By Rick Edmonds
The New York Times Co.'s second quarter earnings,
released Thursday, roughly followed the pattern established in other
newspaper company reports -- a turn to modest profitability, even in
the face of continuing steep ad losses, thanks to cost control.
But
the New York Times Co. is different from the rest of the pack, and a
closer look reveals both unusual strengths and weaknesses.
Circulation
revenues were up 1.5 percent compared to the same period in 2008, but
more significantly they now account for 40 percent of revenue for the
publishing group, by far the highest share in the industry. The New York Times costs more than $700 for a seven-day subscription outside the New York metro area, and prices have regularly increased. The Boston Globe also carries a top price among metros.
An
analyst asked CEO Janet Robinson during the earnings conference call
"How far can you go" before further price hikes spur too many
cancellations. Robinson did not exactly answer, except to say in
effect, "Not yet."
The New York Times itself
makes up about 60 percent of company revenues and has an unusual ad
mix. Robinson noted that financial, entertainment and books advertising
were down a lot, though technology ads are strong as new devices
continue to be introduced.
Sometimes
performance among the Times Co.'s three newspaper groups (New York, New
England and Regional) vary a great deal; but in the second quarter,
advertising at each was down about 30 percent year-to-year. And online
advertising revenues declined at roughly the same rate as print.
The
company pared operating expenses by about 20 percent -- obviously a big
cut but not as draconian as at some other companies such as McClatchy,
which are approaching 30 percent. Except at The Boston Globe, the company has avoided mandatory furloughs and has cut staff and space more moderately than most. (Employees at the Times were handed a temporary pay cut of 5 percent this spring, however.)
You
could say that reflects the company's strategy of minimizing damage to
the news product and sacrificing some profitability in the process.
That is consistent with charging a high price for a premium news
product. And Robinson said she expects the papers to be well positioned
for the eventual end of the downturn.
The bottom
line for the second quarter was an operating profit of $23 million on
revenues of $584 million, a margin of about 4 percent. After accounting
for depreciation and amortization, special items and a reduced estimate
of income taxes, the profit total nearly tripled to $66 million.
Unfortunately,
as in the first quarter, New York Times Co. operating profits barely
covered the interest on its debt, which was $21.7 million for the
quarter and is now projected at $85 million for the year. That's nearly
an 80 percent increase over the same period a year ago -- and the
difference can be traced to higher rates.
McClatchy is carrying roughly $2 billion in debt, but CEO Gary Pruitt boasted during the company's earnings call earlier this week
that the blended interest rate is just 5.4 percent. The New York Times
Co. debt is only half as much, about $1 billion. But the rate has
climbed to 8.5 percent after it refinanced an expiring line of credit
by borrowing from Mexican billionaire Carlos Slim at an effective rate
of about 14 percent.
So the New York Times Co. remains in the sell-off mode. It recently sold its classical music radio station WQXR for $45 million and hopes to close on the sale of its share of the Boston Red Sox
by the end of the year, a transaction that could bring in more than $1
billion. Robinson declined to discuss the potential sale of The Boston Globe Thursday, but the company has acknowledged that the paper is on the block and there are interested buyers.
New York Times Co. stock has rallied in recent weeks, but the share price closed flat Thursday. By contrast, shares of McClatchy and Media General nearly doubled in value after their surprisingly good earnings news earlier this week.
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