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Newspaper publisher McClatchy Co. rode a wave of traumatic cost cutting and a one-time tax adjustment to a higher third-quarter profit, overcoming yet another jarring decline in revenue.
The owner of The Miami Herald and 29 other dailies is the first major newspaper company to detail its earnings for the summer period. Thursdays report showed that McClatchys main source of revenue advertising sales is still unraveling at an alarming rate, even as the annual comparisons are getting easier.
Whats more, the company said the dismal trends are continuing so far this month, and it projected another substantial drop in the current quarter.
McClatchy shares fell 52 cents, or 13 percent, to close at $3.50. The shares had surged in the summer on hopes that the worst of the recession is over for the newspaper industry.
Investors are more concerned with McClatchys steadily shrinking revenue than they are impressed with the publishers ability to remain profitable by shedding expenses.
The company said it earned $23.6 million, or 28 cents per share. That compares with $4.2 million, or 5 cents a share, a year ago.
An $11.2 million adjustment for tax miscalculations made earlier in the year accounted for a big chunk of the improvement.
Excluding one-time gains, McClatchy said it would have earned $11 million, or 13 cents per share. On a comparable basis, the company earned $10.4 million, also 13 cents per share, in the same period last year.
McClatchy probably wouldnt be making money if it hadnt been dumping payroll and other costs more quickly than its revenue eroded.
Revenue for the three months ending Sept. 27 totaled $347 million, a drop of more than $104 million, or 23 percent, from the same time last year.
Meanwhile, McClatchys operating expenses decreased by $124 million, or 30 percent. Most of the savings have flowed from eliminating more than 5,000 jobs or about one-third of the companys staff since the end of 2007.
The company hasnt ruled out laying off even more employees. We will have to see how revenues move forward in 2010, Gary Pruitt, McClatchys chief executive, told analysts in a Thursday conference call. As it is, McClatchy has cut so much this year that its expenses will still decline next year, Pruitt said.
In a troubling sign for newspapers, McClatchys advertising declines didnt slow that much during the quarter.
McClatchys ad sales plunged 28 percent in the most recent period after falling by about 30 percent during each of the first two quarters of the year similar to what other publishers reported.
The advertising declines weve experienced show some signs of slowing, but the ad environment remains weak overall, Pruitt said. He added that this months numbers show advertising revenue trends similar to the third quarter.
The slightly lower decrease in the third quarter isnt that encouraging because the year-over-year comparisons are getting easier. A year ago, McClatchys third-quarter ad revenue had already dropped 19 percent from 2007 levels.
On the positive side, online advertising reversed its decline, climbing 3 percent from a year ago. But advertising in the biggest part of McClatchys business its print editions plummeted 32 percent.