McClatchy Surprises Wall Street With Stellar Second Quarter

McClatchy, once much admired but lately the poster child for excessive debt, delivered some bracingly positive news in its second quarter earnings report released Tuesday. It earned a 25 percent profit on a cash flow basis, which works out to an 11.5 percent operating profit including depreciation and amortization.
 
In a conference call, analysts and investors fell all over themselves congratulating CEO Gary Pruitt on what looks like the start of a modest turnaround.
 
Though overall revenues were down about 25 percent compared to the same period a year ago, print advertising losses were even worse. But McClatchy partly made up for that with a 5 percent increase in circulation revenues (thanks to price increases) and a 50 percent jump in digital retail advertising so far in 2009 (thanks to participation in the Yahoo advertising partnership).
 
Also encouraging: Performance improved in the latter part of the quarter, and so far, the pace is continuing in July.

Digital advertising comprised 16.5 percent of total advertising in the quarter, compared to 11.8 percent in the period a year ago.

 
And the company reduced expenses by 29 percent year-to-year. Pruitt said that was achieved by trimming head count by 30 percent (some of which involved outsourcing) and cutting pay by anywhere from 3 to 6 percent.
 
McClatchy continues to carry roughly $2 billion of debt but paid off more than $100 million during the quarter. Pruitt boasted that the interest rate on the remaining debt is a modest 5.4 percent.
 
It wasn’t just the analysts who liked what they heard. McClatchy stock closed Tuesday at $0.74, up from its $0.54 close on Monday.

For now, with the stock still trading below a dollar and the company so strapped that it has suspended its dividend payments, it’s no time for a conga line at McClatchy headquarters.

But Pruitt can justly celebrate progress toward a hybrid/print model and a company small enough to stay profitable during the worst of the recession. Especially encouraging were the results from the Yahoo partnership, which is adding new customers, increasing volume (selling on Yahoo’s news platform as well as those of the participating papers) and boosting rates with better “behavioral targeting” of reader interests.

Gannett also reported better-than-expected results last week. It’s not clear whether there’s an upward trend in the industry, but as shares of other publicly traded newspaper companies also rose Tuesday, the market seems to believe so.

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