McClatchy Co.'s second-quarter earnings fell 32 percent as its newspapers lost more advertising and circulation in a downward spiral that has forced the publisher to lay off workers and cut other costs.
The results released Thursday served as a reminder of the troubles facing the owner of The Sacramento Bee, The Miami Herald and 28 other daily newspapers. In its latest quarter ending in late June, McClatchy earned $4.9 million, or 6 cents per share. That was down from net income of $7.3 million, or 9 cents per share, at the same time last year.
Like its industry peers, McClatchy has been hard hit during the past five years as the advertising that provides newspapers' biggest source of income shifts from print to Internet alternatives that charge advertisers less, or in some cases, nothing.
McClatchy and other publishers have been making strides on the Internet, but digital advertising hasn't come close to making up for what's been lost on the print side. Since 2005, the annual ad revenue among U.S. newspapers has fallen by about $25 billion while digital advertising has increased by about $1 billion.
Those headaches have been compounded by a drop in newspaper sales. At the same time, more people found it cheaper and more convenient to get information on computers and mobile devices connected to the Internet. Publishers have also reduced their delivery areas and alienated some readers with higher prices.
All of those trends hurt McClatchy again in the second quarter. The company's total ad revenue fell 9 percent from last year while average daily circulation at its newspapers dipped 3 percent. About the only solace provided in those numbers is that the erosion wasn't quite as severe as during the first three months of the year, when McClatchy's ad revenue fell 11 percent from the previous year and average circulation slipped 4 percent.
McClatchy CEO Gary Pruitt also was encouraged by an increase of less than 1 percent in Sunday circulation, an uptick he traced to the tough economic times. Readers are looking to save money by getting the coupons stuffed in the Sunday newspapers, Pruitt told analysts in a Thursday conference call.
But the feeble economy is doing McClatchy more harm than good. The company had been seeing signs that the ad slump was easing late last year, but "2011 was a real blow as trends reversed themselves," Pruitt said.
McClatchy's ad revenue in July so far has been falling at about the same rate as it did in the previous three months, signaling that the current quarter could be another rough one.
Pruitt vowed to keep cutting costs to help offset the revenue falloff. He didn't say whether the austerity campaign would include another round of layoffs. At the end of the first quarter, McClatchy had 7,240 full-time positions, about half as many as three years ago.
As it is, Pruitt said "it feels like the 19th inning" of the cost cutting. "I'm hopeful that we are much closer to the end than the beginning," he said.
This year's results were affected by an assortment of charges to cover employee severance and markdowns on property sold in California and Texas. Some of those charges were offset by one-time gains.
McClatchy's total revenue in the period fell 8 percent from last year to $314 million.
The biggest blow came in print advertising, which plunged 12 percent from last year. McClatchy's digital-only advertising increased 9 percent.
McClatchy also has been saddled with a big debt since 2006, when it bought newspaper publisher, Knight Ridder. The company ended the quarter with nearly $1.7 billion in debt and $59 million in cash. To avoid a financial crunch, McClatchy has refinanced much of its debt to give it more time to repay its lenders. The company faces about $70 million in interest payments in the third quarter, an obligation that will limit its ability to reduce its debt further during the remainder of the summer.
McClatchy's shares dipped 4 cents to $2.28 in morning trading. The stock was trading around $40 when the Knight Ridder deal closed five years ago.