McClatchy profits fall in second quarter

The McClatchy Co.'s latest earnings show the companhy is still feeling the impact of a one-two punch: the newspaper industry's overall advertising slump and a housing market downturn that's slammed two of McClatchy's biggest markets.

Chairman and Chief Executive Gary Pruitt said Thursday that second-quarter profits fell to $40 million, or 49 cents a share, from $44.1 million, or 94 cents a share. The per-share decline is so steep because McClatchy has 35 million more shares outstanding than a year ago, reflecting the purchase of Knight Ridder Inc.

The downturn mainly reflected a significant drop in ad sales, especially at McClatchy's California and Florida papers. Nearly three-quarters of the drop in ad revenue came from those two states, which are suffering from real estate woes. Real estate advertising was down 32 percent in California and Florida, causing a spillover effect that depressed other ad categories.

"California and Florida are certainly taking a toll," Pruitt said in a conference call with investment analysts. He said he's confident the two states, which were bright spots not too long ago, will rebound. California and Florida -- led by McClatchy's two largest papers, The Bee and the Miami Herald -- generate one-third of the company's ad revenue.

On the plus side, the nation's third-largest newspaper chain squeezed out substantial cost savings and improved its operating cash flow by 4.4 percent. Cash flow is a measure of profit that leaves out certain expenses, including the hefty interest payments McClatchy is making because of last summer's takeover of Knight Ridder Inc.

In addition, the 49 cents per-share profit beat Wall Street analysts' consensus estimate of 42 cents a share, according to Thomson Financial. Investors responded by driving up McClatchy stock 13 cents to $26.41 on the New York Stock Exchange.

Click on the headline to read the full story by the Sacramento Bee staff writer Dale Kasler