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Original Source: FD (FAIR DISCLOSURE) WIRE
. Elaine Lintecum, The McClatchy Company, Treasurer . Gary Pruitt, The McClatchy Company, Chairman, CEO . John Janedis, Banc of America, Analyst . Frank Whittaker, The McClatchy Company, VP, Operations
. Debra Schwartz, Credit Suisse, Analyst . Lisa Monaco, Morgan Stanley, Analyst . Craig Huber, Lehman Brothers, Analyst . Pat Talamantes, The McClatchy Company, CFO, VP-Fin. . Paul Ginocchio, Deutsche Bank, Analyst . Robert Shipman, Credit Suisse, Analyst . Thomas Russo, Gardner, Russo, Analyst . Chris Hendricks, The McClatchy Company, VP, Interactive Media . Karl Choi, Merrill Lynch, Analyst
. Peter Appert, Goldman Sachs, Analyst . Christa Quarles, Thomas Weisel Partners, Analyst . Nicole Black, Wachovia Market, Analyst
. Stevem Barlow, Prudential Equity Group, Analyst . Joe Vobro, Sutton Brook, Analyst
MNI reported 4Q06 revenues from continuing operations of $673.6m. On a 13-week basis, 4Q06 total revenues were $630.7m. 4Q06 income from continuing operations was $75.5m or $0.92 per share.
A. Key Data From Call 1. 4Q06 revenues from continuing operations = $673.6m. 2. 4Q06 total revenues (on a 13-week basis) = $630.7m.
3. 4Q06 income from continuing operations = $75.5m. 4. 4Q06 EPS from continuing operations = $0.92. 5. Net debt balance at 2006-end = $3.3b.
S1. 4Q06 Performance Review (G.P.) 1. 4Q06 Highlights: 1. Now that Co. has completed acquisition of Knight Ridder and sold or agreed to sell a total of 13 newspapers, it is ending 2006 and embarking on 2007 with a realigned portfolio of newspapers.
2. Believes new MNI now includes assets that will best allow
building a multi-platform 24/7 media enterprise that's responsive to all of audiences and advertisers, resulting in a
news co. that will perform well for communities and shareholders.
3. Reported 4Q06 income from continuing operations of $75.5m or
$0.92 per share. 4. Is facing a very tough advertising environment for newspapers. 5. Continues to work hard and creatively at meeting advertisers' needs and focusing on topline. 6. Also focused strongly on cost controls and obtaining synergies. 1. 4Q06 total cash OpEx was down 5.8% on a pro forma basis and down 6.2%, excluding stock-related compensation. 2. Items Affecting 4Q06 & Full-year Results: 1. Co. is reporting on a 53-week annual basis and a 14-week qtr. in 2006 vs. 52 weeks and 13 weeks, respectively in 2005. 1. Impact to earnings is about $5.3m with this extra week. 2. It also affects comparisons of 4Q revenues. 3. Focuses on revenue comparisons of estimated 13-week amounts vs. similar pro forma amounts in 2005. 2. In Dec. 2006, Co. entered into a definitive agreement to sell Minneapolis Star Tribune newspaper for $530m in proceeds and expects to receive an additional approx. $160m in cash tax benefits related to the sale in 2008.
1. These after-tax proceeds represent a multiple of cash flows greater than MNI paid for Knight Ridder. 2. Sale is expected to close in 1Q07. 3. Recorded a write-down on Star Tribune's net assets to fair market value based on expected sale proceeds in 4Q06 and included this charge in discontinued operations in "4Q".
3. Results: 1. For all of 2006, pro forma advertising revenues were up 0.5%. 1. Outperformed industry in advertising revenue growth in 2006 for the sixth consecutive year, enhanced by additions and realignments in operating portfolio. 2. 4Q06 revenues from continuing operations were $673.6m. 1. On a 13-week basis, 4Q06 total revenues were $630.7m, down 3.4% vs. pro forma 4Q05 revenues of the newly combined Co. 2. With advertising and circulation revenues each down 3.1%, advertising revenues were down 3.1% in 4Q06.
3. Overall advertising environment grew more difficult in 4Q06.
1. Retail advertising softened, and national and classified continued to decline. 2. Online and direct marketing revenues continued to show strength and their growth helped offset some of the weakness in classified and national advertising. 4. Made a reclassification in Dec. to convert accounting for Real Cities online ad network to a more appropriate method, which included an adjustment for prior months of 2006. 1. [But] for the Real Cities advertising revenue during 4Q06 would have declined 2.7%, not 3.1%, and for the month of Dec., revenue would have declined 3.4%, not 5.3%. 4. Retail: 1. 4Q06 retail advertising was down 0.7% on a pro forma basis with strong growth in online retail advertising, offset by declines in print products. 2. Saw retail growth at newspapers in California and Florida, but declines elsewhere. 3. Online retail advertising continued to grow nicely up 67.4% in 4Q06. 5. Classified: 1. Classified advertising saw a nominal growth in real estate, offset by poor results in employment advertising. 2. Overall classified was down 5.5% on a pro forma basis. 3. Employment: 1. In 4Q06, pro forma employment advertising declined 10.5% at newspapers vs. growth of 21.0% in 4Q05. 4. Automotive Advertising: 1. Declined 4.1% vs. a 16.5% decline in 4Q05 pro forma advertising. 2. Total decline in auto ads in first nine months of 2006 was 10.8% vs. 4.1% in 4Q06. 5. Real Estate: 1. Real estate advertising was up 0.1% vs. a 16.1% increase in 4Q05, with strengths in Southeast and Northwest newspapers, flat comparisons in California newspapers, and declines elsewhere. 2. Dramatic declines seen recently in California and Florida, where real estate values and thus advertising were exceptionally strong in 2005. 3. Expects declines in revenues in this category in short run because of difficult trends in California and Florida especially. 6. National Advertising: 1. Declined 13.0% on a pro forma basis in 4Q06. 1. Performance continued to be hurt by losses in telecommunications and national automotive advertising. 2. Was also affected by a change in accounting for Real Cities revenue. 1. Online advertising is included in the results discussed. 7. Accounting Issue: 1. Has conformed accounting for certain Internet revenues for Real Cities advertising network to Co.'s methods of accounting. 2. Knight Ridder accounted for Real Cities revenue at gross and reported advertising that belonged to its newspaper customers as an expense. 3. Co. believes that it's appropriate to count for Real Cities ad
revenue net of amounts paid to third-party newspaper websites
that host the underlying advertising or on a net basis.
1. This change has no effect on bottom line, but it reduces revenues and expenses. 2. As a result, it does affect the comparison to pro forma revenue amount, as did certain accounting issues in 3Q06.
4. On a pro forma basis, Co. believes online advertising increased about 10% in 4Q06. 1. Pro forma online advertising was up an estimated 25-30% for all of 2006 on a comparable basis, reflecting Real Cities changes and CareerBuilder purchase price adjustments.
5. While online advertising is being affected by cyclical trends,
Co. is confident in future of this business. 1. On a reported basis, online advertising provided 7.7% of total advertising revenues and is growing in importance. 6. Continues to expect interactive revenues in 2007 to be about $200m even after selling Star Tribune.
8. Direct Marketing: 1. Direct marketing advertising revenues grew 7.6% in 4Q06 and up 13.4% for the full year, up nearly every region in 4Q06. 2. Direct marketing advertising revenues were 8.2% of total advertising revenues. 9. Circulation:
1. On a pro forma basis, daily circulation declined 2.4% and
Sunday was down 3.0% in 4Q06. 2. Co.'s strategy is aimed at growing and retaining quality circulation at its newspapers, while rapidly expanding audiences served …