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March 2, 2010, 10 a.m.

Earnings season, Part 2: Intel from the quarterly filings of Scripps, Belo, WaPo, and Journal Communications

As a followup to my report on fourth-quarter 2009 earnings reports from most of the major public newspaper firms, we now have earnings releases from E. W. Scripps, A. H. Belo, the Washington Post Co. and Journal Communications (leaving only Gatehouse Media without a report).

The releases from this group followed the script set by the earlier reports: Newspaper ad revenue and total revenue were down (as noted, for the 14th quarter in a row), online revenue was a mixed bag, and quarterly profits were up due to repeated rounds of aggressive cost-cutting during the year.

Here are the particulars by company:

E. W. Scripps (which gets about 57 percent of its revenue from newspapers, 32 percent from television, and the rest from its United Media division, for which Scripps is “exploring strategic options” that could include a sale):

  • Like most of the other companies, Scripps managed to present a negative as a positive in reporting an 18 percent revenue drop in Q4 2009 versus Q4 2008: “Compared with the third quarter, the year-over-year rate of revenue decline…improved for both the television and newspaper divisions.” CFO Tim Stautberg, on the conference call with analysts, even called that revenue result “upbeat,” mentioning that without the impact of political advertising (heavy in 2008, light in 2009), the Q4 drop would have been only about 10 percent.
  • Still, for the quarter the details in the newspaper division were far from pretty: ad revenue was down 20 percent (an “improvement” from a 27 percent drop in Q3); with local revenue down 24 percent, classified down 26 percent, national down 26 percent, preprints down 14 percent, and online down 5 percent.
  • With regard to online, in a telltale comment in its release, Scripps said: “The decline in online revenue…is attributable to the weakness in print classified advertising, to which roughly half the online advertising is tied. Revenue from online-only ad sales rose 21 percent.” The rise in online-only is positive, but it’s worth pondering whether the “roughly half” that’s “tied” to print ads should actually be considered online revenue at all. Essentially, it’s revenue from “upselling” or “value added” programs for print advertisers; it disappears when the print ad disappears; and those print ads could probably be sold for the same price without the incentive of the online upsell. In other words, half of the company’s online revenue results from journal entries that move print revenue to the online column, not actual selling of online inventory as such. This is not unique to Scripps, and is worth looking at more closely across the industry.
  • On the call, executives said that revenue has been improving sequentially during October, November and December, but confirmed that January still tracked at 10 to 15 percent below prior year, which indicates that a negative Q1 2010 is likely.
  • In its report of operations by business segment, Scripps showed its newspapers were major contributors to the bottom line, bringing in $49.2 million of the company’s total 2009 cash flow of $53.1 million.
  • Scripps conserved cash and paid down debt during the year, ending with a strong balance sheet: it has only $35.9 million in long term debt, down from $61.2 million a year earlier, against total assets of $786.3 million ($1,089.0 at the end of 2008).

Journal Communications (which consists of the Milwaukee Journal Sentinel, a group of community weeklies and shoppers, and a 12-state radio and TV broadcasting group):

  • Like the rest of the publishers, Journal called Q4 “our strongest quarter” in 2009, based on a revenue decline of 16.4 percent, and said that it was experiencing “sequential improvements in revenue comparisons throughout the quarter.” (In other words, the year-over-year losses are getting progressively better each month, but they’re still losses.)
  • The company posted a Q4 profit of $7.2 million (against a $223 million loss in Q4 2008 brought about by accounting charges)
  • Cash flow (EBITDA) from operations was $23.8 million in Q4 versus $18.8 million a year earlier; for the full year, cash flow was $57.2 million versus $81.8 million. In other words, the fourth quarter provided the company with better cash flow than it had seen for the first nine months; still, these results show a tight cash situation. The company spent only $8.6 million on capital expenses during the year, compared with $22.2 million during 2008; it paid only $1.5 million in dividends compared to $18.5 million in 2008. It reduced long-term debt from $215.1 million to $151.4 million, but debt continues to be at a relatively high 2.65 times cash flow

The Washington Post Company (which includes an education division, newspapers, magazines and television holdings, with newspapers contributing about 15 percent of total revenue):

  • Overall, Post’s revenue was up 6.4 percent in Q4, and 2.4 percent for the year, thanks largely to gains at the company’s Kaplan’s Score and Test Preparation division, which delivers about 58 percent of its revenue and, for practical purposes, all of its cash flow.
  • The newspaper division (with the flagship Washington Post along with the Washington Post News Service, the Everett, Wash. Daily Herald, and various community and niche publications) saw a Q4 revenue slide of just 4.1 percent, compared with a 15.2 percent drop for the year — one of the best publishing revenue performances among the public firms. (Those figures got a 1.9 percent boost from having 53 weeks in the 2009 reporting period compared to 52 weeks in 2008.)
  • But Post has not cut its newspaper expenses as aggressively as others, so its newspaper division operating income shows plenty of red ink. It eked out operating cash flow of $3.2 million for the Q4 (against a loss of $14.4 million in Q4 2008), but for the year, newspaper cash flow was a negative $163.5 million, versus a negative $192.7 million in 2008). While other firms reported newsprint costs down as much as 50 percent during Q4, Post said its newsprint expense was down only 22 percent in the quarter and 19 percent for the year.
  • At the Washington Post itself, print advertising was down 9 percent for the quarter and 23 percent for the year. The company reported that online revenue in its newspaper division was up 1 percent in Q4, with online display up 13 percent (offset by a 17 percent drop in online classified at washingtonpost.com).

A. H. Belo (which is the purest “newspaper plays” in the group — it publishes four daily newspapers with associated web sites and commercial printing activities, and that’s it):

  • CEO Robert Decherd, like his counterparts, stressed fact that the fourth quarter saw the “lowest year-to-year declines in advertising revenue for the year” at the company’s newspapers (the Dallas Morning News, the Providence Journal, the Press-Enterprise and the Denton Record-Chronicle). Still, that meant an advertising drop of no less than 23.5 percent, and a total revenue decline of 15.3 percent.
  • Executives cautioned that they believed ad spending will remain conservative, and that while 770 (out of more than 3,000) jobs had been cut out of operations, they were prepared to undertake further “expense actions” if necessary. In explaining both the ad declines and the ongoing uncertainty, Decherd said that “longstanding patterns of [advertising] seasonality have been disrupted” and that it might take some time to discern the new patterns.
  • Belo is very positive about the Yahoo! Newspaper Consortium and believes that Yahoo!’s sale of HotJobs to Monster.com could turn out to be a “net plus” for newspapers. Answering a question about prospects for paid content, Decherd said the company is “thinking seriously about a pilot project in Providence,” but that in general, the company will be a follower rather than a leader, preferring to wait for others to “set the tone and create the structure” for paid content.
  • Belo ends the year with a strong cash position and minimal long term debt.

Photo by Ling Li Yeoh used under a Creative Commons license.

POSTED     March 2, 2010, 10 a.m.
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