Publisher in crisis - First-quarter profit falls sharply for Knight Ridder



Knight Ridder reported disappointing first-quarter earnings Monday as pessimism over the San Jose company's acquisition by McClatchy and the newspaper industry's future drove McClatchy's stock to a new yearly low.
Shares in McClatchy sank to $44.10 Monday before closing at $44.40. That lowers the value of the Sacramento company's $4.5 billion acquisition of Knight Ridder -- which McClatchy is paying for in part with its own stock -- to $4.2 billion.
McClatchy shares have dropped 16.6 percent since the sale was announced March 13. The stock last traded below $45 a share in November 2001. Knight Ridder shares closed at $61.12 on Monday, down 1.2 percent.
Knight Ridder, which owns the Mercury News, reported first-quarter earnings of $28.4 million or 42 cents a share, down from $60.5 million or 79 cents a share for the first quarter of last year. Operating revenue of $739.9 million was up $28.1 million, a 3.9 percent increase over 2005.
Total advertising revenue was up 1 percent, circulation revenue down 1.2 percent and operating profit down 20.4 percent.
Excluding costs of the sale and expensing stock options, operating profit was down 10.5 percent.
Weak ad revenue in Akron, Ohio, and Philadelphia accounted more than a third of the drop in profit, Knight Ridder said. In Akron, ad revenue was down 10.9 percent, and in Philadelphia, where Knight Ridder publishes the Inquirer and Daily News, revenue was down 5.5 percent.
McClatchy plans to sell the Akron and Philadelphia papers along with nine others, including the Mercury News. The company is keeping 20 Knight Ridder papers that fit its goal of owning newspapers in high growth areas.
While ad revenue for the 12 papers to be sold was down 0.4 percent, there were positive results at several of the papers McClatchy is selling. Overall ad revenue was up 8.6 percent at the Contra Costa Times, 6.1 percent at the Mercury News and 4.6 percent at the St. Paul Pioneer Press. Ad revenue increased 2.3 percent at the 20 papers McClatchy is retaining.
Increased newsprint costs cut into profit, as did a new requirement for expensing stock options and costs associated with selling the company. Interest rate expense was $31.2 million, up from $17.2 million from last year.
``The quarter was challenging,'' said Knight Ridder Chairman and Chief Executive Tony Ridder in a statement. ``With total ad revenue up only 1 percent and with the persistence of the soft revenue patterns across the industry for many months now -- employment and real estate excepted -- we continue to look to the second half for improvement.''
Ridder said ``two bright spots'' were Knight Ridder Digital's performance, where online revenue was $51.1 million, up 36.5 percent, and targeted publication revenue was $50.1 million, up 23.9 percent.
Knight Ridder joins other newspaper companies reporting poor first quarter profits, noted Chuck Richards, vice president and lead analyst of Outsell, which tracks the media business.
The New York Times' profit declined 20 percent, excluding a one-time gain of $68 million last year on the sale of its headquarters; the Tribune Co.'s was down 28 percent; Gannett's down 11.5 percent; McClatchy's profit down 14 percent; and Media General down 6.1 percent. Online revenue, while growing rapidly, is still small and not nearly enough to counter declines in the print side of the business, Richards said. ``We can look for additional consolidation and reshuffling.''

Posted: Tue - April 18, 2006 at 07:01 AM           |

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