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Earnings: McClatchy Q2 Revenues, Profits Plummet, As Online Ad Sales Grow 12.5 Percent

The McClatchy Company’s (NYSE: MNI) financial struggles only seemed to deepen in Q2, as Gary Pruitt, the publisher’s chairman and CEO, pinned the weakening economy and the shift from print to digital on its revenue and income decreases. Revenues were down 15.6 percent to $489.7 million in Q2 compared to last year’s $580 million. And while online ad sales grew 12.5 percent in the quarter, since they made up only 11.8 percent of total ad dollars — compared to an 8.6 percent share for all of 2007 — it was not enough to offset wider declines. In all, McClatchy’s ad revenue fell 16.8 percent to come in at $406.3 million. Meanwhile, Q2 net income from continuing operations was $20.1 million, or 24 cents per share, down by roughly 50 percent from last year’s $40 million.

Internet ads: Pruitt highlighted McClatchy’s online ad growth in a statement. He attributed the steady gains to the ad sales team moving away from convergent ad sales — that is, tying print up-sells to digital, which tends to dilute the latter. Pruitt: “Excluding employment advertising, which is the category most tied to print up-sell advertising, and which has declined nationally both in print and online, our online advertising grew 58.5 percent in the second quarter of this year. We were pleased to note that nearly 50 percent of our online advertising came from ads placed only online; they were not tied to a print up-sell.” Lots more after the jump…

Savings: As part of its restructuring plan, Pruitt said the company expected to see $95 million to $100 million in annual savings over the next four quarters. This plan includes cutting McClatchy’s staff by roughly 10 percent and is expected to result in severance of approximately $30 million. Secondly, the sale of its 15 percent stake in ShopLocal for $7.8 million last month will used to reduce debt.

Outlook: In the statement, Pruitt said he doesn’t expect the Sacramento, CA.-based publisher’s ad revenues to recover any time soon, despite its online efforts. In general, the company’s outlook is dependent on what happens in the larger economy, he added. In an attempt to at least mitigate that negative impact, the company is banking on its arrangement with the Yahoo (NSDQ: YHOO) Newspaper Consortium. It will also embark on other partnerships and is “investing significantly in online operations,” including adding ad sales staff and “realigning sales incentives to focus on driving sales and expanding online sales training budgets and efforts.”

Release | Webcast (12:00 PM EDT)

Update: During the Q&A, Pruitt said that the company has completely embraced the need to move away from convergent ad sales. The realization that digital ad sales tied to print was a losing game only occurred to the company within the past two years. The problem with convergent up-sells is that digital is sold to print advertisers as an add-on, not as a completely different property that can reach a different (think national, for one) audience. Plus, print up-sells limit the range of clients to a small finite group of existing advertisers who are not likely to increase their ad spend substantially on the web.

Pruitt: “When McClatchy started online 10 years ago, all ad sales were upsells. Things were still the same in 2006. We’re trying to establish digital as a separate product and an independent ad base. We’re not kidding ourselves; we know that the value of the content and the brand identity are shared. But we see the demand for digital as separate from print. And in light of that demand, we price [our online ads] aggressively.” As for particular digital ad drivers, Chris Hendricks, VP for interactive media, said that revenues from jobs site CareerBuilder and have been among the main contributors, especially on the display side, with dollars coming from the retail category. Last September, McClatchy decided to keep its 14.4 percent stake in CareerBuilder (other owners include Gannett (NYSE: GCI), Tribune Company and Microsoft), after renegotiating the terms of its affiliate agreement. That summer, Pruitt had argued that the terms were not that favorable and the company was thinking of selling its interest.

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