Why more newspaper cuts may lie ahead
In the first part of the year, revenues have fallen by 9.4% in the newspaper divisions at half a dozen major publicly held companies, according to an analysis of the earnings reports issued by them in recent days. Despite aggressive cost cutting in the period at most companies, the operating profits for the same group plunged 25.3%. Thus, profits fell 2.7 times faster than sales dropped.
Unless sales improve or the industry is willing to accept lower profitability in the future, the companies evidently would have no choice but to consider even further spending trims.
The companies covered in this analysis were Journal Communications (JRN), Gannett (GCI), Lee Enterprises (LEE), McClatchy (MNI), New York Times Co. (NYT) and Scripps (SSP), which report their results in sufficient detail to enable this analysis and also represent a fair composite of industry performance.
Each of the companies in recent days reported lower quarterly sales and earnings. For all but Lee, the data included in this analysis reflect the company’s performance in the first six months of the year. In the case of Lee, the data are based on its performance in the first nine months of its fiscal year.
The analysis stripped away the performance of non-newspaper divisions and such one-time events as the sale last year of the NYT broadcast group or the writedowns that several companies are taking this year to reduce the value of the goodwill associated with certain acquisitions. Continued sagging sales, goodwill writedowns and hefty interest payments in the cases of several pubishrs were responsible for the deep earnings declines reported in the last few days.
When you look at the actual business of running newspapers, however, it is notable that the average operating profit among the six publishers is 18.5%, as measured by earnings before interest, taxes, depreciation and amortization (EBITDA). For all that ails the industry, this surpasses the EBITDA of such companies as Chevron (18.7%), Boeing (11.2%), Wal-Mart (7.7%) and Amazon.Com (6.0%).
If publishers, their shareholders and lenders were wiling to accept significantly lower levels of profitability in the future, then further cuts would not be necessary in staff, newshole, circulation and certain other variable expenses. If this were not the case, which it likely will not be, then more cuts would seem to be on the way.
Here is a summary of the results: