Knight Ridder Profit Falls on Limp Ad Sales

Newspaper publisher Knight Ridder Inc., which is being sold to McClatchy Co., posted sharply lower first-quarter earnings Monday on weaker advertising -- particularly at three of the 12 newspapers McClatchy is not keeping -- and factors including higher interest costs.

San Jose-based Knight Ridder earned $28.4 million, or 42 cents a share, in the first three months of the year, down from $60.5 million, or 79 cents, a year earlier.

The results were affected by several one-time factors, including costs associated with finding a buyer for the company in the most recent quarter and year-earlier profit from newspapers that have since been sold.

The earnings also were lowered this year by higher interest expenses and new accounting rules requiring companies to record costs for stock-based compensation. All told, one-time charges reduced this year’s per-share results by 25 cents, the company said.

Analysts polled by Thomson Financial had been expecting earnings of 59 cents a share, including the 5-cents-a-share charge for stock compensation.

Revenue rose 3.9% to $739.9 million, although those results included three newspapers in Washington and Idaho that the company didn’t own in the same period a year earlier.

Assuming Knight Ridder owned the same set of newspapers in both periods, total revenue rose 0.5%, while advertising revenue rose 1%. On the same basis, operating profit fell 20%, or 11% excluding the costs of finding a buyer and stock-based compensation.

In a statement, Knight Ridder Chairman Tony Ridder called the first quarter “challenging,” and said the downturn in operating profit was largely because of “particularly weak” results at the Akron Beacon Journal, the Philadelphia Inquirer and the Philadelphia Daily News.

Those are three of the 12 papers that Sacramento-based McClatchy is selling as part of its $4.5-billion acquisition of Knight Ridder. Ad revenue fell 11% in Akron and 5.5% at the Philadelphia papers, Ridder said, accounting for more than half of the decline in adjusted operating profit. Altogether, ad sales fell 0.4% at the 12 papers McClatchy has put on the auction block.

McClatchy is taking bids for the papers. Los Angeles investor Ron Burkle’s Yucaipa Cos. is bidding for all 12 in partnership with the Newspaper Guild-Communications Workers of America.

MediaNews Group of Denver, led by William Dean Singleton, is bidding for the San Jose Mercury News, Contra Costa Times and Monterey County Herald in California as well as the St. Paul Pioneer Press in Minnesota and the chain’s two papers in Philadelphia. Local investors and smaller newspaper chains also are in the running for papers including those in Philadelphia, St. Paul and Duluth, Minn.

At the 20 papers McClatchy is keeping, which include the Miami Herald, the Charlotte Observer and the Kansas City Star, advertising revenues rose 2.3%.

Ridder said per-share earnings took the biggest hit from a 73.6% rise in interest expense as the company increased borrowing and also faced higher interest rates.

Knight Ridder put itself up for sale after a revolt from its three largest shareholders, who were dissatisfied with the company’s stock performance. Last year the company raised its dividend and said it would buy back additional shares of its own stock.

Knight Ridder’s stock fell 73 cents to $61.12.