McClatchy increases digital subscribers, reports third quarter loss, explores pension relief
McClatchy on Wednesday reported a net third-quarter loss of $304.7 million amid continued growth in digital subscriptions. It also reported that its request for a three-year waiver that would have lowered its 2020 pension obligations was declined by the Internal Revenue Service, leaving the company to seek other sources of relief.
A non-cash charge of $295.3 million for impairment to goodwill and masthead intangible assets made up most of the nearly $305 million loss, compared with a $7 million gain over the same period a year ago. McClatchy had reported a net loss of $17.5 million in the second quarter of 2019.
Earnings before interest, taxes and other accounting factors – known as EBITDA – was $19.9 million in the third quarter of 2019, up 4.6 percent from the third quarter of 2018. It was the first positive growth in the adjusted metric in eight years, company leaders said.
The McClatchy Co., which publishes The Sacramento Bee and 29 other daily newspapers, including the Miami Herald, The Charlotte Observer, The Kansas City Star and the Fort Worth Star-Telegram, said digital-only subscriptions grew 45.4 percent from the third quarter of 2018.
Audience revenue accounted for 46.8 percent of McClatchy’s total revenues, and digital audience revenues have increased 13.4 percent from the third quarter of 2018. For the first time in the company’s 162-year history, audience revenue exceeded advertising revenue.
Net advertising revenue for the quarter was $76.8 million, down 19.3 percent from the third quarter a year ago.
The company has converted 12 of its publications to digital-only editions for Saturday, and Craig Forman, McClatchy’s president and chief executive, says the Sacramento, California-based company expects to expand digital Saturdays to all of its markets during the course of 2020.
McClatchy last month launched Mahoning Matters, a digital-only newsroom in Youngstown, Ohio, as part of its Compass Experiment. The Compass Experiment is a local news laboratory founded by McClatchy and funded by Google News Initiative’s Local Experiments Project.
McClatchy will launch two additional digital-only news outlets in “localities with 60,000 to 300,000 residents and limited sources of local news” as part of the Compass Experiment, Forman said in prepared remarks.
For the first nine months of 2019, McClatchy reported $247 million in advertising revenue, $242 million in audience revenue and $37 million in other sources for a total revenue of $526 million. Those figures were each lower than the same period in 2018 — by 11.4 percent, 18.1 percent and 14.7 percent, respectively.
Net losses for the first nine months of the year were $364.2 million, primarily based on the third-quarter writedowns, which was significantly more than losses in the same period a year ago of $52.3 million.
The IRS’ rejection of McClatchy’s plan to put off its pension payments for three years, including a 2020 minimum obligation of $124 million, presents significant pressure to the company’s liquidity position, company leaders said.
McClatchy management is working with members of Congress in search of a legislative solution to its liquidity challenge, with about $124 million in pension contributions due over the course of 2020. As of this March, the pension plan held $1.32 billion in assets but was underfunded by approximately $535 million.
Because legislative relief is not guaranteed, the company has also begun discussions with the federal Pension Benefit Guaranty Corp., seeking alternative solutions to its pension obligations and capital structure that are more permanent.
“We are working hard to find solutions for the company and its more than 24,000 pensioners,” Forman said in prepared remarks.
Forman added that about one in 10 of the company’s current workforce are participants in the plan, which was frozen in 2009.
“We’re early in our negotiations and cannot provide any more information than is in our public disclosures,” Elaine Lintecum, McClatchy chief financial officer, said during a Wednesday conference call with investors.
Forman said during the conference call that the non-cash impairment charges “relate to an acquisition made in another newspaper era.”
“Those sunk costs needed to be removed from the books, resulting in a non-cash charge of approximately $295 million in the third quarter,” he said.
At the end of the quarter, McClatchy says it is carrying $708.5 million in debt and has $11.4 million in cash on hand.
McClatchy stock opened Wednesday at $2.61 a share. A year ago, the stock was $7.44 a share.
This story was originally published November 13, 2019 at 6:51 AM.
