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Tribune Co. Earnings Drop 7.3 Percent

Posted on: Friday, 15 July 2005, 12:01 CDT

Jul. 15--Tribune Co.'s earnings before special items dropped 7.3 percent in the second quarter, as cost-cutting at the Chicago-based media concern only partially offset the one-two punch of eroding newspaper circulation and a drop in TV profits.

Earnings excluding unusual gains and charges fell to $192.6 million, or 60 cents a diluted share, from the year-ago's $207.7 million, or 62 cents. Revenue fell 2.3 percent, to $1.46 billion from $1.50 billion.

The latest results, which slightly exceeded analyst forecasts, "reflect our continued focus on cost controls in the face of a weak advertising environment in the nation's largest markets," said Dennis J. FitzSimons, Tribune's chairman, president and chief executive.

But the earnings decline that Tribune reported Thursday highlights the troubles that have been plaguing the company -- as well as its rivals -- for more than two years.

"A challenging environment persists" in the media sector, observed Goldman Sachs analyst Peter Appert, in reviewing the second-quarter profit decline newspaper giant Knight Ridder Inc. reported Thursday.

Because advertisers routinely cut back when the economy turns down, newspaper and broadcast companies have historically been sensitive to the economic cycle. Although the U.S. economy is now largely recovered from the recession that began in 2001, media companies continue to struggle.

To a significant extent, that reflects a fundamental marketplace change -- the splintering of the once-concentrated entertainment and information audience -- that is pinching profit margins at companies like Tribune, Knight-Ridder, New York Times Co. and Gannett Inc.

Consumers continue to switch from watching broadcast TV to cable offerings. In addition, a growing number of viewers, particularly younger people, are opting to interact with their personal computers. Having fewer viewers puts pressure on the rates TV broadcasters can charge advertisers.

At Tribune's chain of 26 television stations, the effect of the soft ad market has been hard to miss: Revenue at the company's TV group fell 9.1 percent, to $334.5 million, and operating profit for the stations tumbled 22 percent, to $121.0 million.

Besides the Chicago Tribune, Tribune Co. owns WGN-Ch. 9 among other assets in Chicago.

In addition, Tribune and other newspaper publishers continue to get socked financially by the steady decline in newspaper readership. That trend, in place for more than two decades, appears to have accelerated over the last year, as young consumers increasingly turn to the Internet for news.

At Tribune, the circulation slide has been most prominent at the Los Angeles Times. Over the 12-month period ended March 31, the paper's average daily circulation dropped an unsettling 6.5 percent, to 908,000. The industry's circulation problem was also underscored last year, when an internal probe found that Tribune Co.'s Long Island-based Newsday and New York's Spanish language daily Hoy had been substantially overstating circulation figures.

For Tribune, which owns 11 daily newspapers, publishing revenue fell less than 1 percent, to $1.04 billion in the latest quarter, and the publishing group's operating profit (excluding certain one-time charges in the year-ago quarter) declined 2.4 percent, to $217.7 million.

"Despite a plethora of company-specific issues" at Tribune, Merrill Lynch analyst Lauren Rich Fine said Thursday, "newspaper ad revenue growth and earnings-per-share performance remain quite close to [Tribune's] peer group."

Fine maintained her "buy" rating on Tribune's currently downbeaten shares, saying the company's stock appears to have "the potential to outperform" other media companies later this year, as conditions begin to improve.

In New York Stock Exchange trading Thursday, Tribune shares rose 35 cents, or 1 percent, to close at $35.75.

Investors focused on the company's operating results Thursday, rather than on Tribune's bottom-line earnings, which were skewed by a recurring accounting adjustment as well as big charges in last year's quarter. On a net basis, income more than doubled, to $233.4 million, or 73 cents a share, from last year's $96.4 million, or 29 cents a share.

The same financial downdrafts that affected Tribune were apparent in the results of other media players that reported earnings Thursday, although the effect varied from company to company.

Operating income tumbled 7.5 percent, to $143.3 million, at Knight-Ridder, the nation's second-largest newspaper publisher. Revenue at the San Jose, Calif.-based company grew just 0.2 percent, to $761.5 million.

Knight-Ridder has an "attractive mix of franchise newspaper properties," and management has been actively cutting costs, said Goldman's Appert. But the analyst predicted that the current "lackluster trends in the ad market" will limit any near-term earnings improvements for the company.

McClatchy Co., publisher of the Sacramento Bee, Minneapolis Star Tribune and other papers, also turned in a muted quarter, although it managed to ring up profit growth. Revenue for the California-based paper inched up 2.2 percent, to $302.7 million, and earnings excluding a one-time charge in the year-ago quarter rose 4.5 percent, to a record $44.2 million, despite what an official called "an uneven year in terms of advertising activity."

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Copyright (c) 2005, Chicago Tribune

Distributed by Knight Ridder/Tribune Business News.

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TRB, GS, KRI, NYT, GCI, MNI,

Source: Chicago Tribune

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