McClatchy profit slumps on slow ad sales

Advertising revenue at The McClatchy Co. dropped 9.8 percent in the second quarter of 2007 compared to the previous year, led by a 19 percent decline in real estate advertising.

But net income for the quarter came in higher than projected and the stock rose in slightly above average trading Thursday. Investors appeared unmoved by projections that advertising would remain soft through the remainder of 2007.

The company also said it would pay down debt by as much as $700 million over the next 18 months through cash flow and sale of assets. McClatchy's stock has been pounded by investors, caught between an industry-wide revenue slump and a high debt load from last year's acquisition of Knight-Ridder Inc.

McClatchy chairman and chief executive officer Gary Pruitt said he expects advertising declines to continue.

"We expect no substantial improvement in advertising trends before the fourth quarter of 2007 and expect that revenues will likely still be negative in that quarter," Pruitt said. "Nearly three-quarters of our advertising declines are coming from California and Florida, two regions that benefited strongly from the real estate boom, ad likewise are being hurt in the subsequent real estate slowdown."

Ad revenue dropped 15 percent in California and 21 percent in Florida.

Total revenue for McClatchy declined 8.3 percent to $580 million in the second quarter of 2007 from $632 million in the previous years' quarter. Net income for the Sacramento newspaper giant was $39.9 million, or 49 cents per share, a 9.5 percent decline compared to $44.1 million, or 94 cents per share in the second quarter of 2006.

McClatchy (NYSE: MNI) said cost reduction efforts had trimmed cash expenses 12.2 percent in the quarter ended June 30.

The company has been paying down its debt since its $6 billion 2006 acquisition of Knight-Ridder, which was the second-largest newspaper chain in the country at the time. In March, McClatchy completed the sale of the Star Tribune of Minneapolis for $530 million plus $160 million in tax advantages.

At the end of the second quarter, McClatchy had $2.68 billion in debt after paying down about $79 million during the quarter, said Pat Talamantes, the company's chief financial officer, in a news release. Talamantes said the company is looking to sell real estate assets and use cash flow generated by operations to reduce the debt by another $600 million to $700 million in the next year and a half.

Shares of The McClatchy Co. dropped to $26.00 in Thursday morning trading, but climbed back to $26.41 in trading Thursday.

[Source: Sacramento Business Journal]