McClatchy Reports Second Quarter 2013 Earnings - Total revenues down 3.5% from Q2 2012; improving trend expected to continue

- Circulation revenue up 4.8% from Q2 2012; Plus Program contributing as forecasted

- Total digital-only revenues up 10.6% from Q2 2012

- Advertising revenues from nontraditional sources now at 39.1% of total advertising revenues

- Expenses excluding severance and other charges decline 2.1% from Q2 2012

SACRAMENTO, Calif., July 25, 2013 /PRNewswire/ -- The McClatchy Company (NYSE: MNI) today reported second quarter 2013 earnings, excluding the net impact of certain items discussed below, of $11.1 million. Earnings in the second quarter of 2012, adjusted for similar items, were $16.1 million and included a favorable tax item of $7.9 million as noted below.

On a GAAP basis, net income in the second quarter of 2013 was $11.8 million or 14 cents per share. In the second quarter of 2012 the company reported net income of $26.9 million or 31 cents per share.

Total revenues in the second quarter of 2013 were $308.8 million, down 3.5% from the second quarter of 2012. Circulation revenues were $88.5 million, up 4.8% and advertising revenues were $207.7 million, down 6.7% from the same quarter in 2012. Total digital-only revenues, which include digital-only revenues from advertising and circulation, were up 10.6% compared to the same quarter last year.   

Results in the second quarter of 2013 included the following items:

  • accelerated depreciation totaling $1.8 million ($1.0 million after-tax) related to relocating Miami newspaper operations;
  • severance and other charges totaling $4.3 million ($2.7 million after-tax);
  • a write-off of production equipment at one newspaper totaling $3.2 million ($2.0 million after-tax); and
  • a gain related to the sale of the Miami property of $10.0 million ($6.4 million after-tax).

The company also noted that adjusted earnings in the second quarter of 2012 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.

Operating cash expenses, excluding severance and other charges discussed above, declined approximately $5.2 million, or 2.1%, from the 2012 quarter. Operating cash flow was $68.9 million in the second quarter of 2013, down 8.2%. (Non-GAAP measurements are discussed below.)

First Six Months Results:

Earnings in the first six months of 2013, excluding the net impact of certain items, were $10.4 million.  Earnings in the first six months of 2012 adjusted for similar items were $13.6 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. (Non-GAAP measurements are discussed below.)

On a GAAP basis, the net loss in the first half of 2013 was $1.0 million, or one cent per share.  Net income in the first half of 2012 was $24.8 million, or 29 cents per share. 

Total revenues in the first six months of 2013 were down 3.7% to $603.9 million compared to $626.8 million in 2012.  Advertising revenues in the 2012 period totaled $404.8 million, down 6.4%, and circulation revenues were $174.3 million, up 3.0%.

Results in the first half 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 both the refinancing of the company's 11.5% secured bonds due in 2017 and open-market repurchases;
  • accelerated depreciation totaling $3.9 million ($2.4 million after-tax) related to relocating Miami newspaper operations;
  • severance and other charges totaling $6.6 million ($4.2 million after-tax);
  • a write-off of production equipment at one newspaper totaling $3.2 million ($2.0 million after-tax);
  • a gain related to the sale of the Miami property of $10.0 million ($6.4 million after-tax); and
  • additional tax expense totaling $1.1 million for an increase in liabilities related to tax positions taken in prior years.

Management's Comments:

Commenting on McClatchy's second quarter results, Pat Talamantes, McClatchy's president and CEO, said, "Total revenue trends this quarter improved compared to the same quarter last year and to the first quarter of this year. Total company revenues were down 3.5% this quarter compared to down 3.8% in the first quarter of 2013 and down 4.9% in the second quarter of 2012. Growth in circulation revenues stemming from our new digital subscription packages helped to offset a portion of the decline in advertising revenues.       

"For the quarter, total advertising revenues were down 6.7% compared to the second quarter of 2012 reflecting slower Mother's Day and Memorial Day advertising. Digital-only advertising revenues were up 7.8% compared to the same quarter last year, although print advertising declines were a drag on bundled print and digital advertising. Still, total digital advertising at $50.1 million represented 24.1% of McClatchy's total advertising revenues in the second quarter compared to 22.5% in the second quarter of 2012. Our digital-only revenues inclusive of both advertising and circulation grew 10.6% in the second quarter compared to the second quarter of 2012.

"We believe that we will continue to benefit in the future as our efforts to build our circulation revenues gain even more traction.  The subscriber response to our new digital subscription packages, known as our Plus Program, exceeded our initial expectations and we are on target to meet our guidance of generating approximately $25 million in new revenues in 2013. In total, the Plus Program provided more than $8 million in incremental revenues contributing to the 4.8% growth in total circulation revenues for the quarter.  Our digital audiences grew during the quarter, with new digital-only subscriptions from the Plus Program now totaling more than 25,000.

"Direct marketing advertising revenues were down 0.9% in the second quarter, a modest decline reflecting in part our continued culling of less successful products and the weaker Spring holiday spending.  Nevertheless, year to date, direct marketing revenues continue to show growth, helping us to diversify our revenue sources, and accounting for 15.0% of total advertising revenues in the quarter. When combined with digital advertising, the two categories contributed more than 39% of our advertising revenues during the quarter. 

"Cash expenses, excluding severance and certain other charges, were down 2.1% in the quarter compared to the second quarter of 2012. We were able to reduce cash expenses even as we continue to invest in new revenue initiatives and enterprise-wide operating systems and despite an increase in pension expense of $2.4 million.

"Our equity income was $12.0 million this quarter, up 28.2% compared to the same quarter last year.  Importantly, Classified Ventures and CareerBuilder continue to show strong financial results.

"It was a busy quarter on the digital front. Building on the success we have enjoyed in Fort Worth and Kansas City, we launched impressLOCALTM in eight additional markets in the second quarter of this year and an additional market in July. impressLOCALTM provides a suite of online products designed to offer local businesses a comprehensive digital marketing solution. Cars.com continues to perform well as we roll out new products and display revenue is also showing momentum as we expand our sales reach through our audience extension partners, including Yahoo!, Centro and others.

"Our digital audience continues to grow.  For the second quarter of 2013, daily average local unique visitors finished up 3.8% and our mobile daily unique visitor count was up 54% in the quarter compared to the second quarter of 2012.  Mobile users represented 37% of total daily unique visitors in the second quarter of 2013.  We launched iPad apps at a dozen newspapers in the first quarter of this year, and will follow with a second version of tablet apps on iOS and Android, and revamped smartphone apps for both platforms, in the second half of 2013.

"As we look to the third quarter, we again expect trend improvement in total company revenues compared to the third quarter of last year and to the second quarter of this year. We expect to see continued momentum from the roll-out of the Plus Program and double-digit growth in total digital-only revenues in the third quarter. On the expense side, we will continue to focus on controlling costs and we expect cash expenses to be down in the low-single digits in the third quarter from the same quarter in 2012."

Elaine Lintecum, McClatchy's CFO said, "Total debt at the end of the second quarter was unchanged from the $1.566 billion reported at the end of the first quarter of this year. A good portion of our excess cash flow from operations was focused on making seasonally large bond interest payments during the quarter. While debt did not decrease, interest expense related to debt declined by $6.4 million compared to the same quarter last year and we finished the quarter with $21.8 million in cash.  Our leverage ratio at the end of the second quarter as defined in our credit agreement was 4.48 times cash flow and our interest coverage was 2.54 times, both well within the required limits of our credit agreement.

"We completed the relocation of the Miami Herald headquarters from downtown Miami to Doral, Fla., at the end of May. Since we completed the move this quarter we also recognized a $10.0 million gain that had been deferred on the sale of the Miami property in 2011. We look forward to continuing to serve the residents of South Florida from our new, state-of-the art facilities and providing the high-quality news and information that they have come to expect."

The company's statistical report, which summarizes revenue performance for the second fiscal quarter and first half 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 (also called adjusted earnings), 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, severance charges, accelerated depreciation on equipment, certain other charges, gain on sale of Miami property, reversal of interest on tax items and certain discrete tax items.  Operating cash flow is defined as operating income plus depreciation and amortization, severance charges and certain other charges.  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; and
  • 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.

Conference Call Information:

At noon Eastern time today, McClatchy will review its results in a conference call (877-278-1205, pass code 16743557) 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 (Fort Worth) Star-Telegram, The Sacramento Bee, The Kansas City Star, the Miami Herald, The Charlotte Observer and The (Raleigh) News & Observer.  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 not successfully implement circulation strategies designed to increase circulation revenue, including the Plus Program,  and may experience decreased circulation volumes or subscriptions through the Plus Program; McClatchy may experience diminished revenues from retail, classified, national and direct marketing 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. 30, 2012, as amended by the Form 10-K/A, 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 30,


June 24,


June 30,


June 24,




2013


2012


2013


2012

REVENUES - NET:









   Advertising


$ 207,652


$ 222,565


$ 404,774


$ 432,329

   Circulation


88,465


84,400


174,293


169,191

   Other



12,672


13,161


24,831


25,295




308,789


320,126


603,898


626,815

OPERATING EXPENSES:








   Compensation


108,157


108,086


220,733


220,735

   Newsprint, supplements and printing expense

30,839


34,968


61,554


69,307

   Depreciation and amortization

29,919


30,822


60,365


61,563

   Other operating expenses

108,413


103,315


209,187


204,300




277,328


277,191


551,839


555,905











OPERATING INCOME


31,461


42,935


52,059


70,910











NON-OPERATING (EXPENSES) INCOME:








   Interest expense


(33,873)


(30,630)


(69,389)


(73,107)

   Interest income


22


36


31


50

   Equity income in unconsolidated companies, net

11,968


9,334


21,129


15,352

   Gain (loss) on extinguishment of debt

-


1,653


(12,770)


6,086

   Gain on sale of Miami property

10,013


-


10,013


-

   Other - net


41


5


93


43




(11,829)


(19,602)


(50,893)


(51,576)











INCOME BEFORE INCOME TAX PROVISION 

19,632


23,333


1,166


19,334











INCOME TAX PROVISION (BENEFIT)

7,880


(3,532)


2,155


(5,444)











NET INCOME (LOSS)


$   11,752


$   26,865


$      (989)


$   24,778











NET INCOME (LOSS) PER COMMON SHARE:








   Basic



0.14


0.31


(0.01)


0.29

   Diluted



0.14


0.31


(0.01)


0.29











WEIGHTED AVERAGE NUMBER OF COMMON SHARES:








   Basic



86,149


85,739


86,086


85,617

   Diluted



86,797


86,323


86,086


86,441

 




















The McClatchy Company

Consolidated Statistical Report

(In thousands, except for preprints)






















Quarter  2



Combined


Print Only


Digital







































Revenues - Net:


2013


2012


% Change


2013


2012


% Change


2013


2012


% Change




















Advertising 



















Retail


$103,317


$114,919


-10.1%


$83,523


$94,456


-11.6%


$19,794


$20,463


-3.3%

National


16,517


15,190


8.7%


11,386


10,757


5.8%


5,131


4,433


15.7%

Classified Total


56,639


60,960


-7.1%


31,501


35,812


-12.0%


25,138


25,148


0.0%

Automotive


19,278


20,536


-6.1%


7,551


9,809


-23.0%


11,727


10,727


9.3%

Real Estate


9,119


9,660


-5.6%


5,645


6,110


-7.6%


3,474


3,549


-2.1%

Employment


10,931


12,588


-13.2%


4,976


5,744


-13.4%


5,955


6,844


-13.0%

Other


17,310


18,176


-4.8%


13,328


14,148


-5.8%


3,982


4,028


-1.1%

Direct Marketing


31,047


31,326


-0.9%


31,047


31,326


-0.9%







Other Advertising


132


170


-22.4%


132


170


-22.4%







Total Advertising


$207,652


$222,565


-6.7%


$157,589


$172,521


-8.7%


$50,063


$50,044


0.0%




















Circulation


88,465


84,400


4.8%













Other


12,672


13,161


-3.7%













Total Revenues


$308,789


$320,126


-3.5%
































  Memo:  Digital-only


$30,590


$27,670


10.6%
































Advertising Revenues by Market:



















California


$35,521


$37,507


-5.3%


$27,646


$29,735


-7.0%


$7,875


$7,772


1.3%

Florida


30,192


32,547


-7.2%


23,615


26,047


-9.3%


6,577


6,500


1.2%

Texas


22,393


23,858


-6.1%


16,974


18,240


-6.9%


5,419


5,618


-3.5%

Southeast


59,922


63,989


-6.4%


44,312


48,847


-9.3%


15,610


15,142


3.1%

Midwest


36,614


39,714


-7.8%


27,767


30,717


-9.6%


8,847


8,997


-1.7%

Northwest


22,904


24,767


-7.5%


17,275


18,935


-8.8%


5,629


5,832


-3.5%

Other


106


183


-42.1%


0


0


0.0%


106


183


-42.1%

Total Advertising


$207,652


$222,565


-6.7%


$157,589


$172,521


-8.7%


$50,063


$50,044


0.0%




















Advertising Statistics for Dailies:



















Full Run ROP Linage








3,985.7


4,533.6


-12.1%


























Millions of Preprints Distributed








1,053.5


1,056.7


-0.3%













































Average Paid Circulation*:



















Daily








1,890.1


1,999.8


-5.5%







Sunday








2,710.9


2,727.2


-0.6%


























Columns may not add due to rounding




















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

 




















The McClatchy Company

Consolidated Statistical Report

(In thousands, except for preprints)






















June Year-to-Date



Combined


Print Only


Digital







































Revenues - Net:


2013


2012


% Change


2013


2012


% Change


2013


2012


% Change




















Advertising 



















Retail


$201,176


$222,049


-9.4%


$163,092


$182,781


-10.8%


$38,084


$39,268


-3.0%

National


31,516


30,320


3.9%


22,064


22,080


-0.1%


9,452


8,240


14.7%

Classified Total


112,103


120,397


-6.9%


62,310


71,300


-12.6%


49,793


49,097


1.4%

Automotive


38,605


41,034


-5.9%


15,411


19,968


-22.8%


23,194


21,066


10.1%

Real Estate


17,602


19,073


-7.7%


10,911


12,260


-11.0%


6,691


6,813


-1.8%

Employment


21,785


24,932


-12.6%


9,815


11,508


-14.7%


11,970


13,424


-10.8%

Other


34,111


35,358


-3.5%


26,173


27,564


-5.0%


7,938


7,794


1.8%

Direct Marketing


59,697


59,242


0.8%


59,697


59,242


0.8%







Other Advertising


282


321


-12.1%


282


321


-12.1%







Total Advertising


$404,774


$432,329


-6.4%


$307,445


$335,724


-8.4%


$97,329


$96,605


0.7%




















Circulation


174,293


169,191


3.0%













Other


24,831


25,295


-1.8%













Total Revenues


$603,898


$626,815


-3.7%
































  Memo:  Digital-only


$58,846


$53,065


10.9%
































Advertising Revenues by Market:



















California


$68,783


$73,533


-6.5%


$53,508


$58,401


-8.4%


$15,275


$15,132


0.9%

Florida


60,304


64,056


-5.9%


47,359


51,581


-8.2%


12,945


12,475


3.8%

Texas


43,264


46,758


-7.5%


32,755


35,951


-8.9%


10,509


10,807


-2.8%

Southeast


117,711


125,118


-5.9%


87,294


95,588


-8.7%


30,417


29,530


3.0%

Midwest


70,162


75,315


-6.8%


53,221


58,028


-8.3%


16,941


17,287


-2.0%

Northwest


44,348


47,238


-6.1%


33,308


36,175


-7.9%


11,040


11,063


-0.2%

Other


202


311


-35.0%


0


0


0.0%


202


311


-35.0%

Total Advertising


$404,774


$432,329


-6.4%


$307,445


$335,724


-8.4%


$97,329


$96,605


0.7%




















Advertising Statistics for Dailies:



















Full Run ROP Linage








7,827.8


8,772.1


-10.8%


























Millions of Preprints Distributed








2,059.4


2,104.3


-2.1%













































Average Paid Circulation:*



















Daily








1,935.8


2,042.4


-5.2%







Sunday








2,748.2


2,768.6


-0.7%


























Columns may not add due to rounding




















*    Reflects average paid circulation based upon number of days in period. Does not reflect AAM 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 30, 


June 24, 


June 30, 


June 24, 



2013


2012


2013


2012

REVENUES - NET:









   Advertising


$ 207,652


$ 222,565


$ 404,774


$ 432,329

   Circulation


88,465


84,400


174,293


169,191

   Other


12,672


13,161


24,831


25,295



308,789


320,126


603,898


626,815

OPERATING EXPENSES:









   Compensation excluding restructuring charges


107,452


107,811


219,647


219,289

   Newsprint, supplements and printing expense


30,839


34,968


61,554


69,307

   Other cash operating expenses


101,573


102,293


200,420


202,390

   Cash operating expenses excluding









     restructuring charges


239,864


245,072


481,621


490,986

   Severance charges


705


275


1,086


1,446

   Other charges


6,840


1,022


8,767


1,910

   Depreciation and amortization


29,919


30,822


60,365


61,563

   Total operating expenses


277,328


277,191


551,839


555,905










OPERATING INCOME 


31,461


42,935


52,059


70,910

Add back:









   Depreciation and amortization


29,919


30,822


60,365


61,563

   Severance charges


705


275


1,086


1,446

   Other charges


6,840


1,022


8,767


1,910

OPERATING CASH FLOW


$   68,925


$   75,054


$ 122,277


$ 135,829










OPERATING CASH FLOW MARGIN


22.3%


23.4%


20.2%


21.7%



















Reconciliation of Net Income to Adjusted Net Income










Net Income:


$   11,752


$   26,865


$       (989)


$   24,778










Add back certain items, net of tax:









   Loss (gain) on extinguishment of debt


-


(1,045)


8,102


(3,847)

   Severance charges


416


159


640


828

   Accelerated depreciation on equipment


1,089


1,338


2,383


2,538

   Other charges


4,339


646


5,562


1,207

   Gain on sale of Miami property


(6,353)


-


(6,353)


-

   Reversal of interest on tax items


(114)


(4,848)


(39)


(4,848)

   Certain discrete tax items


(70)


(6,981)


1,090


(7,046)

Adjusted net income


$   11,059


$   16,134


$   10,396


$   13,610

 

SOURCE The McClatchy Company



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