McClatchy Reports Third Quarter 2013 Earnings - Total revenues down 4.2% from Q3 2012

- Circulation revenues up 6.5%; Plus Program revenues continue to exceed expectations

- Total digital-only revenues up 13.1% from Q3 2012 with digital-only ad revenues up 10.6%

- Advertising revenues from nontraditional sources now 40.9% of total ad revenue

- Operating cash expenses, excluding severance and other charges, down 1.9% from Q3 2012

SACRAMENTO, Calif., Oct. 24, 2013 /PRNewswire/ -- The McClatchy Company (NYSE-MNI) today reported third quarter 2013 earnings, excluding the net impact of certain items discussed below, of $6.9 million. Earnings in the third quarter of 2012, adjusted for similar items, were $8.8 million.

On a GAAP basis, net income in the third quarter of 2013 was $7.3 million, or 8 cents per share. In the third quarter of 2012 the company reported net income of $5.1 million, or 6 cents per share.

Total revenues in the third quarter of 2013 were $293.6 million, down 4.2% from the third quarter of 2012. Advertising revenues were $194.9 million, down 8.1%, and circulation revenues were $87.0 million, up 6.5% from the same quarter in 2012. Total digital-only revenues, which include digital-only revenues from advertising and circulation, were up 13.1% compared to the same quarter last year.   

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

  • severance and other charges totaling $2.3 million ($1.4 million after-tax);
  • a loss from the extinguishment of debt totaling $0.9 million ($0.6 million after-tax) related to open-market repurchases;
  • other items associated with moving and outsourcing operations that netted to a credit of $0.1 million (and $0.1 million after-tax);
  • a gain related to the sale of the Miami property of $2.9 million ($1.9 million after-tax); and
  • a reversal of interest on tax items of $0.1 million ($0.1 million after-tax) and a reduction of tax expense of $0.3 million both related to a state audit settlement.

Operating cash expenses, excluding severance and other charges discussed above, declined approximately $2.7 million, or 1.1%, from the 2012 quarter. Third quarter operating cash expenses also included a $1.8 million expense increase related to the transition at one newspaper to fee-for-service circulation delivery contracts. Excluding the impact of this change in operations, operating cash expenses were down $4.5 million in the quarter, or 1.9%, from the 2012 quarter.  

Operating cash flow was $57.1 million in the third quarter of 2013, down 15.0%. (Non-GAAP measurements are discussed below.)

First Nine Months Results:

Earnings in the first nine months of 2013, excluding the net impact of certain items discussed below, were $17.3 million. Earnings in the first nine months of 2012 adjusted for similar items were $22.4 million and included a favorable tax item of $7.9 million for the release of tax reserves and related interest resulting from the expiration of statutes for certain state tax years in the second quarter of 2012. (Non-GAAP measurements are discussed below.)

On a GAAP basis, the net income in the first nine months of 2013 was $6.3 million, or 7 cents per share. Net income in the first nine months of 2012 was $29.9 million, or 35 cents per share. 

Total revenues in the first nine months of 2013 were down 3.8% to $897.5 million compared to $933.1 million in 2012. Advertising revenues in the 2013 period totaled $599.6 million, down 6.9%, and circulation revenues were $261.3 million, up 4.2%.

Results in the first nine months of 2013 included the following items:

  • a loss from the extinguishment of debt totaling $13.6 million ($8.6 million after-tax) related to the completion in early 2013 of both the refinancing of the company's 11.5% secured bonds due in 2017 and open-market repurchases;
  • severance and other charges totaling $8.9 million ($5.5 million after-tax);
  • accelerated depreciation totaling $4.1 million ($2.5 million after-tax) related to relocating Miami newspaper operations and certain other newspaper operations;
  • a net write-off of production equipment at one newspaper totaling $3.0 million ($1.9 million after-tax);
  • a gain related to the sale of the Miami property of $12.9 million ($8.2 million after-tax);
  • a reversal of interest on tax items of $0.1 million ($0.1 million after-tax) related to a state audit settlement; and
  • a net increase in tax expense totaling $0.8 million for an increase in liabilities related to tax positions taken in prior years, net of favorable state tax audit settlements.

Management's Comments:

Commenting on McClatchy's third quarter results, Pat Talamantes, McClatchy's president and CEO, said, "Our company-wide revenue performance again reflected an uneven print advertising environment. Revenue trends in the automotive and real estate classified advertising categories improved while we had larger declines in categories such as retail and national advertising compared to last quarter.

"Despite the advertising performance, our revenue diversification strategies are paying off. Growth in digital advertising, circulation and direct marketing revenues helped mitigate the overall decline in traditional newspaper advertising revenues in the 2013 third quarter.

"For the quarter, total advertising revenues were down 8.1% compared to the third quarter of 2012. This performance reflects the difficult print ad environment generally, as well as a shift in July 4th advertising into our second quarter of 2013 and slower Labor Day advertising compared to last year. Digital-only advertising revenues, however, were up 10.6% compared to the same quarter last year driven by 18.1% growth in the automotive category and 11.1% growth in the retail segment.  Total digital advertising revenues at $49.0 million represented 25.1% of McClatchy's total advertising revenues in the third quarter compared to 22.9% in the third quarter of 2012. Our digital-only revenues, inclusive of both advertising and circulation, grew 13.1% in the third quarter compared to the third quarter of 2012.

"Circulation revenues continue to grow, finishing up 6.5% for the quarter as our digital subscription package, known as the Plus Program, is again exceeding expectations. In total, the Plus Program provided more than $8 million in incremental revenues in the quarter and $22.6 million to date in 2013.  We now expect the program to generate between $27 million and $30 million in new revenues in 2013.  Our digital paid audiences grew during the quarter with new, digital-only subscriptions from the Plus Program now totaling more than 31,000. And despite the metered paywalls installed at our newspaper websites with the Plus Program launch last year, local unique visitors to our sites grew 5.4% in the third quarter compared to the third quarter of 2012.

"Direct marketing advertising revenues were up 5.3% in the third quarter. Direct marketing continues to be an important contributor to our diversification story as it accounted for 15.8% of total advertising revenues in the quarter. When combined with digital advertising, the two categories contributed nearly 41% of our advertising revenues during the quarter. 

"We are making progress with our impressLOCAL digital marketing service and early results are promising. impressLOCAL has launched in 12 of our markets, and we expect to complete the rollout to all of our markets by the end of the year. impressLOCAL provides a suite of online products designed to offer local businesses a comprehensive digital marketing solution.  Digital display revenue is also showing momentum as we expand our sales reach through our audience extension partners, including Yahoo!, Centro, simpli.fi and other ad exchanges.

"As I mentioned earlier, growth in our digital audience continues.  For the third quarter of 2013, daily average local unique visitors finished up 5.4% and our mobile daily unique visitor count was up 62.5% in the quarter compared to the third quarter of 2012. Mobile users represented 42.3% of total daily unique visitors in the quarter. 

"Cash expenses, excluding severance and certain other charges, were down 1.1% in the quarter compared to the third quarter of 2012.  We were again successful in reducing cash expenses this quarter even with a $2.6 million increase in pension expense and while still making investments in new revenue initiatives and enterprise-wide operating systems. Third quarter operating cash expenses also included $1.8 million in expenses related to the transition at one newspaper to fee-for-service circulation delivery contracts in July, which was also accompanied by higher circulation revenues and, therefore, had no impact on operating cash flow. Excluding the impact of this change in operations, operating cash expenses were down $4.5 million in the quarter, or 1.9% from the 2012 quarter.

"Income from our equity investments was $14.0 million this quarter, up 19.2% compared to the same quarter last year.  Classified Ventures and CareerBuilder in particular continue to provide impressive financial results. 

"As we look to the fourth quarter, the Christmas holiday season will be the determining factor in retail advertising performance for the quarter, and we just don't have much visibility on the holiday season yet. We expect ongoing positive momentum from the Plus Program and double-digit growth in total digital-only revenues. We're seeing some expense pressure from tough comparisons to last year's fourth quarter as well as higher costs (and offsetting increases in revenues) for the move to fee-for-service delivery contracts at certain newspapers so we expect cash expenses to be up in the low single-digit range. Cash expenses will be close to flat with prior year excluding the circulation change."

Talamantes added, "We continue our focus on high-quality journalism. In September, The Charlotte Observer and The News & Observer of Raleigh won the coveted Robert F. Kennedy Journalism Award Grand Prize for 'Prognosis: Profits,' their joint examination into the soaring profits at North Carolina's nonprofit hospitals and some of the questionable practices producing those profits. The RFK Awards, which salute outstanding reporting on human rights and social justice issues, are among the most prestigious prizes in journalism. McClatchy newsrooms have now won RFK Awards each of the last five years and seven of the last nine years.

"I'm extremely proud of our hard-working journalists throughout McClatchy who never lose sight of our core news mission and responsibility and continue to provide relevant and impactful journalism that is so important to our communities."

Regarding McClatchy's debt position, Elaine Lintecum, McClatchy's CFO, said, "Total debt at the end of the third quarter was $1.556 billion, down $10 million from the end of the second quarter of this year. Interest expense related to debt declined by $5.2 million compared to the same quarter last year, and we finished the quarter with $45.4 million in cash, compared to $21.8 million at the end of the second quarter.  Our leverage ratio at the end of the third quarter as defined in our credit agreement was 4.59 times cash flow and our interest coverage was 2.55 times. Both ratios are well within the required limits of our credit agreement."

The company's statistical report, which summarizes revenue performance for the third fiscal quarter and first nine months 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, 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 total 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 78215751) 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


Nine Months Ended












September 29,


September 23,


September 29,


September 23,



2013


2012


2013


2012

REVENUES - NET:








   Advertising

$        194,862


$        212,023


$        599,636


$        644,352

   Circulation

86,960


81,639


261,253


250,830

   Other

11,788


12,670


36,619


37,965


293,610


306,332


897,508


933,147

OPERATING EXPENSES:








   Compensation

105,239


108,421


325,972


329,156

   Newsprint, supplements and printing expense

28,908


33,058


90,462


102,365

   Depreciation and amortization

27,491


30,741


87,856


92,304

   Other operating expenses

104,401


101,633


313,588


305,933



266,039


273,853


817,878


829,758










OPERATING INCOME

27,571


32,479


79,630


103,389










NON-OPERATING (EXPENSES) INCOME:








   Interest expense

(33,531)


(39,718)


(102,920)


(112,825)

   Interest income

17


20


48


70

   Equity income in unconsolidated companies, net

13,979


11,728


35,108


27,080

   Gain (loss) on extinguishment of debt

(873)


(12)


(13,643)


6,074

   Gain on sale of Miami property

2,925


-


12,938


-

   Other - net

88


40


181


83



(17,395)


(27,942)


(68,288)


(79,518)










INCOME BEFORE INCOME TAX PROVISION 

10,176


4,537


11,342


23,871










INCOME TAX PROVISION (BENEFIT)

2,911


(556)


5,066


(6,000)










NET INCOME (LOSS)

$            7,265


$            5,093


$            6,276


$          29,871










NET INCOME (LOSS) PER COMMON SHARE:








   Basic


0.08


0.06


0.07


0.35

   Diluted


0.08


0.06


0.07


0.35










WEIGHTED AVERAGE NUMBER OF COMMON SHARES:








   Basic

86,291


85,840


86,154


85,691

   Diluted

87,230


86,369


87,035


86,417

 

 

 


The McClatchy Company

Consolidated Statistical Report

(In thousands, except for preprints)






















Quarter  3



Combined


Print Only


Digital







































Revenues - Net:

2013


2012


% Change


2013


2012


% Change


2013


2012


% Change




















Advertising 


















   Retail

$94,798


$106,444


-10.9%


$75,571


$87,397


-13.5%


$19,227


$19,047


0.9%

   National

14,569


17,255


-15.6%


9,838


12,422


-20.8%


4,731


4,833


-2.1%

   Classified Total

54,695


58,915


-7.2%


29,647


34,266


-13.5%


25,048


24,649


1.6%

      Automotive

19,346


20,420


-5.3%


7,137


9,399


-24.1%


12,209


11,021


10.8%

      Real Estate

8,661


8,752


-1.0%


5,265


5,536


-4.9%


3,396


3,216


5.6%

      Employment

10,310


11,755


-12.3%


4,569


5,353


-14.6%


5,741


6,402


-10.3%

      Other

16,378


17,988


-9.0%


12,676


13,978


-9.3%


3,702


4,010


-7.7%

   Direct Marketing

30,711


29,179


5.3%


30,711


29,179


5.3%







   Other Advertising

89


230


-61.3%


89


230


-61.3%







Total Advertising

$194,862


$212,023


-8.1%


$145,856


$163,494


-10.8%


$49,006


$48,529


1.0%




















Circulation

86,960


81,639


6.5%













Other


11,788


12,670


-7.0%













   Total Revenues

$293,610


$306,332


-4.2%
































  Memo:  Digital-only

$31,189


$27,570


13.1%
































Advertising Revenues by Market:

















   California

$33,050


$37,270


-11.3%


$25,500


$29,348


-13.1%


$7,550


$7,922


-4.7%

   Florida

27,078


29,595


-8.5%


20,856


23,715


-12.1%


6,222


5,880


5.8%

   Texas

20,799


21,970


-5.3%


15,460


16,802


-8.0%


5,339


5,168


3.3%

   Southeast

57,391


61,973


-7.4%


42,269


46,845


-9.8%


15,122


15,128


0.0%

   Midwest

34,459


37,397


-7.9%


25,679


28,845


-11.0%


8,780


8,552


2.7%

   Northwest

21,994


23,706


-7.2%


16,092


17,939


-10.3%


5,902


5,767


2.3%

   Other

91


112


-18.8%


0


0


0.0%


91


112


-18.8%

Total Advertising

$194,862


$212,023


-8.1%


$145,856


$163,494


-10.8%


$49,006


$48,529


1.0%




















Advertising Statistics for Dailies:

















   Full Run ROP Linage







3,722.0


4,141.7


-10.1%


























   Millions of Preprints Distributed






991.4


1,033.3


-4.1%













































Average Paid Circulation*:

















   Daily








1,766.5


1,871.3


-5.6%







   Sunday







2,645.1


2,617.1


1.1%


























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)






















September Year-to-Date



Combined


Print Only


Digital







































Revenues - Net:

2013


2012


% Change


2013


2012


% Change


2013


2012


% Change




















Advertising 


















   Retail

$295,974


$328,493


-9.9%


$238,663


$270,177


-11.7%


$57,311


$58,316


-1.7%

   National

46,085


47,575


-3.1%


31,902


34,502


-7.5%


14,183


13,073


8.5%

   Classified Total

166,798


179,312


-7.0%


91,957


105,566


-12.9%


74,841


73,746


1.5%

      Automotive

57,951


61,454


-5.7%


22,549


29,366


-23.2%


35,402


32,086


10.3%

      Real Estate

26,263


27,825


-5.6%


16,175


17,796


-9.1%


10,088


10,029


0.6%

      Employment

32,095


36,687


-12.5%


14,384


16,861


-14.7%


17,711


19,826


-10.7%

      Other

50,489


53,346


-5.4%


38,849


41,542


-6.5%


11,640


11,804


-1.4%

   Direct Marketing

90,408


88,421


2.2%


90,408


88,421


2.2%







   Other    Advertising

371


551


-32.7%


371


551


-32.7%







Total Advertising

$599,636


$644,352


-6.9%


$453,301


$499,217


-9.2%


$146,335


$145,135


0.8%




















Circulation

261,253


250,830


4.2%













Other

36,619


37,965


-3.5%













   Total Revenues

$897,508


$933,147


-3.8%
































  Memo:  Digital-only

$90,035


$80,635


11.7%
































Advertising Revenues by Market:















   California

$101,833


$110,803


-8.1%


$79,009


$87,747


-10.0%


$22,824


$23,056


-1.0%

   Florida

87,381


93,650


-6.7%


68,214


75,295


-9.4%


19,167


18,355


4.4%

   Texas

64,064


68,728


-6.8%


48,216


52,753


-8.6%


15,848


15,975


-0.8%

   Southeast

175,102


187,091


-6.4%


129,563


142,433


-9.0%


45,539


44,658


2.0%

   Midwest

104,621


112,713


-7.2%


78,900


86,874


-9.2%


25,721


25,839


-0.5%

   Northwest

66,342


70,944


-6.5%


49,399


54,115


-8.7%


16,943


16,829


0.7%

   Other

293


423


-30.7%


0


0


0.0%


293


423


-30.7%

Total Advertising

$599,636


$644,352


-6.9%


$453,301


$499,217


-9.2%


$146,335


$145,135


0.8%




















Advertising Statistics for Dailies:
















   Full Run ROP Linage







11,549.8


12,913.8


-10.6%


























   Millions of Preprints Distributed






3,050.8


3,134.5


-2.7%













































Average Paid Circulation:*

















   Daily








1,879.3


1,985.4


-5.3%







   Sunday







2,713.8


2,718.1


-0.2%


























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 


 Nine Months Ended 



Sept 29, 


Sept 23, 


Sept 29, 


Sept 23, 



2013


2012


2013


2012

REVENUES - NET:









   Advertising


$ 194,862


$ 212,023


$ 599,636


$ 644,352

   Circulation


86,960


81,639


261,253


250,830

   Other


11,788


12,670


36,619


37,965



293,610


306,332


897,508


933,147

OPERATING EXPENSES:









   Compensation excluding severance charges


104,758


106,171


324,405


325,459

   Newsprint, supplements and printing expense


28,908


33,058


90,462


102,365

   Other cash operating expenses


102,874


100,001


303,294


302,392

   Cash operating expenses excluding









     severance and other charges


236,540


239,230


718,161


730,216

   Severance charges


481


2,250


1,567


3,696

   Other charges


1,527


1,632


10,294


3,542

   Depreciation and amortization


27,491


30,741


87,856


92,304

   Total operating expenses


266,039


273,853


817,878


829,758










OPERATING INCOME 


27,571


32,479


79,630


103,389

Add back:









   Depreciation and amortization


27,491


30,741


87,856


92,304

   Severance charges


481


2,250


1,567


3,696

   Other charges


1,527


1,632


10,294


3,542

OPERATING CASH FLOW


$   57,070


$   67,102


$ 179,347


$ 202,931










OPERATING CASH FLOW MARGIN


19.4%


21.9%


20.0%


21.7%



















Reconciliation of Net Income to Adjusted Net Income










Net Income:


$      7,265


$      5,093


$      6,276


$   29,871










Add back certain items, net of tax:









   Loss (gain) on extinguishment of debt


554


8


8,656


(3,839)

   Severance charges


285


1,283


925


2,111

   Accelerated depreciation on equipment


94


1,398


2,477


3,936

   Other charges


969


1,031


6,531


2,238

   Gain on sale of Miami property


(1,855)




(8,208)


-

   Reversal of interest on tax items


(57)




(96)


(4,848)

   Certain discrete tax items


(337)




753


(7,046)

Adjusted net income


$      6,918


$      8,813


$   17,314


$   22,423

 

 

 

SOURCE The McClatchy Company



RELATED LINKS
http://www.mcclatchy.com

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