In Their Own Words – Revenues Still Awful But The Cost Cutting Has Finally Hit Home

Philip M. Stone July 28 2009 Follow on Twitter

There’s a definite trend in public newspaper company Q2 results -- revenue is still awful but the worst may be over, and the cost cutting has finally taken hold with a vengeance so, “Somewhat Happy Days Are Here Again.”

It seems the same on both sides of the Atlantic. Revenue is still terrible but June was the best month so far this year with July looking about the same as June. But earnings are up because cost cutting is finally showing results, plus the transformation of companies from purely print newspapers to print newspapers- online-handheld companies.

So here in their own words is how industry leaders are explaining what’s going on with perhaps the most succinct description coming fromthe UK’s Peter Williams, Daily Mail and General Trust (DMGT) chief financial officer: “It's not pleasant, it's still tough, but we don't come into work every morning wondering what's going to happen today quite so much as we did a few months ago.”

Martin Morgan, DMGT chief executive: “The decisive action taken to defend profitability earlier in the year, along with the continued management of our cost base, is helping to offset the impact of these conditions. The revenue and cost initiatives targeted to improve profitability this year by £150 million have been delivered. Our strategy of creating a diversified international portfolio of market-leading businesses in both business and consumer markets is proving to be effective in the current environment and leaves us well positioned to deliver long-term growth.” The stock market wasn’t too impressed, however, and from the close the day before its quarterly announcement and Monday’s close the shares have moved down by 3.31%.

Across the Atlantic the short sellers of newspaper shares finally got their comeuppance. As company after company announced far better Q2 earnings from their cost cutting and diversification than anyone expected, the “shorts” had to buy at any price to cover their positions and they were greeted in many cases with one day share price jumps of more than 40%.

Gary Pruitt, McClatchy CEO: "There has been a steady drumbeat in recent media and analyst reports about the prospects of McClatchy violating bank covenants this year. We think it is important to note that even if our advertising performance does not improve from its current run rate for the rest of the year, we would not breach our bank covenants. In the meantime, we will continue to reduce debt.” From the closing price the day before the Q2 earnings were announced to Monday’s close the shares are up 157% to $1.39.

And that resolved a big New York Stock Exchange problem for McClatchy’s shares listing since the company had been in violation of the $1 rule – its shares were less than a dollar, they’ve been around 50 cents for most of the year -- and the exchange gave McClatchy until December to figure out how to get the share price up or get de-listed. The solution, obviously, was better results.

Gracia Martore, acting Gannett CEO: “One of our priorities has been to assess our operations thoroughly and drive efficiencies through the use of technology and other innovation. For example, we’ve consolidated or in some cases outsourced the printing of a number of our newspapers and the drop in operating expenses reflects the impact of those kinds of efforts. Furloughs and lower newsprint expense also contributed to the decline. A newsprint consumption decline of about 32% partially offset an increase in usage prices and resulted in a 27% drop in newsprint expense.”

Robert J. Dickey,President of Gannett’s U.S. Community Publishing: “At this point in time, through the first couple of weeks of July, we are encouraged that across all of our segments, they are responding very similar to our June and second quarter performance. We take that as an encouraging note, since we, as reported earlier, had our strongest month of the year in June.” From the close the day before the Q2 earnings were announced until Monday’s close the shares have moved up 87%. 

Marshall N. Morton, Media General president and chief executive officer: “Media General has implemented many difficult but necessary expense reductions that strengthen our ability to weather the deep recession and recognize the reduced revenue streams available in our business. Also, “While we are still dealing with the recession, we are optimistic about our long-term prospects,” On an analyst’s conference call he added, “I was pleased to hear (in Tampa, Florida, -- its biggest market) from a prominent owner of many auto dealerships that sales are improving, and a major banker believes that a floor may have been found in the housing market." On the day its better-than-expected results were announced the shares shot up 84% -- the “shorts” were really in trouble -- and the shares have improved overall since the day before the announcement to Monday’s close by 94%.

Janet L. Robinson, New York Times Company CEO and President: “With our many initiatives to operate more efficiently and effectively across the company, we are on course to achieve approximately $450 million in savings this year, which amounts to 16 percent of our 2008 cost base. As we continue our transition from a company focused primarily on print to one that is increasingly digital in focus and multi-platform in delivery, online advertising revenues are a more important part of our mix. They made up 21 percent of our ad revenues in the quarter, up from 18 percent in the same period a year ago.” While its Q2 results were better than forecast – again based on cost cutting – the NYT’s shares got no bounce last week, but Monday they rose nearly 16%.

Burl Osborne, Interim CEO Freedom Communications in announcing a 5% across the board pay cut effective in paychecks issued July 30, showing that cost cutting exercises continue: “There is no best way (to cut costs). This, I believe, is the least worst way. No one is enjoying this."

But perhaps the insightful quotes come from John Rogers, CEO at Ariel Investments, the largest shareholder in Gannett and someone who has had varying degrees of success investing in the newspaper business. "These companies all went out and made big acquisitions, took on debt and didn't plan for a recession," Rogers told Dow Jones.  "They made a mistake, the banks that financed it made a mistake - we all made a mistake. We should have stress-tested for a more difficult economy, but we will learn from that mistake."

And what does recovery mean? “Maybe it won't come back to the way it was four or five years ago, and maybe it won't be even be close to that, but when consumers start buying cars again and auto dealers start advertising, some of that revenue will find its way back to Gannett," Rogers said.

So, what does it all mean? “Less Worse” seems to describe current market conditions, but without a sizeable return of advertising to newspapers the far thinner print product we now receive is going to remain the norm.