July 27, 2018

Unsurprisingly, McClatchy added a new chapter to the hard-luck story of the company and the legacy newspaper industry with its second quarter financial results, announced Friday.

Management reported progress on remaking the company — with 30 newspapers and their websites — into a much smaller, digitally oriented enterprise. But while that transition is in progress, weak financial results continue.

The company recorded a loss of $20.4 million on revenues of $204 million.  That is according to the accounting rules that apply to public companies. On a cash-operating basis, the company made money.

However, revenue losses were daunting. The results included:

  • A total revenue loss of 9.2 percent compared to the same quarter in 2017.
  • Total advertising revenue loss of 14.4 percent year-to-year. Print advertising losses, not specified in the report, were even greater.
  • Audience revenues were down 5.7 percent. That is because print subscriptions and the revenue they bring in now are starting to fall, too. Gains in digital-only subs, now totaling 122,400 for the chain, do not make up the difference.

The company reduced expenses by about 5 percent. It posted $5 million in severance and restructuring costs.

McClatchy is the first of the publicly traded newspaper companies to release its results for the quarter that ended June 30. Others, including Gannett, Tronc and New Media Investment Group, will follow in coming weeks. Revenue losses will vary but McClatchy should be a bellwether of the trend.

As will hardly be news to newsrooms, the revenue declines — and similar losses forecast for the rest of the year — typically are prompting tight expense controls including news staff reductions. The draconian cuts at Tronc's New York Daily News this week and at Digital First's Denver Post earlier in the quarter are extreme examples.

The report made no mention of tariffs on Canadian newsprint, which add to printing expense and which industry lobbyists are trying to get reversed. In fact, newsprint expense was down year-to-year for McClatchy, reflecting smaller papers with fewer distributed.

Some expenses like investment in technology and retraining sales staff are going up.

This marks 18 months for a new management team headed by president and CEO Craig Forman. His strategy of accelerating digital transition on both the news and business sides has been consistent since Day One. But Forman has also consistently acknowledged that a payoff is some time off.

He told analysts that the company continues to make progress paying down debt and refinancing credit agreements as they come due. Nonetheless, interest expense, a drag on on the company's finances for a decade, totaled roughly $18 million for the quarter. 

In a press release, Forman summarized the results and outlook for the remainder of the year:

"As we look to the rest of 2018 we are encouraged to see our investments in our digital transformation beginning to pay off … We continue to see growth in digital-only subscriptions and more of our bundled print/digital subscribers are adding our digital products to their daily routine. Finally, with the refinancing of our debt, we now have a longer runway to complete this transition to a digital-centric media company."

McClatchy stock was up slightly in noon trading, It has been a little over $10 a share in recent months.  That's off more than 98 percent from its peak in the mid 2000s.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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