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

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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