McClatchy’s Gary Pruitt To Shareholders: “Glory, Glory Hallelujah”

Philip M. Stone May 21, 2009

There were more McClatchy executives than there were shareholders at the annual meeting Wednesday which is a pity because it was a lost opportunity to literally sing the praises of the company whose shares have sunk to 63 cents each by joining in for a rousing rendition of “Glory, Glory Hallelujah” as slides of the 30 McClatchy newspapers passed on a screen.

And choirmaster Pruitt’s final comments – “McClatchy is going to make it. We are going to navigate through. Glory, glory hallelujah”. It was that kind of meeting.

Well, when you have to explain to the shareholders that in Q1 alone this year print ad revenue dropped $117 million from the year before – that’s a 30% drop – and ad revenue for all of 2008 fell by 18%, and that the company had to renegotiate its loans at higher interest so it wouldn’t fall into violation with some of their terms, and so and so on; well you just have to do something to get some spirit back  and there’s nothing like Glory Glory Hallelujah to get some pride back into the sails.

Of course, just playing patriotic music wasn’t going to fix things so Pruitt had to pull a few things out of his hat and that he did. Perhaps the most interesting was to borrow a leaf from TV’s book and he announced McClatchy will start paying sales commissions to ad agencies. 

One reason newspapers used to have 20 – 30% margins is because they didn’t pay ad agency sales commissions -- why pay when for the most part you’re the only daily print game in town -- but with McClatchy’s profit margin now around 11% -- still sounds good in this day and age but not good enough when trying to pay off some $2 billion in debt – then if it takes a bit of money to earn a lot of money then why not?

It’s another example of newspapers changing business models, doing things they haven’t done before in order to survive in an economic climate that has many publishers shell-shocked.

And in a strategy that Pruitt called “a break with tradition” he said McClatchy’s help-wanted sales campaigns will now emphasize the Web with print becoming complementary to the Career Builder web site that McClatchy has a part interest in.

The truth is that things have gotten kind of serious at McClatchy. The share price gives as good an indication as any that Wall Street believes the company’s will finally fall from the weight of the debt load -- although Pruitt insists that won’t happen – but it seems no matter what the company does the downturn just overpowers everything – the company lost $37.5 million in Q1 on a  25.1% drop in revenue.

What must be truly frustrating is that McClatchy newspapers make money. Not as much money as they once used to but they still are neat little businesses. The problem, of course, is the $2 billion in debt undertaken mostly for the Knight Ridder deal and having to deal with those payments is now strangling the company.

To see what is really going on let’s take a look at its News & Observer in Raleigh, North Carolina that McClatchy bought in 1995 for $374 million.  Publisher Orage Quarles III says the not only is the newspaper still making a profit – he won’t say exactly how much but the feeling is it is around McClatchy’s average of about 11% which is down from 18% the year before – but also the newspaper has more readers than ever before if you combine print and Web readership.

For the reasons we all know and don’t need repeating the newspaper has made painful cuts – its current newsroom headcount of 132 is down about half from four years ago. And he admits that this year is not going according to plan. “January revenues dropped more than we budgeted for; so did February. So we had to respond to that,” he told his own newspaper in an interview. On top of that there is increased bad debt and the closing of major national retailers.

Back to Pruitt and his explanation for all that he is putting the company through. He told shareholders, “I like to think of the McClatchy of the future as an athlete – fit and trim, yet muscular where we need to be.” That really translates into a company that in just the past year has shed more than 4,000 jobs – about one-third of the work force.

Strangely there were no shareholder challenges, not even inquiring when Pruitt believes dividends will again be paid (perhaps in itself a clue that shareholders are shell shocked and don’t see any quick fixes on the horizon).  

With the confidence that Pruitt exudes you can’t help but think that maybe he can pull it off. If he does then at next year’s annual meeting he can close with a slide show of himself and senior McClatchy executives to the music of Tina Turner singing “Simply The Best”.

But we leave the final words to a Sacramento Bee reader commenting on Pruitt’s new Web ad strategy. “Good thinking, now hopefully you will stop utilizing kids to come to my door while I am relaxing attempting to guilt me into buying a subscription so they can go on some ridiculous trip that you guys promised them.”

Nothing like your own readers to bring you back down to earth.