In the midst of the secular and cyclical slowdown in print advertising, The McClatchy Company (MNI) is focusing on building its Internet operations, paring its operating cost structure and reducing its heavy debt-load. If successful, the company will emerge from the recession a leaner, more efficient and nimble hybrid print-online news provider with a portfolio of market-leading newspapers and websites.
However, circulation revenue keeps falling (-2.5% in 2005, -4% in 2006, and -4.9% in 2007), while ad revenue sinks disproportionately as one-third of MNI's revenues are in the hard-hit California and Florida markets. Moreover, we think economic headwinds will prevent the overall advertising market from improving until at least early 2009.
On April 23, 2008 McClatchy reported 1Q08 financial results. EPS from continuing operations was $0.01 in 1Q08, compared with $0.18 in 1Q07. Excluding a $0.02 charge related to an amendment of the company's bank credit agreement and a $0.01 charge for tax expense related to changes in prior-period estimates, EPS was$0.02. The weakening economy exacerbated the effects of the ongoing secular decline.
Revenue for 1Q08 fell 13.8% year-over-year to $488.3 million. Circulation revenue declined 5.6% to $67.9 million. Advertising revenue fell 15.3% year-over-year to $404 million. Online advertising grew 10.6% and now represent 11.3% of total ad revenue, up from 8.6% for all of 2007. Excluding employment advertising, which declined both in print and online, MNI's online advertising revenue surged 52.1% in 1Q08. Unique visitors to the company's websites grew 41.4% year-over-year in 1Q08. In our opinion, investors should Hold the shares of MNI with a six-month target price of $9.50.
Read the full analyst report on MNI.
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