McClatchy Reports Third Quarter 2012 Earnings

- Advertising and total revenue trends in third quarter 2012 improve from second quarter 2012

- Digital-only advertising revenues up 12.7% from third quarter 2011

- Advertising from sources outside of traditional newspaper grew to 36.7% of total advertising

- Cash expenses decline by 1.3% from third quarter 2011, excluding restructuring-related charges

- Digital subscription program expected to contribute more than $20 million to 2013 revenues

25 Oct, 2012, 09:00 ET from The McClatchy Company

SACRAMENTO, Calif., Oct. 25, 2012 /PRNewswire/ -- The McClatchy Company (NYSE: MNI) today reported net income in the third quarter of 2012 of $5.1 million or 6 cents per share.  In the third quarter of 2011 the company reported net income of $9.4 million or 11 cents per share.

Revenues in the third quarter of 2012 were $287.5 million, down 4.2% from the third quarter of 2011. Advertising revenues were $212.0 million, down 5.4% from 2011, and circulation revenues were $62.8 million, down 2.0%. Total digital advertising revenues grew 2.7% in the third quarter of 2012, with digital-only advertising revenues up 12.7% from the 2011 quarter. Digital advertising represented 22.9% of total advertising revenues in the third quarter of 2012 compared to 21.1% of total advertising revenues in the third quarter of 2011.

Results in the third quarter of 2012 included accelerated depreciation totaling $2.3 million ($1.4 million after-tax) primarily related to relocating Miami newspaper operations and severance and other restructuring charges totaling $3.9 million ($2.3 million after-tax). Income in the third quarter of 2012, excluding the net impact of these items, was $8.8 million compared to income in the third quarter of 2011 adjusted for similar items of $10.0 million. (Non-GAAP measurements are discussed below.)

Operating cash expenses, excluding charges associated with restructuring plans, declined $2.9 million, or 1.3%, from the 2011 quarter. Operating cash flow, a non-GAAP measure, was $67.1 million in the third quarter of 2012, down 12.8%.

First Nine Months Results:

Net income in the first nine months of 2012 was $29.9 million, or 35 cents per share. Net income in the first nine months of 2011 was $12.4 million, or 14 cents per diluted share. 

Revenues in the first nine months of 2012 were down 4.7% to $875.1 million compared to $918.2 million in 2011.  Advertising revenues in the 2012 period totaled $644.4 million, down 6.0%, and circulation revenues were $192.7 million, down 1.4%, compared to 2011.

Results in the first nine months of 2012 included the following items:

  • Accelerated depreciation totaling $6.5 million ($3.9 million after-tax) primarily related to relocating Miami newspaper operations.
  • Severance and other restructuring charges totaling $7.2 million ($4.3 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).
  • 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 tax settlements related to state tax positions previously taken.

Income in the first nine months of 2012 excluding the net impact of these items was $22.4 million compared to earnings in the first nine months of 2011 adjusted for similar items of $15.9 million. (Non-GAAP measurements are discussed below.)

Management's Comments on Third Quarter Results:

Commenting on McClatchy's third quarter results, Pat Talamantes, McClatchy's President and CEO, said, "Our third quarter results demonstrate that we're making progress in an uncertain economy. The advertising trend continued to move in the right direction in the third quarter: Ad revenues were down 6.8% in the first quarter of 2012, down 5.7% in the second quarter of 2012 and down 5.4% this quarter. We were particularly pleased to see continued growth in our digital advertising revenues and are excited about initiatives underway to pursue new revenue in both advertising and subscriptions.

"It's noteworthy that a growing percentage of our advertising revenues are now coming from sources outside of our traditional newspapers.  Digital advertising and direct marketing together now make up over 36% of our advertising revenues. 

"Advertising revenue from our digital initiatives continues to grow at a very healthy rate.  Digital-only advertising revenue increased 12.7% in the quarter with automotive advertising from our Cars.com products fueling the performance.  Through the first nine months of 2012 our Cars.com products have contributed nearly $23 million in digital advertising revenues - about a third of our total digital classified ad dollars. Our daily deals product, dealsaver®, continues its healthy growth with revenues up 84% in the quarter. Total digital advertising, which includes digital advertising both bundled with print and sold on a stand-alone basis, increased 2.7% compared to the 2011 quarter.  Digital advertising now represents 22.9% of McClatchy's total advertising revenue compared to 21.1% in 2011.  Our digital traffic also grew in the quarter with daily average local unique visitors to our websites and mobile content up 2.4%.

"In July, we launched impressLOCALTM , a suite of online products designed to offer local businesses a comprehensive digital marketing solution.  impressLOCALTM 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. It's now available at our newspapers in Fort Worth and Kansas City. While still early, our sales efforts have been positive and we plan to roll out impressLOCALTM to our other larger markets in early 2013 with our remaining markets to follow later in 2013 or early 2014.

"Direct marketing advertising, which now accounts for nearly 14% of our ad revenues compared to 11.4% two years ago, ended a string of nine consecutive quarters of growth with a decline of 2.5% in the third quarter.  Although revenues declined modestly, the decline reflects, in part, the timing of some products and our culling of less successful products while keeping the more profitable ones that have good growth potential.  For instance, revenues from our Sunday Select product, a package of preprinted advertisements delivered to non-subscribers upon request, grew 25.2% in the third quarter and were up 36.1% for the first nine months reaching nearly $10 million to date with deliveries to more than 625,000 households.

"Circulation revenues decreased in the quarter, down 2.0%. While circulation revenues and volumes declined in the third quarter, we are focused on developing strategies to generate additional subscription revenues and improve circulation volumes at our newspapers. 

"In early September, five McClatchy newspapers – The Sacramento Bee, The Modesto Bee, the Fort Worth Star-Telegram, the Ledger-Enquirer in Columbus, Ga., and the Sun Herald in Biloxi, Miss. – introduced new subscription packages, known as our Plus program, for digital content that ended free, unlimited access to the newspapers' websites and certain mobile content.  The Plus program includes subscriptions for both combined digital and print readers and digital-only readers. A metered paywall on each of the newspaper websites requires users to pay for content after accessing a limited number of pages or news articles for free each month. Existing home delivery subscribers are given free access to the digital content and rolled into the bundled print and digital Plus program when their subscription renews.

"We are excited about the early results. Thus far, only a small percentage of renewals have opted out of the Plus program, telling us our print readers value our content and high-quality journalism and are willing to pay extra for it in digital form. Similarly, we have added thousands of new digital-only subscribers to our paying customer base. We intend to expand this model to our other markets beginning next month.  We believe the new subscription revenues will begin to make a more significant impact in the fourth quarter. In 2013, we believe the new Plus program could add more than $20 million depending on a number of factors, including how quickly we complete our company-wide rollout.

"Cash expenses, excluding restructuring costs, were down 1.3% in the quarter as compared to the third quarter of 2011. We continued 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. For instance, our cash expenses declined even though we invested approximately $2.0 million in new revenue initiatives and enterprise-wide operating systems in the third quarter.  All of our papers continue to publish daily, providing communities with needed news and information in whatever print or digital form they choose to access it. And every one of them does so profitably. Clearly high quality content delivered daily in multiple mediums continues to be a successful business.

"Our share of income from all equity investments was $11.7 million in the third quarter of 2012 and $27.1 million in the first nine months of the year.  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 will continue to focus on our strong and growing set of products and revenue initiatives, especially in digital and direct marketing. One thing we have learned from the 2011 fourth quarter holiday season and the spring holiday season this year is that advertisers increasingly bunch their spending around these major events.  We are cautiously optimistic for another strong holiday season, but do not have sufficient visibility to provide specific guidance on advertising revenues for our fourth quarter.

"We will continue to 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 even in a soft newsprint pricing environment. On balance, we expect cash expenses to be flat to down in the low-single-digit percent range in the fourth quarter of 2012."

Elaine Lintecum, McClatchy's CFO said, "We focused our excess cash flow for the third quarter on paying seasonally higher interest and tax payments. The debt balance at the third quarter remained at $1.564 billion and we finished the quarter with a cash balance of $15.7 million. Our nearest-term bond maturity in November 2014 is approximately $66 million – not an issue given our free cash flow. Our leverage ratio at the end of the third quarter as defined in our credit agreement was 4.71 times cash flow and our interest coverage was 2.19 times."

The company's statistical report, which summarizes revenue performance for the third fiscal quarter and first nine months of fiscal 2012, 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 charges, gain on sale of internet asset, accelerated depreciation on equipment, non-cash impairments, reversal of interest on tax items and other certain 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 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.

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.

At noon Eastern time today, McClatchy will review its results in a conference call (877-278-1205, pass code 41109460) 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 not successfully implement circulation strategies designed to increase circulation revenue and may experience decreased circulation volumes; McClatchy may experience 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

Nine Months Ended

September 23,

September 25,

September 23,

September 25,

2012

2011

2012

2011

REVENUES - NET:

   Advertising

$       212,023

$       224,222

$       644,352

$       685,357

   Circulation

62,772

64,071

192,743

195,382

   Other

12,670

11,926

37,965

37,464

287,465

300,219

875,060

918,203

OPERATING EXPENSES:

   Compensation

108,421

108,751

329,156

352,843

   Newsprint, supplements and printing expense

33,058

35,238

102,365

107,561

   Depreciation and amortization

30,741

29,618

92,304

91,202

   Other operating expenses

82,766

81,169

247,846

255,566

254,986

254,776

771,671

807,172

OPERATING INCOME

32,479

45,443

103,389

111,031

NON-OPERATING (EXPENSES) INCOME:

   Interest expense

(39,718)

(42,052)

(112,825)

(127,695)

   Interest income

20

12

70

59

   Equity income in unconsolidated companies, net

11,728

8,608

27,080

21,280

   Gain (loss) on extinguishment of debt

(12)

(13)

6,074

(2,492)

   Other - net

40

40

83

265

(27,942)

(33,405)

(79,518)

(108,583)

INCOME BEFORE INCOME TAX PROVISION (BENEFIT)

4,537

12,038

23,871

2,448

INCOME TAX PROVISION (BENEFIT)

(556)

2,639

(6,000)

(9,936)

NET INCOME 

$           5,093

$           9,399

$         29,871

$         12,384

NET INCOME PER COMMON SHARE:

   Basic

0.06

0.11

0.35

0.15

   Diluted

0.06

0.11

0.35

0.14

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:

   Basic

85,840

85,354

85,691

85,147

   Diluted

86,369

86,064

86,417

86,002

 

The McClatchy Company

Consolidated Statistical Report

(In thousands, except for preprints)

Quarter  3

Combined

Print Only

Digital

Revenues - Net:

2012

2011

% Change

2012

2011

% Change

2012

2011

% Change

Advertising 

Retail

$106,444

$114,575

-7.1%

$87,397

$95,645

-8.6%

$19,047

$18,930

0.6%

National

17,255

17,231

0.1%

12,422

12,834

-3.2%

4,833

4,397

9.9%

Classified Total

58,915

62,279

-5.4%

34,266

38,350

-10.6%

24,649

23,929

3.0%

Automotive

20,420

19,938

2.4%

9,399

10,172

-7.6%

11,021

9,766

12.9%

Real Estate

8,752

11,117

-21.3%

5,536

7,473

-25.9%

3,216

3,644

-11.7%

Employment

11,755

13,074

-10.1%

5,353

6,174

-13.3%

6,402

6,900

-7.2%

Other

17,988

18,149

-0.9%

13,978

14,530

-3.8%

4,010

3,619

10.8%

Direct Marketing

29,179

29,927

-2.5%

29,179

29,927

-2.5%

Other Advertising

230

210

9.5%

230

210

9.5%

Total Advertising

$212,023

$224,222

-5.4%

$163,494

$176,966

-7.6%

$48,529

$47,256

2.7%

Circulation

62,772

64,071

-2.0%

Other

12,670

11,926

6.2%

Total Revenues

$287,465

$300,219

-4.2%

Advertising Revenues by Market:

California

$37,270

$39,128

-4.7%

$29,348

$31,118

-5.7%

$7,922

$8,011

-1.1%

Florida

29,595

30,461

-2.8%

23,715

24,563

-3.5%

5,880

5,897

-0.3%

Texas

21,970

24,733

-11.2%

16,802

19,467

-13.7%

5,168

5,266

-1.9%

Southeast

61,973

65,942

-6.0%

46,845

51,455

-9.0%

15,128

14,487

4.4%

Midwest

37,397

38,769

-3.5%

28,845

30,257

-4.7%

8,552

8,512

0.5%

Northwest

23,706

25,128

-5.7%

17,939

20,106

-10.8%

5,767

5,022

14.8%

Other

112

61

83.6%

0

0

0.0%

112

61

83.6%

Total Advertising

$212,023

$224,222

-5.4%

$163,494

$176,966

-7.6%

$48,529

$47,256

2.7%

Advertising Statistics for Dailies:

Full Run ROP Linage

4,105.4

4,503.1

-8.8%

Millions of Preprints Distributed

1,063.7

1,163.2

-8.6%

Average Paid Circulation:*

Daily

1,870.7

2,008.1

-6.8%

Sunday

2,617.3

2,763.5

-5.3%

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)

September Year-to-Date

Combined

Print Only

Digital

Revenues - Net:

2012

2011

% Change

2012

2011

% Change

2012

2011

% Change

Advertising 

Retail

$328,493

$349,953

-6.1%

$270,177

$295,186

-8.5%

$58,316

$54,767

6.5%

National

47,575

53,867

-11.7%

34,502

39,717

-13.1%

13,073

14,150

-7.6%

Classified Total

179,312

192,726

-7.0%

105,566

121,325

-13.0%

73,746

71,401

3.3%

Automotive

61,454

61,194

0.4%

29,368

32,889

-10.7%

32,086

28,305

13.4%

Real Estate

27,825

34,564

-19.5%

17,796

23,621

-24.7%

10,029

10,944

-8.4%

Employment

36,687

40,555

-9.5%

16,862

19,323

-12.7%

19,826

21,231

-6.6%

Other

53,346

56,413

-5.4%

41,542

45,493

-8.7%

11,804

10,920

8.1%

Direct Marketing

88,421

88,196

0.3%

88,421

88,196

0.3%

Other Advertising

551

615

-10.4%

551

615

-10.4%

Total Advertising

$644,352

$685,357

-6.0%

$499,217

$545,039

-8.4%

$145,135

$140,318

3.4%

Circulation

192,743

195,382

-1.4%

Other

37,965

37,464

1.3%

Total Revenues

$875,060

$918,203

-4.7%

Advertising Revenues by Market:

California

$110,803

$119,319

-7.1%

$87,747

$95,655

-8.3%

$23,058

$23,664

-2.6%

Florida

93,650

96,266

-2.7%

75,295

77,714

-3.1%

18,355

18,552

-1.1%

Texas

68,728

77,120

-10.9%

52,753

61,357

-14.0%

15,975

15,763

1.3%

Southeast

187,091

198,664

-5.8%

142,433

156,856

-9.2%

44,657

41,808

6.8%

Midwest

112,713

117,691

-4.2%

86,874

92,632

-6.2%

25,838

25,059

3.1%

Northwest

70,944

76,198

-6.9%

54,115

60,825

-11.0%

16,829

15,373

9.5%

Other

423

99

327.3%

0

0

0.0%

423

99

327.3%

Total Advertising

$644,352

$685,357

-6.0%

$499,217

$545,039

-8.4%

$145,135

$140,318

3.4%

Advertising Statistics for Dailies:

Full Run ROP Linage

12,877.5

13,787.4

-6.6%

Millions of Preprints Distributed

3,277.6

3,510.9

-6.6%

Average Paid Circulation:*

Daily

1,985.1

2,111.7

-6.0%

Sunday

2,718.8

2,794.2

-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 

 Nine Months Ended 

Sept 23, 

Sept 25, 

Sept 23, 

Sept 25, 

2012

2011

2012

2011

REVENUES - NET:

   Advertising

$ 212,023

$ 224,222

$ 644,352

$ 685,357

   Circulation

62,772

64,071

192,743

195,382

   Other

12,670

11,926

37,965

37,464

287,465

300,219

875,060

918,203

OPERATING EXPENSES:

   Compensation excluding restructuring charges

106,171

107,662

325,459

339,591

   Newsprint, supplements and printing expense

33,058

35,238

102,365

107,561

   Other cash operating expenses

81,134

80,408

244,305

244,241

   Cash operating expenses excluding

     restructuring charges

220,363

223,308

672,129

691,393

   Restructuring related compensation 

2,250

1,089

3,696

13,252

   Restructuring charges

1,632

761

3,542

761

   Impairment charges related to asset sales

-

-

-

10,564

   Depreciation and amortization

30,741

29,618

92,304

91,202

   Total operating expenses

254,986

254,776

771,671

807,172

OPERATING INCOME 

32,479

45,443

103,389

111,031

Add back:

   Depreciation and amortization

30,741

29,618

92,304

91,202

   Restructuring related compensation charges

2,250

1,089

3,696

13,252

   Restructuring charges

1,632

761

3,542

761

   Impairment charges related to asset sales

-

-

-

10,564

OPERATING CASH FLOW

$   67,102

$   76,911

$ 202,931

$ 226,810

OPERATING CASH FLOW MARGIN

23.3%

25.6%

23.2%

24.7%

Reconciliation of Net Income to Adjusted Net Income

Net Income:

$      5,093

$      9,399

$   29,871

$   12,384

Add back certain items, net of tax:

   Loss (gain) on extinguishment of debt

8

8

(3,839)

1,538

   Restructuring related charges

2,314

580

4,349

7,160

   Gain on sale of internet asset

-

-

-

(1,207)

   Accelerated depreciation on equipment

1,398

-

3,936

-

   Non-cash impairments

-

459

-

7,166

   Reversal of interest on tax items

-

(421)

(4,848)

(2,734)

   Certain discrete tax items

-

(7,046)

(8,398)

Adjusted net income

$      8,813

$   10,025

$   22,423

$   15,909

 

SOURCE The McClatchy Company



RELATED LINKS

http://www.mcclatchy.com