In an updated analysis of The McClatchy Co. (NYSE: MNI) following its first-quarter financial results, the Chicago-based independent stock research firm Morningstar predicts accelerating ad revenue declines and softening EBITDA margins at the nation’s third-largest newspaper publisher.
“Since its poorly timed acquisition of Knight Ridder in 2006, McClatchy has struggled under the multiple weights of declining revenues, high debt, outsized exposure to troubled housing markets, and the continuing shift of readers and advertisers from print to online,” writes Morningstar analyst Tom Corbett in a report released Wednesday. “Given the persistence and severity of these conditions, we think equity shareholders are at risk of losing the entire value of their investment.”
Morningstar for months has had a “fair value estimate” of zero for shares of MNI. “We think the combination of McClatchy’s exposure to the decline in print ad revenue, high fixed costs, and substantial debt burden is such that the firm will eventually have to be managed to satisfy its obligations to its creditors at the expense of its equityholders,” the report says.
According to the Morningstar analysis, McClatchy’s EBITDA in Q1 covered its interest expense just 0.7 times. “During 12 months ended March 2009, its debt was nearly 7 times EBITDA,” it adds. Despite its existing debt, McClatchy drew down an additional $14 million from its revolver in Q1, “reflecting its paucity of cash amid declining revenue,” Morningstar says.
The report also takes a jaundiced view of McClatchy’s oft-praised online advertising performance. Online ads comprise fully 12% of McClatchy’s total ad revenue, higher than its peers. Buuuuut: “During the full year 2008, for every dollar of print ad revenue McClatchy lost, its online advertising recaptured just $0.05. We don’t think its online ad revenue is going to increase quickly enough to fill that gap.”
Thursday, May 14, 2009
Morningstar: McClatchy shareholders could lose their shorts
Fitz and Jen continue to deliver some of the finest news about McClatchy's financial condition. Wednesday, Fitz and Jen noted the latest Morningstar report warns that MNI shareholders could lose the entire value of their investment.