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Aug. 3, 2016, 8:12 p.m.
Business Models

Newsonomics: Tronc M, Tronc X, or just Tronc — it’s still in an uncertain position

For all his talk of media reinvention, CEO Michael Ferro’s company is in the same position as lots of newspaper publishers: cutting costs to deal with accelerating print decline.

Anyone looking for drama in today’s Tronc second-quarter financials was disappointed. No dramatic announcements, internally or externally — and not a peep out of Gannett of its intentions to mount a new battle to buy the company. After a half-year of unusual newspaperland drama, today’s report just sets up the potential drama of the fall: Will Gannett restart its engines in pursuing Tronc, after America’s largest newspaper company found itself nonplussed by Tronc chairman Michael Ferro’s energetic defense of his company?

Today’s report — fairly ho-hum and all too consistent with the familiar downward trends of print — might give Gannett more pause. Its CEO Bob Dickey had said he would look again at a Tronc acquisition bid after seeing the company’s numbers today. He’s already taking into account an investor chill that has seen Gannett’s share price drop 16 percent since its its own Q2 financial report on July 27.

Do Gannett’s leaders and investors really see sufficient scale to justify doubling down on a financially failing industry? That’s just one of the questions it faces as it reassesses the artificial intelligence-driven Tronc that Ferro is trying to build.

Today’s Tronc report and call with financial analysts produced yawns. Usually on such media company calls, CEOs and CFOs get a half-dozen or so questions. CEO Justin Dearborn and CFO Terry Jimenez got only one, from a clearly skeptical analyst who wanted detail on the company’s earnings and earnings guidance.

Tronc did manage to offer two new words to its lexicon. The company now accounts for its legacy businesses (now labeled “Tronc M,” for media) separately from its digital revenue (still driven largely by the newspapers) and several ancillary enterprises. The latter now go by…Tronc X. Given that both expenses and revenues are interwoven between print and digital these days — and subject to all manner of highly subjective “allocations” — those two divisions mean less than the whole company numbers.

For those, Tronc could trumpet in its report headline: tronc, Inc. Raises Full Year Revenue and Adjusted EBITDA Guidance — Company Raised 2016 Revenue Guidance to $1.610-$1.630 billion — and 2016 Adjusted EBITDA Guidance to $170-$175 million.

Overall, then, Tronc announced a bit more profit, largely off reducing headcount. It reported similar ad woes as its peers. In other words, despite its tronckadelic claims to be reinventing the press future, this report mainly emphasizes cost control.

It’s the top-line numbers that pose the problem for Michael Ferro as he remounts his campaign to keep Tronc an independent company, away from the clutches of pursuers.

Tronc’s new management team has promised growth. It’s the key plank of Tronc chairman Michael Ferro’s strategy, and his intention to build a “billion-dollar company.”

For the second quarter, though, overall ad revenues were down 9.2 percent, apples to apples (with Tronc/Tribune Publishing’s spring 2015 acquisition of the San Diego Union-Tribune not completely cycled for a full year). One interesting comparative: Gannett was down about the same amount, 10 percent, in its most recent report. (With The New York Times down an astounding 14 percent in print advertising and 7 percent in digital for the same quarter, and with McClatchy reporting a 16.6 percent print ad drop, the accelerating decline of the print business in 2016 is clear.)

How much of Tronc’s 9 percent drop in ad revenues is print and how much digital? We don’t know, because the company doesn’t report that breakdown.

Circulation revenues helped offset that 9 percent ad drop, but not by lot. Overall, Tronc found itself 6 percent down in total revenue.

But Tronc still saw a $1 million drop in what now classifies as digital circulation revenue. Even though it could point to a 15 percent quarter-over-quarter increase in digital subscriptions (to 116,000 in total), it lost revenues in digital content syndication. Consequently, even with good digital subscription growth — up an impressive 46,000 (66 percent) in a year’s time — the company finds itself challenged to further offset lost ad income.

Finally, there’s Tronc’s cash position. Finishing last year with about $100 million in cash — considered by financial observers to be a thin cushion — the company said today it has $170 million in hand. That math seems fairly straightforward, given investor Patrick Soon-Shiong’s $70.5 million May investment in the new Tronc. Absent a Gannett takeover, how will Ferro and CEO Dearborn use their cash? As I’ve reported, an acquisition of a high-volume, low-cost content-producing company could be in the cards.

With all these numbers now in, all newspaper companies plan warily for 2017 and pray for the best third and fourth quarters they can achieve. For Michael Ferro and Bob Dickey, though, this new set of data is just prologue. Will they fuel the next mano a mano confrontation between the two execs? Or will we just hear a quiet nevermind as Gannett finds business as usual just too daunting?

Photo of Tronc CEO Michael Ferro by Christopher Michel used under a Creative Commons license.

POSTED     Aug. 3, 2016, 8:12 p.m.
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