McClatchy Beats on Cost Cutting

Amid the secular and cyclical slowdown in print advertising, McClatchy Company (MNI - Snapshot Report), the third largest newspaper company in the U.S. and the publisher of 30 daily newspapers including the Miami Herald and Sacramento Bee, reported third-quarter 2009 results.

McClatchy is facing the same dramatic decline in advertising revenue, as the rest of the newspaper industry. Total advertising revenue fell 28.1% year-on-year to $266.1 million. However, circulation revenue stabilized, up 6.7% to $69 million due to increase in circulation prices. As a result, total revenue slipped 23.1% to $347.4 million.

To combat the downturn, management undertook cost-cutting initiatives, focused on building Internet operations and reduced debt load. McClatchy had lowered its headcounts, and cut executive pay. The company was able to lower its cash expenses by 29.4% and total operating expenses by 30.2%.

McClatchy’s quarterly earnings remained flat at 13 cents a share compared to the prior-year quarter, but surpassed the Zacks Consensus Estimate of 2 cents. On a reported basis, including one-time items earnings increased to 28 cents from 5 cents reported in the year-ago quarter.


Like McClatchy, other newspaper companies like Washington Post Company (WPO - Analyst Report), Journal Communications (JRN - Snapshot Report), Gannett Co. (GCI - Snapshot Report) and The New York Times Company (NYT - Snapshot Report) have long been grappling with the slump in print advertising demand amid the global meltdown, as advertisers are migrating to the Internet driven by increasing online readership and lower ad prices than print. Print advertising revenue tumbled 32.4% during the quarter.

McClatchy is transiting to a hybrid print and online model. Management has acknowledged that McClatchy’s ultimate business model will be nearly half Internet-based.

To recapture readers who have migrated to the Internet, the company is investing in its online operations. The company has ownership stakes in CareerBuilder (14.4%), Classified Ventures (25.6%) that provides classified advertising websites such as cars.com and apartments.com, and HomeFinder (33.3%).

The company’s online advertising revenue rose 3.1%, after falling 2.9% in the second-quarter 2009. Employment advertising, which has been hardest hit by the downturn, negatively affected the online advertising revenue – sans employment advertising, online advertising revenue soared 28.4%.

Print employment advertising revenue fell 67.3%, whereas online employment advertising dipped 49.4%.

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