MNI cuts may not be deep enough
Barring an upturn in the newspaper business in the second half of this year that no one foresees, MNI’s ad sales for 2008 are likely to be $295 million lower than they were in the prior 12 months. Thus, the $70 million the company hopes to save by eliminating 1,400 positions would offset only 23.7% of the anticipated revenue shortfall.
If sales fail to improve, the company could be forced to thin its ranks more deeply than the planned reductions announced today. The plan would eliminate 250 positions, or 17% of the staff, at the Miami Herald, and 123 jobs, or 11% of the force, at the Charlotte Observer.
The new cuts would come on top of a 13% reduction in force that occurred at McClatchy via “attrition and selected job eliminations through outsourcing” between the end of 2006 and April, 2008, according to the press release announcing the down-sizing.
My forecast of a $295 million drop in MNI’s sales for 2008 is based on the fact that the company’s combined print and online ad sales fell by $126.2 million in the first five months of this year to $691 million, or 15.4% below the comparable number a year ago.
Given that MNI booked approximately 42% of its sales in the first five months of 2007, a little sixth-grade math puts the projected revenues this year at $1.6 billion, or $295 million less than in 2007.
Advertising revenues represent a bit less than 83% of the company’s total sales. The balance is provided by circulation, which has been down by 5% in the first five months of this year, and “other,” which has been off by 17% as of the end of May.
In addition to the pending staff cuts, MNI intends to identify $25 million to $30 million in additional operating savings “over the next four quarters.” Savings will come from such things as the newly revealed plans to outsource the printing of the Idaho Statesman in Boise and Bellingham (WA) Herald to two competing newspapers located some 30 minutes from each of the MNI plants.
Assuming the company quickly implements $30 million in savings, however, the belt-tightening would make up for only a third of the looming revenue shortfall.
If the company hopes to sustain something approaching its hisotric profit levels, still more cuts would have to be found.
Disclosure: I own shares of MNI stock.