McClatchy opened the 3rd quarter earnings season for newspaper companies today reporting weak financial results typical of the industry so far this year.
The company recorded a loss of $1.1 million on revenues of $251.2 million. Advertising revenues were off 10.2 percent compared to the same quarter in 2014.
Print revenues fell more than that — though the company no longer breaks them out separately. (Independent forecaster Kantar Media has reported print revenues at local papers like McClatchy’s down 14.9 percent year-to-year in the first half).
Digital ad revenues were up modestly for the quarter as was national advertising. But the company achieved its roughly break-even result mainly through aggressive cost reductions with operating expenses 7.2 percent less than in the third quarter a year ago.
Though the company has had newsroom cuts, most of those savings came in production and distribution, particularly as it uses less newsprint for smaller papers sent to a smaller circulation base.
“Sometime in the future,” CEO Pat Talamantes told analysts in a conference call, digital growth will offset the print losses, but his implication was that turnaround will not be coming soon.
Talamantes said that the biggest print advertising category — retail — has also been the weakest — down 14.7 percent. Retail chains “are going through their own version of digital transformation these days and we are seeing pricing pressure.” There is no dispute that pre-printed inserts work to bring customers into stores, he added, but those advertisers are negotiating hard for reduced rates.
Print circulation is also slumping with Sunday volume down 8 percent and total audience revenues down 2.2 percent. McClatchy now has 77,600 digital-only paid subscribers, up 16.4 percent from the third quarter of last year.
Analysts asked some sweeping questions including whether McClatchy could become a part of this year’s boomlet in mergers and acquisitions.
Talamantes said he could not discuss specific transactions even if there were any in the works. But, he said, “philosophically we’ve been talking about how the industry sets up for M & A,” especially regional combinations like Tribune’s acquisition of the Union Tribune of San Diego or Gannett’s recent deal for Journal Communications, adding to its footprint in Wisconsin, Florida and Tennessee.
“We see prices firming up and even an increase in values,” he continued, “We will take a look at everything. We wouldn’t rule anything in or out.”
Another analyst wanted to know whether the company would start new digital-only reports or contemplate shutting down print operations at a local property that became unprofitable (none are, Talamantes said).
Talamantes mentioned Charlotte Five, a social media site launched last November and targeting millennials, as an example of an experiment with digital publishing.
As for potentially discontinuing print in some markets, he said, “Your premise is a little too binary. There will be lots of opportunities to adjust the print product….We will probably take it step-by-step, but we are a long way from” shutting down print entirely.
Looking ahead, the company said that it expects modest improvement in the fourth quarter, led by stronger gains in digital advertising. McClatchy also is gearing up to sell more real estate assets in its 28 markets.
McClatchy shares, which had rallied in recent weeks, were down 6.2 percent for the day.
Gannett, New York Times Co and New Media Investment Group will all report results Thursday and Tribune Publishing next week.
