Tribune posts loss; cash flow tumbles 12%
Tribune posts loss; cash flow tumbles 12%
By Michael Oneal
Copyright © 2007, Chicago Tribune
Published April 20, 2007
Tribune Co. reported dismal first-quarter results Thursday, colored by a 12 percent slide in operating cash flow as the newspaper industry continued to suffer erosion in advertising revenue and circulation.
The company's results lagged behind its peers, turning up the heat on the Chicago-based media conglomerate, which early this month announced plans to take itself private in partnership with billionaire Sam Zell.
Faced with declining revenue and pressure to cut costs, the company is planning to offer employee buyouts to eliminate jobs, said sources familiar with the situation.
These sources didn't know how many jobs are targeted companywide but said the Chicago Tribune Co. is expected to issue a request for buyouts on Monday, with a goal of eliminating 100 positions. If the offers don't generate enough savings, one source said, the company may resort to layoffs.
A spokesman wouldn't comment on the cuts and didn't make executives available to discuss the quarterly results.
Tribune, which also owns the Los Angeles Times, WGN-Ch. 9 and other media properties, has been cutting jobs at its various properties for several years. One source said the current effort is part of Tribune Co.'s previously announced push to shave $200 million in expenses over the next two years, a target that is built in to the assumptions of the bankers financing the Zell buyout plan.
That deal has increased pressure on Tribune to improve results, or at least maintain last year's level of cash flow, amid a slump in advertising and circulation revenue as readers defect to the Internet.
But Thursday's numbers showed that Tribune's financial results continued to erode in the first quarter, and analysts said there was no evidence the company has hit bottom.
Tribune reported a net loss of $15.6 million in the first quarter, compared with a gain of $102.8 million a year earlier. But those results included a slew of one-time factors, and analysts paid more attention to the decline in operating cash flow to $238 million from $271 million. Cash flow is what companies use to pay down debt.
Several other big newspaper publishers, including Gannett Co. and the New York Times Co., also reported declines in advertising and circulation revenues this week. But Tribune's results were "on the weaker side," said John Puchalla, an analyst at Moody's Investors Service.
He pointed out that Tribune's newspaper revenue fell 5.5 percent versus an average decline of 2.3 percent for other companies reporting results.
The most alarming aspect of the Tribune report was the drop in cash flow. Despite a 4 percent decline in overall revenue, to $1.2 billion, and a 2 percent drop in expenses, Tribune's operating cash flow fell much more precipitously.
The reason is that Tribune is fast losing revenue in high-margin businesses such as real estate and help-wanted classified ads. The costs associated with classified ads are low, so as volume increases, profit climbs. But when volume declines, it comes straight out of earnings.
Mike Simonton, an analyst for Fitch Ratings in Chicago, said that real estate classifieds in particular propped up Tribune earnings in 2005 and for much of 2006. But when the boom turned to bust, especially in Florida, "a disproportionate amount of profit came off the table," he said.
Tribune has insulated itself to some degree by building online classified businesses like CareerBuilder.com and Apartments.com. But even though online revenue grew a promising 17 percent during the quarter, to $60 million, that is only 5 percent of the company's total.
Zell, who is leading an effort to take Tribune private in a complex deal that will involve taking on $8.4 billion in new debt, wasn't fazed by the results. The first-quarter results were "well within our expectations," Zell said, pointing out that the falloff in real estate classifieds was exaggerated by bad comparisons.
"Florida is going through one of its every-five-year periods of oversupply," he said. "The numbers a year ago were off the charts."
Since he emerged as the winner in the Tribune bidding in early April, however, Zell has said he doesn't believe that cost-cutting will solve the company's problems. He and Tribune Chief Executive Dennis FitzSimons have said the company will be able to pay down its heavy debt load if it can simply maintain last year's cash-flow level of $1.4 billion. But to do that, they will have to find ways to wring better performance out of the company's old-media assets.
One source close to the company said the covenants on the debt agreements financing the deal give Tribune some wiggle room this year. But the banks likely expect better results as the year moves forward.
That helps explain why FitzSimons invited Harvard Business School professor John Kotter, a noted expert on leading change, to come address his top managers on Wednesday. Kotter talked about creating a sense of urgency and removing the barriers that get in the way of doing new things, sources said. They added that FitzSimons told the assembled executives that the company is adopting Kotter's eight-step program for guiding change, and that their only choice was to get on board.
Some attendees said that it wasn't clear what their marching orders were, but one said, "It was a good start."
"There was an urgency to move forward," he said. "We have to transform."
----------
mdoneal@tribune.com
By Michael Oneal
Copyright © 2007, Chicago Tribune
Published April 20, 2007
Tribune Co. reported dismal first-quarter results Thursday, colored by a 12 percent slide in operating cash flow as the newspaper industry continued to suffer erosion in advertising revenue and circulation.
The company's results lagged behind its peers, turning up the heat on the Chicago-based media conglomerate, which early this month announced plans to take itself private in partnership with billionaire Sam Zell.
Faced with declining revenue and pressure to cut costs, the company is planning to offer employee buyouts to eliminate jobs, said sources familiar with the situation.
These sources didn't know how many jobs are targeted companywide but said the Chicago Tribune Co. is expected to issue a request for buyouts on Monday, with a goal of eliminating 100 positions. If the offers don't generate enough savings, one source said, the company may resort to layoffs.
A spokesman wouldn't comment on the cuts and didn't make executives available to discuss the quarterly results.
Tribune, which also owns the Los Angeles Times, WGN-Ch. 9 and other media properties, has been cutting jobs at its various properties for several years. One source said the current effort is part of Tribune Co.'s previously announced push to shave $200 million in expenses over the next two years, a target that is built in to the assumptions of the bankers financing the Zell buyout plan.
That deal has increased pressure on Tribune to improve results, or at least maintain last year's level of cash flow, amid a slump in advertising and circulation revenue as readers defect to the Internet.
But Thursday's numbers showed that Tribune's financial results continued to erode in the first quarter, and analysts said there was no evidence the company has hit bottom.
Tribune reported a net loss of $15.6 million in the first quarter, compared with a gain of $102.8 million a year earlier. But those results included a slew of one-time factors, and analysts paid more attention to the decline in operating cash flow to $238 million from $271 million. Cash flow is what companies use to pay down debt.
Several other big newspaper publishers, including Gannett Co. and the New York Times Co., also reported declines in advertising and circulation revenues this week. But Tribune's results were "on the weaker side," said John Puchalla, an analyst at Moody's Investors Service.
He pointed out that Tribune's newspaper revenue fell 5.5 percent versus an average decline of 2.3 percent for other companies reporting results.
The most alarming aspect of the Tribune report was the drop in cash flow. Despite a 4 percent decline in overall revenue, to $1.2 billion, and a 2 percent drop in expenses, Tribune's operating cash flow fell much more precipitously.
The reason is that Tribune is fast losing revenue in high-margin businesses such as real estate and help-wanted classified ads. The costs associated with classified ads are low, so as volume increases, profit climbs. But when volume declines, it comes straight out of earnings.
Mike Simonton, an analyst for Fitch Ratings in Chicago, said that real estate classifieds in particular propped up Tribune earnings in 2005 and for much of 2006. But when the boom turned to bust, especially in Florida, "a disproportionate amount of profit came off the table," he said.
Tribune has insulated itself to some degree by building online classified businesses like CareerBuilder.com and Apartments.com. But even though online revenue grew a promising 17 percent during the quarter, to $60 million, that is only 5 percent of the company's total.
Zell, who is leading an effort to take Tribune private in a complex deal that will involve taking on $8.4 billion in new debt, wasn't fazed by the results. The first-quarter results were "well within our expectations," Zell said, pointing out that the falloff in real estate classifieds was exaggerated by bad comparisons.
"Florida is going through one of its every-five-year periods of oversupply," he said. "The numbers a year ago were off the charts."
Since he emerged as the winner in the Tribune bidding in early April, however, Zell has said he doesn't believe that cost-cutting will solve the company's problems. He and Tribune Chief Executive Dennis FitzSimons have said the company will be able to pay down its heavy debt load if it can simply maintain last year's cash-flow level of $1.4 billion. But to do that, they will have to find ways to wring better performance out of the company's old-media assets.
One source close to the company said the covenants on the debt agreements financing the deal give Tribune some wiggle room this year. But the banks likely expect better results as the year moves forward.
That helps explain why FitzSimons invited Harvard Business School professor John Kotter, a noted expert on leading change, to come address his top managers on Wednesday. Kotter talked about creating a sense of urgency and removing the barriers that get in the way of doing new things, sources said. They added that FitzSimons told the assembled executives that the company is adopting Kotter's eight-step program for guiding change, and that their only choice was to get on board.
Some attendees said that it wasn't clear what their marching orders were, but one said, "It was a good start."
"There was an urgency to move forward," he said. "We have to transform."
----------
mdoneal@tribune.com
posted by Carlos T Mock at 7:11 AM
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