170

150

13.3%

170

150

13.3%

Other Advertising

$222,565

$236,022

-5.7%

$172,521

$188,307

-8.4%

$50,044

$47,715

4.9%

Total Advertising

63,568

65,144

-2.4%

Circulation

13,161

13,084

0.6%

Other

$299,294

$314,250

-4.8%

Total Revenues

Advertising Revenues by Market:

$37,507

$41,124

-8.8%

$29,735

$33,011

-9.9%

$7,772

$8,113

-4.2%

California

32,547

32,495

0.2%

26,047

26,112

-0.2%

6,500

6,383

1.8%

Florida

23,858

26,407

-9.7%

18,240

20,999

-13.1%

5,618

5,408

3.9%

Texas

63,989

67,685

-5.5%

48,847

53,616

-8.9%

15,142

14,069

7.6%

Southeast

39,714

41,716

-4.8%

30,717

33,126

-7.3%

8,997

8,590

4.7%

Midwest

24,767

26,572

-6.8%

18,935

21,443

-11.7%

5,832

5,129

13.7%

Northwest

183

23

695.7%

0

0

0.0%

183

23

695.7%

Other

$222,565

$236,022

-5.7%

$172,521

$188,307

-8.4%

$50,044

$47,715

4.9%

Total Advertising

Advertising Statistics for Dailies:

4,479.7

4,788.2

-6.4%

Full Run ROP Linage

1,108.5

1,170.0

-5.3%

Millions of Preprints Distributed

Average Paid Circulation:*

1,999.8

2,128.0

-6.0%

Daily

2,659.9

2,807.2

-5.2%

Sunday

      Columns may not add due to rounding

*    Reflects average paid circulation based upon number of days in period. Does not reflect ABC reported figures.

 

 

***The McClatchy Company***

Consolidated Statistical Report

(In thousands, except for preprints)

June Year-to-Date

Combined

Print Only

Digital

Revenues - Net:

2012

2011

% Change

2012

2011

% Change

2012

2011

% Change

Advertising 

Retail

$222,049

$235,378

-5.7%

$182,781

$199,541

-8.4%

$39,268

$35,837

9.6%

National

30,320

36,637

-17.2%

22,080

26,884

-17.9%

8,240

9,753

-15.5%

Classified Total

120,397

130,447

-7.7%

71,300

82,975

-14.1%

49,097

47,472

3.4%

Automotive

41,034

41,256

-0.5%

19,968

22,717

-12.1%

21,066

18,539

13.6%

Real Estate

19,073

23,447

-18.7%

12,260

16,147

-24.1%

6,813

7,300

-6.7%

Employment

24,932

27,481

-9.3%

11,508

13,150

-12.5%

13,424

14,331

-6.3%

Other

35,359

38,263

-7.6%

27,565

30,961

-11.0%

7,794

7,302

6.7%

Direct Marketing

59,242

58,268

1.7%

59,242

58,268

1.7%

Other Advertising

321

405

-20.7%

321

405

-20.7%

Total Advertising

$432,329

$461,135

-6.2%

$335,724

$368,073

-8.8%

$96,605

$93,062

3.8%

Circulation

129,971

131,311

-1.0%

Other

25,295

25,538

-1.0%

Total Revenues

$587,595

$617,984

-4.9%

Advertising Revenues by Market:

California

$73,533

$80,191

-8.3%

$58,401

$64,537

-9.5%

$15,132

$15,654

-3.3%

Florida

64,056

65,805

-2.7%

51,581

53,151

-3.0%

12,475

12,654

-1.4%

Texas

46,758

52,387

-10.7%

35,951

41,890

-14.2%

10,807

10,497

3.0%

Southeast

125,118

132,722

-5.7%

95,588

105,401

-9.3%

29,530

27,321

8.1%

Midwest

75,315

78,922

-4.6%

58,028

62,375

-7.0%

17,287

16,547

4.5%

Northwest

47,238

51,070

-7.5%

36,175

40,719

-11.2%

11,063

10,351

6.9%

Other

311

38

718.4%

0

0

0.0%

311

38

718.4%

Total Advertising

$432,329

$461,135

-6.2%

$335,724

$368,073

-8.8%

$96,605

$93,062

3.8%

Advertising Statistics for Dailies:

Full Run ROP Linage

8,718.2

9,284.3

-6.1%

Millions of Preprints Distributed

2,213.9

2,347.7

-5.7%

Average Paid Circulation:*

Daily

2,042.7

2,163.5

-5.6%

Sunday

2,734.4

2,809.5

-2.7%

     Columns may not add due to rounding

*    Reflects average paid circulation based upon number of days in period. Does not reflect ABC reported figures.

 

THE McCLATCHY COMPANY

Reconciliation of GAAP Measures to Non-GAAP Amounts

(In thousands)

Reconciliation of Operating Income  to Operating Cash Flows

 Three Months Ended 

 Six Months Ended 

June 24, 

June 26, 

June 24, 

June 26, 

2012

2011

2012

2011

REVENUES - NET:

   Advertising

$ 222,565

$ 236,022

$ 432,329

$ 461,135

   Circulation

63,568

65,144

129,971

131,311

   Other

13,161

13,084

25,295

25,538

299,294

314,250

587,595

617,984

OPERATING EXPENSES:

   Compensation excluding restructuring charges

107,811

112,121

219,288

231,929

   Newsprint, supplements and printing expense

34,968

36,947

69,307

72,323

   Other cash operating expenses

81,461

81,820

163,171

163,833

   Cash operating expenses excluding

     restructuring charges

224,240

230,888

451,766

468,085

   Restructuring related compensation 

275

7,614

1,446

12,163

   Restructuring charges

1,022

-

1,910

   Impairment charges related to asset sales

-

262

-

10,564

   Depreciation and amortization

30,822

30,353

61,563

61,584

   Total operating expenses

256,359

269,117

516,685

552,396

OPERATING INCOME 

42,935

45,133

70,910

65,588

Add back:

   Depreciation and amortization

30,822

30,353

61,563

61,584

   Restructuring related compensation charges

275

7,614

1,446

12,163

   Restructuring charges

1,022

-

1,910

-

   Impairment charges related to asset sales

-

262

-

10,564

OPERATING CASH FLOW

$   75,054

$   83,362

$ 135,829

$ 149,899

OPERATING CASH FLOW MARGIN

25.1%

26.5%

23.1%

24.3%

Reconciliation of Net Income to Adjusted Net Income

Net Income:

$   26,865

$      4,947

$   24,778

$      2,985

Add back certain items, net of tax:

   Loss (gain) on extinguishment of debt

(1,045)

749

(3,847)

1,530

   Restructuring related charges

805

4,003

2,035

6,393

   Gain on sale of internet asset

-

-

-

(1,207)

   Accelerated depreciation on equipment

1,338

-

2,538

   Non-cash impairments

-

166

-

6,707

   Reversal of interest on tax items

(4,848)

-

(4,848)

(2,313)

   Certain discrete tax items

(6,981)

(818)

(7,046)

(8,396)

Adjusted net income

$   16,134

$      9,047

$   13,610

$      5,699

 

SOURCE The McClatchy Company



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