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McClatchy Reports Third Quarter 2012 Earnings

Released 10/25/2012

- 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

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