McClatchy's Huge Losses Partly Offset by Online Growth

(MoneyWatch)  Even as it endures the humiliation of having been warned by the New York Stock Exchange that it is in danger of having its stock delisted, the McClatchy Company (MNI) reported huge losses based on steep advertising revenue declines in Q-1 today.

The big newspaper chain said that it took a net loss of $37.7 million from continuing operations in Q-1, compared to just under $1 million in the same quarter a year earlier. I won't bore you with all of the gory details, which you can read for yourself, if interested, but a careful examination of the company's cost reductions, cash reserves, and debt structure leads me to conclude that MNI management is doing a good job handling extremely adverse circumstances in what is clearly a dying industry -- the daily newspaper business.

But, if its industry is dying, why does this matter? After all, we wouldn't say "the pilot did a very good job as he guided the plane downward until it crashed and burned."

The reason McClatchy may pull out of its nosedive eventually is that it appears to have the resources to survive a transition to digital media, at least for now, and its online ad revenue performance is one relatively bright spot in an otherwise gloomy business environment.

According to CEO Gary Pruitt, "...all categories of digital advertising are outperforming print advertising... Excluding employment advertising(*), digital advertising revenues grew 28.7 percent in the first quarter of 2009. Also, digital advertising represented 15.3 percent of total advertising revenues, up from 11.6 percent of total advertising for all of 2008, and average monthly unique visitors to our websites grew 26.7 percent in the first quarter of 2009."
MNI appears intent on attempting to reinvent itself as an Internet-based news company. Because it holds properties in so many diverse media markets across the country, it should be able to leverage its needed technology investments across those markets. If I were an executive there, I'd be pushing for optimizing not only its websites but its ability to play over mobile devices -- fast.

With $2 billion in cash reserves on hand, no debt due until 2011, and with both its dividends and pension contributions suspended, MNI has most definitely battened down its hatches. It doled out $19 million in severance payments during the quarter, but now its projected costs look to be in line with its projected revenues as soon as this summer.

Still, for MNI as for all major newspaper publishers, this could prove to be but the proverbial eye in the gathering storm if they don't invest in non-paper, tech-based product development immediately.

(*) It is worth noting that job advertising has tanked because nobody is hiring any more.