Earnings preview: Loss anticipated in McClatchy 2Q

SACRAMENTO, Calif. - Newspaper publisher McClatchy Co. is scheduled to report its second-quarter results before the stock market opens Tuesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Hardly anything has gone right during the past few years for the owner of The Miami Herald and 29 other daily newspapers. The hard-luck theme is unlikely to change in the Sacramento-based company's second-quarter earnings report.

With the newspaper advertising market in ruins, another loss seems certain.

As the losses mount, the chances of a bankruptcy filing rises. That's because McClatchy is saddled with $2 billion in outstanding debt with a steadily shrinking cash flow to cover its future obligations and adhere to the financial requirements — known as covenants — set by its secured lenders.

Several other major newspaper publishers, including the owners of the Los Angeles Times, Chicago Tribune and The Philadelphia Inquirer, have filed for bankruptcy protection in the past eight months. Many analysts think McClatchy is now headed down the same path, although the publisher's management hasn't discussed the possibility publicly.

McClatchy hoped to whittle about $900 million from its debt in a complex exchange, but only 9 percent of the bondholders accepted the offer.

Most of the debt stems from McClatchy's 2006 acquisition of Knight Ridder, which was completed during the early stages of an advertising slump that has grown progressively worse.

McClatchy's ad revenue plunged 30 percent in the first quarter after falling 18 percent for all of 2008. The second quarter is expected to include another share drop, based on the 32 percent decline in print advertising suffered by Gannett Co., the largest U.S. newspaper publisher.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters expect McClatchy to lose 8 cents per share on revenue of $369 million. The company earned 24 cents per share on revenue of $490 million at the same time last year.

ANALYST TAKE: Fitch Ratings analyst Michael Simonton is among the camp that believes McClatchy will wind up in bankruptcy court at some point. "Default is imminent or inevitable," Simonton predicted after McClatchy's debt exchange flopped.

WHAT'S AHEAD: Unless the advertising market rebounds soon, McClatchy may have to lower its expenses even more to pay its bills and remain in good graces with its bankers. That could mean even more layoffs at a company that already jettisoned about one-third of its work force in the past year.

STOCK PERFORMANCE: McClatchy shares added a penny to end the quarter at 50 cents.

(This version CORRECTS analyst estimate for quarter loss to 8 cents per share, instead of $6.45 per share.)

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