Financial maneuvers bring McClatchy share price back up
Typically, having a stock trading at $1.26 a share is not cause for celebration. But when McClatchy stock closed at that level today, it represented a gain of 23.5 percent in the last three trading days.
McClatchy was threatened two weeks ago with delisting on the New York Stock Exchange. The company responded with two moves that appear to have boosted investor confidence:
- It authorized a repurchase of up to $15 million of its regularly traded shares (there is a second class of stock controlled by family members that is not affected.)
- It paid down debt by $22.9 million, further chipping away at the large interest expense that has dragged down earnings for years.
Buying back shares is a slightly arcane practice, essentially a bet by the company that its stock is undervalued. The repurchase creates a stronger market for those inclined to sell. And once shares have been drawn in, future earnings per remaining shares increase in value. The proposed $15 million compares against about $110 million in total market capitalization.
The stock rally is significant, but there is no guarantee it will be sustained in coming weeks or months. Also McClatchy still trades for a little more than a third what it did at the start of the year.
But the rally does address the immediate issue raised by the stock exchange, which put the company on notice that its share price had averaged under $1 for a period of 30 days. After such a notice, a company must respond within 10 days with a plan for remediating the problem, though it has six months to carry out a fix.
Company spokesman Ryan Kimball declined comment on the recent action and the move in share price.
Also the improvement does not especially ease the pressure for cost controls for the remainder of 2015, which could include more newsroom buyouts or layoffs.
Asked about how those would play out during the company's most recent earnings conference call with with analysts in mid-July, CEO Pat Talamantes replied:
It's us doing what we usually do which is responding to the revenue environment with additional expense reduction. This is typically happening newspaper-by-newspaper as they are dealing with challenges in their own markets. So that’s what you are seeing -- if you are sensing more momentum it's coming from additional actions that individual markets are taking. Some additional things that we’re doing, but largely things that are happening at the local level.
Politico reported last week that McClatchy is also considering shuttering some or all of its five remaining foreign bureaus.