When revenue is still seriously down, but profits are up, is that good news? The U.S newspaper companies that have reported fourth quarter 2009 results so far would have you believe it is. But based on their reports, it’s clear the industry as a whole is still in deep trouble, with no strong indication that better days are ahead.

Five of the ten publicly-owned U.S. newspaper companies have reported their fourth-quarter 2009 results; five more to go. (Those reporting so far are Gannett, New York Times Co., Media General, Lee Enterprises and McClatchy. We also have results from News Corp., but News publishes newspapers on four continents, and much of its revenue comes from films, television, cable, and book publishing. Its U.S. newspapers represent perhaps 10 percent of News Corp.’s total revenue and are not broken out for comparison.)

Based on these reports (representing about 42 percent of U.S. daily newspaper circulation), it’s clear that the industry in Q4 2009 saw its 14th consecutive advertising revenue decline; the last nine of those quarters were double-digit declines. And Q1 2010, the one we’re in, won’t be a winner: on the conference calls, nobody reported positive trends for January; a typical positive spin statement was that “we’re seeing a modest improvement in the declines” (Janet Robinson of the New York Times Co.)

Extrapolating from the reported numbers, I’m projecting that the NAA will report (sometime in March) a Q4 2009 ad revenue loss for the industry of about 16 percent (versus 28.3, 29.0 and 27.9 percent declines in the first three quarters), bringing total revenue for 2009 to about $28.4 billion, versus $49.4 billion in the boom year of 2005 — a cumulative decline of 43 percent.  The biggest impact continues to be in classified revenue, which will end 2008 at least 66 percent below its peak in 2000.

Based on the releases and statements on earnings calls with analysts, here are the details so far.

• Newspaper advertising revenue was still down across the board — 17.9 percent at Gannett’s publishing division, 20.5 percent at McClatchy, 16.4 percent at Lee, and 14.7 percent at New York Times Company. MediaGeneral doesn’t break out advertising revenue but reported publishing revenue as down 13.8 percent.  News Corporation reported 10.0 percent growth in newspaper revenue, including what it said was a 5 percent ad revenue gain at The Wall Street Journal’s print edition. (News said its Australian papers lost 5 percent in revenue.)
• Online revenue (usually reported as a component of publishing or advertising revenue), was a mixed bag: McClatchy, which has generally done well relative to the others in this area, reported 14.9 percent growth in online revenue. Lee’s online revenue dropped 8.4 percent; Media General’s rose 10.6 percent. Gannett doesn’t break out online revenue in its publishing division. News Corp mentioned 17 percent ad growth in its WSJ Digital Network. New York Times said its Internet revenues, including About.com and its newspaper sites, grew 10.3 percent and represented 15 percent of total revenue in Q4 2009, versus 12 percent in Q4 2008.
• Total revenue at all of the U.S. groups was still down double digits: Gannett 14.4 percent, McClatchy 16.5 percent, Lee 13.8 percent, Media General 14.1 percent, New York Times 11.5 percent. It will be interesting to see whether the forthcoming reports from other companies also fall into this cluster of losses in the low to mid teens. In any event, clearly the industry as a whole continues to decline precipitously even as GDP has grown for the second quarter in a row. Total revenue at News Corp., which encompasses films (Avatar among them), television, cable and book publishing, was up 10 percent.
• Quarterly profits were generally up, bolstered by the cumulative effect of multiple rounds of cost-cutting during 2009, as well as by low newsprint prices. Lee swung from a loss of $34.3 million in Q4 2008 to a gain of $67.7 million in Q4 2009; Media General improved from a loss of $85.5 million to a gain of $27.4 million; McClatchy sank slightly, from a profit of $27.0 million to $25.8 million; Gannett, which took a huge goodwill writeoff in 2008, zoomed from a loss of $5.2 billion to a gain of $259 million; at New York Times Co., profits rose from $27.6 million to $90.9 million. And News Corp., also weighed down by special charges in 2008, soared from a loss of $6.4 billion to a gain of $254 million.
• For their performance during 2009 as a whole, investors have rewarded the publishers with some bounce in their stock valuations, but that’s not saying much. While the stocks show impressive 52 week gains (McClatchy 689%, Lee 1,242%, Gannett 204%, Media General 315%, New York Times 151% as of Wednesday), all five are far down from where they were five years ago (McClatchy -92%, Lee -90%, Gannett -86%, Media General -81%, New York Times -73%).  Even News Corp., on a five-year basis, is down 16%, though it rose 111% in the last 52 weeks. And in most cases, these earnings announcement have been read as disappointments and greeted with selloffs by the market.

So much for across-the-board comparisons.  The earnings reports and calls provide further nuggets of intelligence about the companies individually:

McClatchy:

• CEO Gary Pruitt said in McClatchy’s earnings press release, “We’re seeing some evidence of a recovery in classified advertising.” But he added that in the first few weeks of January, “ad revenues are down in the low- to mid-teens percentage range and that is consistent with where we expect to see ad revenues in the first quarter of 2010.  In other words, McClatchy expects the Q4 decline of 20.5 percent to be followed in Q1 2010 by a decline of somewhat less than 15 percent, and considers that to be an “improving advertising trend.”
• Inevitably, the continuing revenue shortfall will lead to still more expense cuts. “With revenues down, expenses will also have to be down,” Pruitt said.
• Besides nearly $2 billion in long term debt, McClatchy also disclosed that at year-end, its pension plans were underfunded by $494 million in the “qualified” plan (their standard defined benefit plan, which is frozen), and another $100 million in the non-qualified supplemental executive-level plan. This accumulation of future obligations makes McClatchy one of the most-leveraged publishers out there. On Feb. 4, the company successfully brought to market $875 million in bonds designed to push the maturity date of a chunk of its debt out to 2017, but it will pay pay a hefty 11.5 percent interest on that debt.
• A bright spot at McClatchy is the growth of its online traffic (up 18.6 percent in 2009), and the fact that it leads the industry in the percentage of revenue derived from its web sites — online revenue is 16.2 percent of total newspaper advertising revenue. Asked about the possibility of charging for content, Pruitt said the company is “not ideological about this” and plans some experiments, but he added, “We tend to believe that the overwhelming majority model on the Internet will be a free, ad-supported model and in fact that has proven to be very profitable to us, so we feel that the model isn’t broken…We’ll learn from everyone; we wish them all luck.  If somebody cracks the code, we’ll copy them.”

Gannett:

• Gannett’s aggressive and almost continual cost-cutting during the year paid off with a leap in profitability, and perhaps most importantly, a major reduction in debt — $250 million in Q4, and $755 million for the year as a whole. Moreover, the rise in the stock market during 2009 means that Gannett won’t have to make any contributions in 2010 to its underfunded pension plans. As a result, Gannett’s balance sheet looks better, and its debt leverage ratio has dropped to 2.6 times, giving it some breathing room under its bond covenants of 3.5 times.
• Gannett cautioned, however, that not all of its cost reductions are permanent — some relate directly to the revenue declines and would come back if revenue trends turned upward; newsprint pricing remains low but is expected to rise midyear; and employee furloughs are not permanent.
• Some individual revenue categories remain seriously worse than the company’s overall 17.9 percent slippage in Q4, particularly classified.  In its U.S. papers including USA Today, classified as a whole was off 21.8 percent in Q4; within that category, employment was down 38.3 percent and real estate was down 28.4 percent.  The only classified category showing growth was legal advertising, up 14.5 percent — a result of foreclosure advertising, most likely.

Lee Enterprises:

• Lee was also in the “revenue is declining less rapidly” camp, reporting a drop of 13.8 percent for the quarter (it’s Q1 in Lee’s fiscal year), versus average drops of 20 percent in the prior three quarters.
• Lee continues to report positive results in its online enterprises, with unique visitor growth of 14.3 percent at its web sites.
• Lee’s classified ads also continue to be hammered, with employment revenue down 44.9 percent, automotive off 25.9 percent, and real estate off 21.6 percent. (“All other classified” was up 11.3 percent — there’s that foreclosure advertising benefit again.)

Media General:

• Media General touted a “sequential improvement” in the form of total revenue loss of 14 percent, compared with 18 percent in the previous quarter. In one of the brighter spots among the publishers, Media General said that “in the month of December, total revenues were essentially even with December 2008.” (We’ll take “essentially even” to mean that they were down in the low single digits; the slightest gain would have been headlined as such.)
• Media General’s newsprint consumption was down 57 percent for the quarter, but as with the other publishers, this is the kind of cost that will bounce right back up if business improves, creating a higher cost margin for regained revenue.

New York Times Co.:

• Times has been more careful about pruning expenses at the expense of strategic capabilities than most of the other companies; still, it was able to achieve cost reductions of 15.5 percent in Q4 2009 vs Q4 2008, and propel itself to a profit boost from $63 million to $136 million, quarter-over-quarter.
• Times also paid attention to its balance sheet, reducing debt from $1.1 billion at the end of 2008 to $769 million.
• But, Times execs were as cautious as their industry brethren about forecasting blue skies ahead. New York Times president and general manager Scott Heekin-Canedy said in the conference call (italics added) that “The general sense from our advertisers is certainly much more positive then a year ago this time. We have said in our statement that the visibility is still very limited, but we do know of advertiser intentions to improve their spending this year considerably, but they are very guarded in the way that they talk about it and trends that we saw last year of last minute commitments or last minute pullbacks still seem to be operative this year.”
• Asked variously about how things are going in the current quarter, the execs were circumspect, referring to “sequential improvements” in trends, and “stabilizing” revenue in some categories, rather than reporting any actual growth.
• As it is across the board in the industry, the classified picture at Times is dismal, with Q4 real estate revenue down 36.5 percent, employment down 35.3 percent, automotive down 21.1 percent, and “other” down 8.5 percent (no help from legal advertising here). For the year, the company’s total classified revenue was off 40.2 percent.

Photo by Amelia E used under a Creative Commons license.