McClatchy CEO sees good news ahead for publisher

Posted May 20, 2009 2:05 p.m. EDT
Updated May 20, 2009 6:05 p.m. EDT

— McClatchy Co. may look feeble now, but its chief executive believes the newspaper publisher will emerge from the recession in better shape than most investors believe.

"I like to think of the McClatchy of the future as an athlete: fit and trim, yet muscular where we need to be," Gary Pruitt told the handful of shareholders who showed up Wednesday for the Sacramento-based company's annual meeting. McClatchy directors and executives outnumbered shareholders.

The company owns The News & Observer newspaper in Raleigh and The Charlotte Observer, among others.

Like many other newspaper publishers, McClatchy has been struggling with a sharp drop in its main source of revenue – advertising.

To cope, the publisher of The Miami Herald, The Sacramento Bee and 28 other daily newspapers has trimmed its work force by one-third, or more than 4,000 jobs, in the past year while shedding other expenses, including the dividend that it had been paying shareholders.

Despite the cuts, analysts have been questioning whether the 152-year-old company will survive. Those doubts have left its stock less expensive than an edition of The Sacramento Bee, on sale for 75 cents in a vending machine a block away from the annual meeting. McClatchy shares dipped a penny to 63 cents Wednesday.

With its shares trading below $1 for the past four months, McClatchy is in danger of losing its listing on the New York Stock Exchange.

McClatchy is being dogged by worries that it might not be able to live up to its financial commitments to lenders - a scenario that could prompt the company to seek bankruptcy protection. That route has been pursued by seven other newspaper publishers since December.

McClatchy has about $2 billion in debt, mostly stemming from its 2006 acquisition of Knight Ridder. Already last fall McClatchy had to negotiate with its lenders for more flexibility, which came at the price of higher interest rates and requirements for more collateral.

Pruitt, though, has steadfastly maintained McClatchy will remain in compliance with the lending requirements, enabling the company to rebound once the economy does. He predicted the company will have a "long and prosperous" future and no one challenged that assertion Wednesday. When offered an opportunity, no shareholders asked Pruitt any questions.

McClatchy may be hard pressed to get back to where it once was because the Internet was siphoning ad revenue even before the recession began 17 months ago.

The United States' deepest downturn since World War II has accelerated McClatchy's slide. After McClatchy's ad revenue dropped 18 percent last year, it plunged 30 percent during the first three months of this year.

McClatchy is trying to lure advertisers back by driving more sales to its Web sites and offering commissions to agencies that help place ads in the print editions of its newspapers.

Pruitt said McClatchy also is pinning more hopes on a program that relies on an online advertising system run by Yahoo Inc. that tracks people's Internet interests, in an effort to figure out which commercial messages to show them.

Pruitt expects McClatchy's online operations to bring in more than $200 million in revenue this year, up from $181 million last year. But that gain is unlikely to offset the erosion on the print side, where ad revenue fell by $117 million in the first quarter alone.

To fight the revenue losses, Pruitt said McClatchy is gradually getting rid of its "20th century cost structure." In a brief interview after the meeting, he said it was still too early to tell whether McClatchy will have to eliminate even more jobs.

Acknowledging the company's adversity, Pruitt ended the meeting with a slide show of photographs from McClatchy's newspapers with "Battle Hymn of The Republic" playing in the background.

"McClatchy is going to make it," Pruitt said after the music subsided. "We are going to navigate through. Glory, glory, hallelujah."