Monday, June 16, 2008

MNI cuts may not be deep enough

The savings McClatchy hopes to achieve by trimming 10% of its work force will not save enough money to offset even a quarter of the likely drop in the company’s advertising revenues this year, suggesting that more cuts may lie ahead.

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.


Anonymous Anonymous said...

Condolences on your owning MNI because I have been watching the steady slide of this property for months now. I agree with your analysis but think the picture at MNI is actually much worse than you portray because they waited too long before taking the aggressive steps that were needed to be taken last year. Dragging it down further is some $2.4 billion in debt and an unimaginative and inexperienced leadership. I think this is a company now suffering real trouble, with some of its properties earmarked for the Billy Dean Singleton knacker's yard.

12:08 PM  
Anonymous Anonymous said...

They could save a few million more by firing the guy who has presided over this company as the stock price went from $76 to $7.60.

If any rank-and-file MNI employees were performing 90% less now than 3 years ago, what would happen to them?

12:48 PM  
Anonymous Anonymous said...

Alan, how can you possibly write such a scathing critique of MNI, yet still hold MNI stock. If I reached the same conclusion that you did and realized the implications it meant for the future of MNI stock, I would have picked up the phone and call my stockbroker moments after hitting the file button.

1:40 PM  
Anonymous Anonymous said...

I don't know the numbers here, but I imagine the presidential and general elections will have some effect on ad revenue in the coming months -- an effect that wasn't in play in 2007.

8:24 PM  
Blogger Henry Louis Gomez said...

Do candidates even run ads in the newspaper anymore?

10:58 PM  

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