Like Gannett Co. last week, The McClatchy Co. beat the expectations of a skeptical Wall Street by reporting second-quarter earnings that more than doubled earnings from the first quarter of this year.
Net income from continuing operations in the second quarter totaled $42.0 million, or 50 cents per share. Excluding unusual items in the quarter, earnings from continuing operation were $25.2 million, or 30 cents a share, up 42.9 percent from the year-ago period.
Analysts surveyed by Thomson Reuters had expected McClatchy to report a loss of $6.45 per share.
The McClatchy second-quarter report had plenty of bad news. Total revenue fell 25.4 percent to $365.3 million, slightly below analysts’ expectations of $369 million.
And advertising revenue slid 30.2 percent compared to a year ago to $283.7 million.
McClatchy’s classified results were as grim as anyone in the industry. Total classified plunged 40.7 percent on weakness in all categories. Automotive was down 34.4 percent, real estate 45.7 percent—and help-wanted 62.5 percent.
Retail ad revenue dropped 23.9 percent from the year-ago quarter, while national was down 34.2 percent.
But Chairman and CEO Gary Pruitt portrayed it as a successful quarter, especially considering the continuing deep recession. In a statement, he said the parent of The Miami Herald and 29 other dailies sees advertising trending up.
“While our advertising revenues in the second quarter of 2009 were down in the same range as the first quarter, we saw an improving trend within the quarter,” he said. “Advertising revenues were down 31.1 percent in April, 30.7 percent in May and 28.3 percent in June. So far, July’s performance is similar to June’s.”
Pruitt also dismissed the idea that McClatchy is on the verge of violating the financial requirements of its loan agreements, an event that could trigger bankruptcy.
“There has been a steady drumbeat in recent media and analyst reports about the prospects of McClatchy violating bank covenants this year,” he said. “We think it is important to note that even if our advertising performance does not improve from its current run rate for the rest of the year, we would not breach our bank covenants. In the meantime, we will continue to reduce debt.”
CFO Pat Talamantes added that McClatchy had paid down more than $100 million in debt principal since the end of 2008, and improved its so-called leverage ratio—roughly, the amount of debt compared to annual earnings before interest, taxes, depreciation and amortization (EBITDA)—to 5.8 times from 5.9 times, which he said was within the bank covenants.
“Our company remains profitable and each of our newspapers is contributing positive cash flow,” Pruitt declared.
Among other encouraging signs in the second-quarter report was an improvement in cash flow margins to 25.3 percent from 21.2 percent in the year-ago quarter.
Digital advertising revenue fell in the quarter, though not as badly as the few newspaper companies who have already reported Q2 results. Digital ad revenue was down 2.9 percent, mostly on declining employment advertising, McClatchy said. Excluding employment, it added, online advertising revenue grew 24.7 percent in the quarter.
McClatchy also continued to grow online advertising as a percentage of total ad revenue. In the second quarter, digital accounted for 16.5 percent of total advertising, up from 11.8 percent in the year-ago period.
In June, digital advertising represented 17.3 percent of total advertising, McClatchy said.