Weak ads weigh on newspaper publishers

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- Newspaper publishers continued to struggle with a weak business climate in the third quarter, as McClatchy Co. and Scripps Co. reported lower advertising results. Scripps, however, got another boost from its thriving cable networks.

McClatchy, reporting its first full quarter since its acquisition of Knight Ridder Inc., posted higher third quarter profits Tuesday as it added 20 Knight Ridder newspapers, although the figures also reflected costs from carrying the 12 other newspapers it later sold.

McClatchy said it would spend all its available cash and also draw down on its credit facility in December in order to pay an income tax bill related to the Knight Ridder transactions and other factors including a land sale.

McClatchy, which is based in Sacramento, Calif., earned $51.8 million in the third quarter, up from $38.6 million a year ago. Per-share earnings declined to 64 cents from 82 cents a year ago as the company issued new shares to help pay for the Knight Ridder deal.

Excluding discontinued operations from the sold newspapers and a one-time gain from a land sale, income from continuing operations was $55.2 million or 68 cents per share.

Revenues for the combined company more than doubled to $680.9 million from $292.6, but assuming that McClatchy owned the same newspapers in both periods, revenues would have slipped 1.4 percent, with advertising revenues down 0.8 percent and circulation revenues down 4.2 percent.

Speaking on a conference call with analysts, McClatchy's CEO Gary Pruitt said the integration of the 20 Knight Ridder newspapers with the 12 that McClatchy already owned was going better than expected, despite a "lousy operating environment."

" 'Welcome to McClatchy and cut your budget' is not a great integration strategy, but we don't have a choice," Pruitt said.

Pruitt said the company was focused on trimming its debt load, which will rise from $2.5 billion at the end of the third quarter to $3.3 billion by the end of the year as it pays the tax bill.

Pruitt said McClatchy wouldn't be considering any other major acquisitions for now, even though Tribune Co. is considering options for restructuring. He also said there were no immediate plans to take the company private, though he said the company would consider that option "as the years unfold."

Scripps, meanwhile, continued to see strong performance at its cable networks outweigh softness at its newspapers.

The Cincinnati-based company earned $73.1 million, or 44 cents a share, compared with $82.2 million, or 50 cents a share, a year ago when the company received a $40.8 million payment for terminating a newspaper joint operating agreement in Birmingham, Ala.

Profits from continuing operations were $78.4 million, or 48 cents per share, well ahead of the 40 cents per share that analysts polled by Thomson Financial had been expecting. Scripps's shares reached a new 52-week high of $51.09 before closing at $48.55, down 56 cents, Tuesday on the New York Stock Exchange.

Revenue from cable networks, which include HGTV and Food Network, rose 19 percent, while profits rose 32 percent. Revenues from newspapers managed solely by Scripps rose 1 percent to $168 million, while newspaper profits fell to $39.7 million from $41.6 million, which the company attributed to soft advertising sales, more investments in online projects and in new products for its Florida markets.

"Our newspapers fell slightly short of top-line growth expectations, but all things considered, are really holding their own in a very challenging industry environment," Kenneth Lowe, Scripps's CEO, told analysts on a conference call.

Another newspaper publisher, Milwaukee-based Journal Communications Inc., reported a 4 percent decline in profits to $13.5 million or 19 cents per share on a price adjustment related to the sale of discontinued operations. Revenues rose 4 percent to $194.3 million as a 44 percent gain in broadcasting revenues overcame a 5 percent decline in publishing revenue.