Chicago, IL – October 23, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: The New York Times Company (NYT), Washington Post Company (WPO), Journal Communications (JRN), Gannett Co. (GCI) and McClatchy Company (MNI).

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Here are highlights from Thursday’s AnalystBlog:

NY Times Beats Zacks Consensus

Amid the secular and cyclical slowdown in print advertising The New York Times Company (NYT) recently reported third-quarter 2009 results that topped the Zacks Consensus Estimate.

The New York Times quarterly earnings of 16 cents a share surpassed the Zacks Consensus Estimate of 2 cents, and the prior-year quarter earnings of 5 cents. The better-than-expected results came on the heels of significant cost-cutting measures and newspaper price increase.

On a reported basis, including one-time items, the company reported a loss of 25 cents a share, a substantial improvement from the loss of 74 cents delivered in the year-ago quarter.

Management now expects to save $475 million in operating costs in 2009 up from $450 million previously anticipated. Operating costs fell 21.6% to $490 million, whereas operating profit surged 30.2% to $80.6 million.

Total revenue dipped 16.9% to $570.6 million, primarily due to lower print advertising. Total advertising revenue tumbled 26.9% to $291 million, whereas circulation revenue rose 6.7% to $240.8 million due to higher subscription and newsstand prices.

Like The New York Times, other newspaper companies like Washington Post Company (WPO), Journal Communications (JRN), Gannett Co. (GCI) and McClatchy Company (MNI) have long been grappling with the slump in print advertising demand amid the global meltdown, as advertisers are migrating to the Internet driven by increasing online readership and lower ad prices than print.

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Standard & Poor's Upgrades McClatchy's Corporate Rating

On Tuesday June 30, 2009, Standard & Poor's raised its corporate credit rating for newspaper publisher McClatchy (MNI) to "CC" (highly vulnerable) from "SD," (selective default). The rating agency still holds a negative view on the company on account of its possible restructuring.

Last Friday, June 26, both Standard & Poor's and Moody's Investor Services had lowered their corporate ratings on the company following the debt exchange offer announced by McClatchy. Moody's lowered its corporate rating to "Caa2" from "Caa1", whereas Standard & Poor's lowered its credit rating to "SD" from "CC." McClatchy offered to pay $60 million in cash and issue $175 million in new notes, with a 15.75% coupon rate due 2014, to replace $1.15 billion in debt owed to its bondholders.

The reason behind downgrading was the company's dubious ability to repay debt and high default risk. On the announcement of the completion of the debt exchange offer on June 26, only $102.9 million in debt had been tendered, (approximately 9% of $1.15 billion).

The recent marginal amendment to "CC" from "SD," by Standard & Poor's was based on McClatchy's announcement that it exchanged $24.2 million in new senior notes and $3.4 million in cash, for a total of $102.9 million of senior notes.

McClatchy like other newspaper companies - The New York Times Company (NYT), Washington Post Co (WPO), Gannett Co (GCI) and Journal Communications (JRN) is in the midst of a secular and cyclical slowdown in print advertising. McClatchy, in a race for survival, is building its Internet operations, cutting costs, reducing its debt burden and has recently suspended its dividend.

However, postponement of $190 million land sale erodes visibility to any relief. We maintain a Sell rating on the stock with a six-month target price of $0.50.

On Friday June 26, 2009, McClatchy (MNI) announced the expiration of its private exchange offer, which commenced on May 21, 2009. The company offered to exchange the Old Securities for up to $60 million in cash and up to $175 million of newly issued 15.75% Senior Notes due 2014.

The coupon rate has substantially increased from the range of 4.625%-7.150%. With the increase in coupon rate, the company's interest coverage ratio which stood at 2.8x (EBITDA/Interest expense) will decline, and may fall below the covenanted minimum interest coverage ratio of 2.25x. The company's leverage ratio (Debt/TTM EBITDA) was 5.9x at the end of 1Q09 up from 5.1x at the end of 2008, approaching recently-amended bank covenants of 6.25x.

After the expiration of the offer, according to Global Bondholder Services Corporation, the depositary for the Exchange Offer, $102.9 million in debt had been tendered. McClatchy received tenders from holders of approximately $3.8 million total principal amount of 2011 Notes, $11.1 million total principal amount of 2014 Notes, $53.4 million total principal amount of 2017 Notes, $10.8 million total principal amount of 2027 Debentures and $23.8 million total principal amount of 2029 Debentures.

The company will exchange the tendered notes for $3.4 million in cash, in the case of the 2011 and 2014 Notes, and $24.2 million in new notes. On Friday, MNI's shares fell $0.22 and closed at $0.46 cents.

McClatchy like other newspaper companies - New York Times Co. (NYT), Washington Post Co. (WPO), Gannett Co. (GCI) and Journal Communications (JRN) is in the midst of a secular and cyclical slowdown in print advertising.

Circulation revenue for the company declined for the third consecutive year (down 16% in 2008) but showed a marginal increase of 0.9% in 1Q09, while ad revenue sank disproportionately as one-third of the company's revenues come from the hard-hit California and Florida markets.

In order to survive, McClatchy is venturing into building its Internet operations, cutting costs, reducing its debt burden and has recently suspended its dividend. We maintain a Sell rating on the stock with a six-month target price of $0.50.

Newspapers have fared far worse than magazines, as web-based news options have proliferated in recent years. Circulation of newspapers fell 2-3% on average each year from 2005 through 2007, and that has accelerated to the mid-single digits in recent months as the economy cratered. Ad revenue is falling between 15-20% or more at many publications. A portion of classified has moved to wider-spread, more targeted, lower-priced or free options, such as ebay or Craigslist, and will not likely return.

In an effort to offset declining print revenue and market share, publishers are scrambling to leverage their brands and build complimentary web-based publications. But the deepening recession has highlighted the flaw in the online ad-only business model -- without circulation to smooth revenue, cycle downswings are often deathblows.

Ultimately, the secular downturn in circulation will force a viable new business model for online news, one that relies on subscription or one-time user fees in addition to advertising revenue. In the meantime, publishers are scrambling to slash costs fast enough to meet falling revenues. Asset sales, even at trough valuations, have proven a less viable option in the midst of tight credit markets. Those that can't cut fixed operating and financial overhead are filing for bankruptcy or closing, including many of the country's largest and most respected newspapers.

What surprised many when the The Tribune Company, owner of the Los Angeles Times and Chicago Tribune, filed for bankruptcy in January, now seems like a weekly event.

• This week, Hearst Corp. announced that it will shut The Chronicle, the 12th-largest U.S. paper and Northern California's largest daily, if it does not find a buyer or work with unions to dramatically slash costs. The closing of the 144-year old San Francisco daily is an event that would have seemed unthinkable until recently.
• Also this week, Philadelphia Newspapers L.L.C., which owns The Inquirer, the Philadelphia Daily News and Philly.com is filing for bankruptcy. The Journal Register, owner of 22 dailies in the East and upper Midwest, including The New Haven Register, succumbed under the weight of crushing debt, as well. E.W. Scripps (SSP) announced it would close The Rocky Mountain Register, the Pulitzer prize-winning 150-year old Denver institution, after failing to find a buyer. Just last week, Scripps shut down the The Albuquerque Tribune on February 23, 2008, after shopping it since August 2007.
• Last month, The Star Tribune, owner of Minnesota's largest newspaper, and the tenth-largest Sunday paper, filed Chapter 11, as it attempts to cut financing and labor costs.
• The Christian Science Monitor stopped publishing in print and is now online-only.

Stock prices have tumbled with earnings. The Zacks' publishing index is down 80% from its 52-week high. A revitalized ad market requires an economic upturn, to which there is no visibility at this time. Until there is some visibility to stabilization, we would not recommend buying shares of any of the publishing companies in our coverage universe (remain underweight).

Our top Sell recommendation in the Publishing sector is McClatchy Company (MNI). As expected, McClatchy eliminated its dividend in January, shortly after a 50% cut in September proved insufficient.

We expect more pain ahead for McClatchy. One-third of MNI's revenues are in the hard-hit California and Florida markets. Circulation revenue is falling for the 3rd consecutive year, while ad revenue sinks disproportionately (down 21% in 4Q08). In our view, MNI can't shrink its costs fast enough, posing a risk of tripping bank covenants if the revenue decline should accelerate and thereby raise leverage. Given the continued downward trend in earnings and cash flow, coupled with the company's high debt-load (Debt/TTM EBITDA was 5.1x).Zacks Investment Research

The sinking economy is forcing many publishing houses to the life-support of bankruptcy after a long illness. The eight-year deceleration in print advertising, fueled by a secular migration of readers to the Internet, has gone into free fall.

Newspapers have fared far worse than magazines, as web-based news options have proliferated in recent years. Circulation of newspapers fell 2-3% on average each year from 2005 through 2007, and that has accelerated to the mid-single digits in recent months as the economy cratered. Ad revenue is falling between 15-20% or more at many publications. A portion of classified has moved to wider-spread, more targeted, lower-priced or free options, such as ebay or Craigslist, and will not likely return.

In an effort to offset declining print revenue and market share, publishers are scrambling to leverage their brands and build complimentary web-based publications. But the deepening recession has highlighted the flaw in the online ad-only business model -- without circulation to smooth revenue, cycle downswings are often deathblows.

Ultimately, the secular downturn in circulation will force a viable new business model for online news, one that relies on subscription or one-time user fees in addition to advertising revenue. In the meantime, publishers are scrambling to slash costs fast enough to meet falling revenues. Asset sales, even at trough valuations, have proven a less viable option in the midst of tight credit markets. Those that can't cut fixed operating and financial overhead are filing for bankruptcy or closing, including many of the country's largest and most respected newspapers.

What surprised many when the The Tribune Company, owner of the Los Angeles Times and Chicago Tribune, filed for bankruptcy in January, now seems like a weekly event.   

• This week, Hearst Corp. announced that it will shut The Chronicle, the 12th-largest U.S. paper and Northern California's largest daily, if it does not find a buyer or work with unions to dramatically slash costs. The closing of the 144-year old San Francisco daily is an event that would have seemed unthinkable until recently.    
• Also this week, Philadelphia Newspapers L.L.C., which owns The Inquirer, the Philadelphia Daily News and Philly.com is filing for bankruptcy. The Journal Register, owner of 22 dailies in the East and upper Midwest, including The New Haven Register, succumbed under the weight of crushing debt, as well. E.W. Scripps (SSP) announced it would close The Rocky Mountain Register, the Pulitzer prize-winning 150-year old Denver institution, after failing to find a buyer. Just last week, Scripps shut down the The Albuquerque Tribune on February 23, 2008, after shopping it since August 2007.    
• Last month, The Star Tribune, owner of Minnesota's largest newspaper, and the tenth-largest Sunday paper, filed Chapter 11, as it attempts to cut financing and labor costs.    
• The Christian Science Monitor stopped publishing in print and is now online-only.

Stock prices have tumbled with earnings. The Zacks' publishing index is down 80% from its 52-week high. A revitalized ad market requires an economic upturn, to which there is no visibility at this time. Until there is some visibility to stabilization, we would not recommend buying shares of any of the publishing companies in our coverage universe (remain underweight).

Our top Sell recommendation in the Publishing sector is McClatchy Company (MNI). As expected, McClatchy eliminated its dividend in January, shortly after a 50% cut in September proved insufficient.

We expect more pain ahead for McClatchy. One-third of MNI's revenues are in the hard-hit California and Florida markets. Circulation revenue is falling for the 3rd consecutive year, while ad revenue sinks disproportionately (down 21% in 4Q08). In our view, MNI can't shrink its costs fast enough, posing a risk of tripping bank covenants if the revenue decline should accelerate and thereby raise leverage. Given the continued downward trend in earnings and cash flow, coupled with the company's high debt-load (Debt/TTM EBITDA was 5.1x).

The publishing industry is suffering accelerating declines in circulation and ad sales. Print advertising industry-wide has been decelerating for several years, eroded by the secular migration to the Internet.

Newspapers have fared far worse than magazines, as web-based news options have proliferated in recent years. Circulation of newspapers fell 2-3% on average each year from 2005 through 2007, and that has accelerated with to the mid-single digits in recent months as the economy slowed. Ad revenue is falling between 15-20% at many publications.

National newspapers, however, have out-performed the group significantly, particularly USA Today, a subsidiary of Gannett (GCI) and The Wall Street Journal, owned by News Corp (NWS).

Most publishing houses are rapidly cutting costs in line with their shrinking revenue stream, while attempting to build complementary Internet operations. But many are saddled with debt, leaving few options other than disposing of formerly attractive assets at trough valuations and cutting their dividends.

OPPORTUNITIES

A revitalized ad market requires an economic upturn, to which there is no visibility at this time. Until there is some visibility to stabilization, we would not recommend buying shares of any of the publishing companies in our coverage universe.

WEAKNESSES

Our top Sell recommendation in the Publishing sector is McClatchy Company (MNI). As expected, McClatchy cut its dividend in September by half. We expect more pain ahead for McClatchy. One-third of MNI's revenues are in the hard-hit California and Florida markets. Circulation revenue is falling for the third consecutive year (-4.9% in 3Q08), while ad revenue sinks disproportionately.

In our view, MNI can't shrink its costs fast enough, posing a risk of tripping bank covenants if the revenue decline should accelerate and thereby raise leverage. Given the continued downward trend in earnings and cash flow, coupled with the company's high debt-load (Debt/TTM EBITDA was 4.7x), we would not be surprised to see company again cut its dividend (now yielding 24.5%).
"MNI" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research