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The McClatchy Company Message Board

  • longtimefollower longtimefollower Jul 19, 2009 9:16 PM Flag

    The case for MNI. (#'s 1-5)

    1) MATERIAL debt reduction: MNI had $2.05 B in debt at 3/31/09. Company reduced total debt by about $75 M in the recent "coercive" debt exchange. It will further reduce debt by $190 million when it closes on the 10 acre Miami land parcel, PROBABLY by the end of this year. (Or am I wrong, and will some of the sales proceeds have to go towards tax payments from the gain??) Based on current free cash flows, factoring in recent expense cuts, figuring capital expenditures remaining cut to the bone, and MODEST improvement in revenue declines for the rest of this year, and excluding any additional restructuring charges, I expect at least $100 million in total FREE CASH FLOW for the 2nd, 3rd, and 4th quarters combined. Adding up $75 M + $190 M + $100 M means $365 M in total debt reduction by the end of this year, bringing the total down to $1.7 B or less!

    2) Stabilization of revenues: We saw this at GCI, with inklings of *improvement* in the June quarter. Why shouldn't we see the same at MNI?

    3) Cost reductions are just beginning to hit: I anticipate somewhere on the order of $20 M in cost savings in the June quarter they are reporting this Tuesday. Furthermore, based upon previous disclosures, it appears there will be no more than $10 M or so in restructuring charges, versus $20 M in Q1, which will help reported results also look better, sequentially.

    4) Newsprint prices are collapsing: Based upon LEE's disclosure of roughly $1 M in annual savings per $10 decline in newsprint, I am guessing, just based upon the last 2 month trend in newsprint, MNI will save in the ballpark of an addtional $25-30 M pre-tax, annually! (I've factored SOME, but probably not all, of these savings, in my $100 M free cash flow number mentioned in #1 above.)

    5) This sector is arguably more out of favor than anything I have seen in my LIFETIME: Conventional wisdom is convinced that the huge revenue declines we've seen have to do with secular problems with newspapers. But that is so silly, and really self-evidently so to me. If the web was going to put the MNIs of the world out of business, we wouldn't have had such TREMENDOUS free cash flow as recently as 18-24 months ago. CLEARLY, the bulk of this decline has to do with a FRIGHTENING recession, and that expenses for advertising are "deliciously" discretionary, and hence, one of the first things to go, for companies (MNI's customers) that are worried about their OWN profitability....or even solvency (as was the case for many automobile makers, homebuilders, financial institutions, etc.), is ad spending. (I mean, why spend money on ads, to "induce" a consumer to spend, back in November-March, when everyone was FRIGHTENED, and the savings rate was SOARING!)

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