The McClatchy Co., battered by declining profits and revenue, announced a 10 percent companywide cut in its workforce Monday, including...
SACRAMENTO, Calif. — The McClatchy Co., battered by declining profits and revenue, announced a 10 percent companywide cut in its workforce Monday, including the Sacramento publisher’s first-ever across-the-board layoffs.
The decision will eliminate 1,400 jobs through a combination of layoffs, voluntary departures and attrition.
McClatchy is the third-largest newspaper chain in the country. Besides the chain’s flagship Sacramento Bee, the company’s 30 daily newspapers include the Tacoma News Tribune, The Olympian, The Miami Herald, The Kansas City Star, the Fort Worth Star-Telegram and The Charlotte Observer. McClatchy also owns a 49.5 interest in The Seattle Times Co.
On its Web site, the News Tribune reported Monday that its staff well be reduced by 13 percent, or 84 positions, according to a memorandum to employees from the company’s human resources, finance and news executives.
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The Olympian is reducing its workforce by 17 positions, or about 9 percent of its workforce, publisher John Winn Miller said Monday.
To operate more efficiently, The Olympian and The News Tribune in Tacoma will more closely coordinate the advertising and circulation departments. However, the news departments will remain autonomous, the memo adds.
The Bee announced it will eliminate 86 jobs, 46 by layoffs. The reduction will trim the paper’s workforce by 8.1 percent. The cutbacks vary from paper to paper. While the Bee is cutting 8.1 percent of its staff, the McClatchy-owned Miami Herald is eliminating 17 percent of its jobs and The Charlotte Observer is trimming 11 percent.
McClatchy has prided itself on avoiding across-the-board layoffs even as it has used buyouts and attrition to cut its head count by 13 percent since April 2006. But with the company struggling and its stock price down about 80 percent in two years, McClatchy said it had to act more decisively to reduce costs as it transitions to a company more fully focused on the Internet. In a separate announcement, McClatchy said its May revenue fell 15.1 percent; ad sales fell 16.6 percent.
“The effects of the current national economic downturn — particularly in real estate, auto and employment advertising — make it essential that we move faster now to realign our workforce and make our operations more efficient,” Chairman and Chief Executive Gary Pruitt said in a prepared statement. “I’m sorry this requires the painful announcement we are making today, but we’re taking this action to help ensure a healthy future for our company.”
Monday’s announcement could test McClatchy’s reputation as a publisher that can balance quality journalism with the incessant demands of Wall Street. Until now, it has been one of the few publishers to hold to a policy of no broad layoffs, although many of its papers have eliminated jobs through buyouts and attrition.
“McClatchy is still viewed as a newspaper company that cares about quality,” said John Morton, an independent industry analyst and consultant in Maryland. The cutback “puts a dent in that, but it’s not a deep slash,” he said. Quite a few other newspaper chains have been making deep cuts aimed primarily at newsrooms, he said.
The job cuts are designed to save McClatchy about $70 million a year, as part of a larger plan to reduce total operating costs by $95 million to $100 million a year.
Pruitt, in the statement, said the cutbacks are “part of a continuing, strategic vision for successful future operations, not solely a response to today’s adverse conditions.” He said the company is positioning itself “to take full advantage of opportunities for growth as we restructure to support our mission of delivering high-quality news and information.” McClatchy, like other publishers, has been ramping up its online operations, and Web ad revenue has grown 12 percent this year. The Web now accounts for about 11 percent of McClatchy’s ad revenue.
In a memo to employees, Bee Publisher and President Cheryl Dell said the paper would lay off 46 employees and eliminate some open positions, for a total cutback of 86 positions.
She said in an interview that “this is a way of helping ensure our future is better. … This really is what reinvention looks like.”
She said the reductions would take place in practically every department, from news to finance to human resources. She said employees who were being terminated will receive a “transition package” that includes severance pay and outplacement services. The paper was planning to issue the layoff notices to individual employees today, she said.
In an in-house video message e-mailed to employees in April, Pruitt said any cutbacks would be done “sensibly, humanely and with an eye to the future.” A few days later, in a conference call with Wall Street analysts, he promised that McClatchy would continue to “grind out line-by-line reductions” in expenses while being careful not to hinder the company’s ability to sell ads and produce quality papers.
The company’s cash expenses fell 10.5 percent in the first quarter of this year.
Newspaper companies are losing revenue because of the weak economy and the migration of business to the Internet; the gains they’re making at their own Web sites aren’t nearly enough to offset the decline in print advertising and circulation.
The McClatchy cutbacks are “a reaction to what appears to be an ongoing collapse in their revenue base,” said investment analyst Edward Atorino at Benchmark Capital in New York. The May revenue “was worse than what they expected and they were forced to make a tough decision. … It’s a real serious situation.”
Many financial analysts believe newspapers have to permanently downsize their operations to help compensate for the drop in print revenue. Chicago-based Tribune Co. cut 2 percent of its workforce earlier this year and has promised additional cuts. The New York Times recently laid off 15 newsroom employees.
As for McClatchy, “our five-year plan has recognized the need for a workforce smaller than today’s; in adjusting to the current economic environment, we find we must move more quickly to that goal,” Pruitt said.
The economic downturn has been another big blow to publishers, particularly McClatchy. The company gets a third of its revenue from California and Florida, two of the states hardest hit by the crash in the housing market. For instance, The Bee’s revenue fell 16.9 percent last year, or about twice as much as the company as a whole, according to Securities and Exchange Commission filings.
In the first quarter of this year, despite the decline in operating expenses, McClatchy’s profits from continuing operations fell to $1.6 million from $9 million the year before. The main culprit was a 15.3 percent decline in advertising sales, more than half of which came from California and Florida. Total revenue fell 13.8 percent to $488.3 million.
For the first five months of the year, ad revenue has fallen 15.4 percent at McClatchy.
As a result of two years of declining results, McClatchy has fallen out of favor on Wall Street. The company’s stock has slid badly in the past two years, closing at $8.04 today, down 11 cents for the day. The big Wall Street credit-rating agencies, Moody’s Investors Service and Standard & Poor’s, have lowered McClatchy’s credit rating into non-investment grade, or junk-bond, status.
Despite falling profits, McClatchy has been moving to quickly reduce the heavy debt load generated by its 2006 purchase of Knight Ridder. The company paid about $4 billion, plus $2 billion in debt assumption, for the rival chain. Currently McClatchy owes nearly $2.4 billion but expects to reduce that to $2 billion by year’s end, putting extra pressure on the company to cut costs.
The debt from the Knight Ridder purchase didn’t seem overly burdensome at the time, said analyst Atorino. That’s changed. “That debt just sits there like a giant stone around the company’s neck,” he said.