Friday, January 23, 2009

Zacks: "more pain ahead for McClatchy"

Circulation is slipping, ad revenue is plunging. No surprise here:
Our top Sell recommendation in the Publishing sector is McClatchy Company (NYSE: MNI - News). 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%).

The pain caused by a simple dividend cut is nothing compared to the bloodletting heading McClatchy's way in a few months.
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18 comments:

Anonymous said...

"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."
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This is the key. As I explained a couple of months ago when McCatchy lackeys started bragging about how they had bamboozled their creditors and it didn't matter if the stock went below zero.

Everyone forgot to mention the debt covenants and conditions under which the rules and conditions change. They are not only paying a higher interest rate in exchange for time, but they agreed to triggers that say, all bets off. Covenants, sometimes very punitive ones are always included in the details, however Mr Pruitt et al conveniently left that information completely out of the press releases.

Unfortunately, the reporters and columnists left behind are rubes and it would never occur to even considering the reality of the situation.

Anonymous said...

What's the magic number (stock price) that will trigger the covenants?

Anonymous said...

"The Party's over...It's time to call it a day!"

Anonymous said...

Anon. 5:41 AM,
Good post as usual.
Your comment: “…columnists left behind are rubes and it would never occur to even considering the reality of the situation.”

These are business columnists, right? Does it help all the debt strapped newspapers to keep news like this as ‘vague’ as possible? To hoodwink the stockholders is so Pruitt-like. Would print journalists try to look the other way? When you think about it, their jobs are on the line.

Anonymous said...

5:41 In my opinion your the BEST poster on this blog. Thanks.

I come here for MCClatchy news only.

Anonymous said...

The story I liked best was about the McClatchy employee, who was also a stockholder. She was trying to make Pruitt divulge his salary and perks at the annual meeting. The McCrappy attorneys tap danced so fast, they were wrapped like pretzels trying to stop her action. Maybe that wasn’t reported by the so-called financial columnists?

Anonymous said...

Thank you very much for the credit folks, but I do this type of analysis on a daily basis. At times it is easier to judge the financial health of a company by what they do not disclose as opposed to what they do say. It also helps a great deal to have worked for these people and I owe them a great deal of gratitude for being such a lousy employer.

6:29 There will not be a magic number, but in my opinion there will be little if any grace before de-listing as McClatchy cannot provide a reasonable price recovery plan. Remember though, they still have a huge short interest and with every short that decides to cover there will be radical short term rises back above one dollar. At these prices as little as 100,000 shares can make some very interesting price changes.

If you want to call them business columnists, then yes Archer. I would call into question their qualifications as such however as a few weeks ago the KC Star literally falsified their closing price for the day for 3 consecutive days after I pointed out that they were all to eager to rag other companies for their hard times, but neglect to mention their own parent company at all. One day getting it wrong I understand. Three days in a row is intentional or idiocy.

5:41 You're too kind. Besides, I have read some very well written posts from current or recent journalists here, and frankly, they never let their fingers out run their thinker as do I.

7:36 I'd like to read about that. Do you have a link. It is the first I had heard of it.

Anonymous said...

Oops...I meant 7:29 you're too kind. (see what I mean. Fingers are quicker than the eye)

Anonymous said...

8:06 Hope I can ask this question OK.

On Dec 31,2008 Maloney Brown McClatchy had these transactions at $0 per share.
Acqusition 200,000 shares
Disposition 200,000 shares

What was the purpose?

Anonymous said...

You guys ROCK!!!

Anonymous said...

In addition to the higher interest rate, more collateral was put up:

http://www.mcclatchy.com/pressreleases/story/2188.html

"-- Grants a security interest in intangible assets, inventory, receivables and certain other assets."

What's that mean? Indeed:

http://en.wikipedia.org/wiki/Security_interest

"The principal purpose for taking a security interest over some assets is almost invariably to ensure that, if the debtor goes into bankruptcy, then the secured creditor can enforce its rights against the collateral rather than participating in the distribution to unsecured creditors in the bankruptcy, and thereby either get paid in full, or receive more in the way of payment than it would have as an unsecured creditor."

Anonymous said...

What a collection of nitwits.

Anonymous said...

1:31 You must be looking in a mirror.

Anonymous said...

-McClatchy employee, who was also a stockholder, trying to get Pruitt's salary info placed on annual report.-

7:36 -"I'd like to read about that. Do you have a link. It is the first I had heard of it."

Answer:
I read that right on this blog. I don’t remember if it was a blog post or a comment. It was taken from the SEC pages, and was correspondence from the person trying to get the salary and perk info on the annual report, and the attorneys fighting it. That is all I remember.

Anonymous said...

Acqusition 200,000 shares
Disposition 200,000 shares

What was the purpose?
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If memory serves, that transaction was a transfer to the principals child. You can gift so much money per year without tax consequences. It is also a way to beat death taxes by transferring over time one's holdings to the family. Wealthy people don't pay the death tax that leftists love. Middle class people who can't afford lawyers do.

Thanks 2:17. I'll scour the SEC filings. It should be interesting as MNI has an elaborate scheme in place to mask their true holdings through their little incentive flim flam. Go check any of the insider holdings disclosures and you will see that Pruitt is listed as having 80k shares and the others even less. Fact is they just granted Pruitt options on half a million shares that he can start selling off at double the price he will pay to exercise them. The others recieved about 100k additional to what they have and while they have not paid one penny for them, they can still collect the dividend.

Quite the gig if you can get it!

Anonymous said...

What a collection of nitwits.
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Let me guess. You're the editor that never checks his portfolio as his strategy for the markets? Bwhahahha

Anonymous said...

This discussion is way beyond Anon 1:31 mental capacity.

Anonymous said...

Just remember, if you work for McCrappy and you get a buyout...Take it in a lump sum...a monthly pay out makes you a creditor and we know what happens to creditors when a company goes belly up!