After posting an online revenue decline of 2.9 percent in Q2, McClatchy (NYSE: MNI) was able to reverse that trajectory to see digital revs rise 3.1 percent in Q3. As print continues to decline — and McClatchy chairman and CEO Gary Pruitt didn’t surprise anyone on the Sacramento company’s earnings call by saying print would fall further in Q4 — online is showing signs of more stability and, most importantly, more independence from print. “As online grows, we’re less vulnerable to print declines and we’ll be less burdened by print costs,” Pruitt said.
Unfortunately for McClatchy this time out, print upsells remained a particular drag on its web ads. Pruitt told investors that a little less than half of McClatchy’s web ads are pure online sales, not tied to print. It’s hard to say if it’s improved online sales on its own — plus its 14.4 percent stake in web recruiter CareerBuilder — or the decline of print, but just over 50 percent of McClatchy’s online help wanted revenues are directly from the web. Once the economy rebounds, that tilt in favor of online and away from print is expected to accelerate.
While employment could be a bright spot for McClatchy and other publishers one day, in Q3, it continued to be a drag in general. As Pruitt noted, if job ads are excluded, online would have been up 14 percent in the quarter. Looking at the individual ad categories, total classifieds were down 37.7 percent in Q3, with general employment down 59 percent, as online job ads were fell 49.4 percent year-over-year. Auto was down 34 percent, while online auto dropped just 1 percent. In another sign of the web’s resiliency in the face of a dismal economy, McClatchy’s national ads slid 28 percent, as Pruitt pointed to small growth online.
As for the near future, Oct advertising revenues are trending similar to those in Q3, and Pruitt said that print declines will well into Q4. With the economy stuck, the best thing the company can do is hold down costs, Pruitt said. “We expect costs will be down in the mid-20 percent range in Q4. Debt was down $134 million, leverage ratio improved to 5.7 times, with coverage roughly 8 times.”
In Q2, Barclays analyst Craig Huber noted during the Q&A period, that Pruitt said McClatchy was experiencing ad rate declines greater than 5 percent. It’s looking worse now, Pruitt indicated, saying ad rates declines are running closer to 10 percent right now.

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