The report by the AP’s Mike Liedtke says McClatchy’s 8 percent fall in ad revenue is the best performance since a 5 percent decline in the first quarter of 2007. But, as he also points out, today’s year-to-year comparisons are against poor performances. That’s 8 percent less than a number that was bad to begin with.

Net income for the quarter was $7.3 million, down from $42.2 million a year ago. Total revenue fell 6 percent to $342 million, the AP says.

The company is blaming the earnings plunge on “higher interest costs as we extended debt maturities,” according to the Sacramento Business Journal’s report.  Interest payments for the quarter were up 44 percent to $49 million compared to $34 million at the same time last year after restructuring in February that extended repayment to 2017.

McClatchy was struggling with a debt of $1.8 billion as of the end of June, the SBJ says.

The company also sold about 200,000, or 8 percent, fewer copies of its weekday newspapers this past quarter, though higher prices eased that hit a little.

McClatchy management projects a 4 to 6 percent revenue decline year-to-year for the coming third quarter.

“The Street will no longer be satisfied with earnings pumped up only by continual cost-cutting. Gannett (GCI) handily beat Street estimates of earnings – but its overall earnings, in a quarter when its broadcast properties were humming nicely, was down 1.6%. … GCI got hammered for those results Friday, falling more than 10 percent.”

Gannet’s print and circulation revenues were down for the quarter also.

Other publishers’ stocks are also down as their 2Q reports come in the next several days, Fitzgerald says.

The publisher’s first quarter report on Thursday showed improvement, thanks to reduced expenses — obtained chiefly through layoffs, which may not be over  — and an advertising climate that isn’t as bad as it was.

But the bottom line was  “a net loss from continuing operations of $2 million, or 2 cents per share,” the Business Journal says. “In the same period last year, the company incurred a net loss from continuing operations of $37.7 million, or 45 cents per share.

“Without the charges, McClatchy earned $4.8 million, or 6 cents a share, for the quarter, compared to a loss of $22.9 million, or 28 cents a share, in first-quarter 2009.”

The Associated Press report, on the other hand, says “a one-time accounting gain related to newspapers that it sold a few years ago” allows McClatchy to claim a profit for the quarter. “[N]et income, including discontinued operations, came to $2.2 million, or 3 cents per share,” the AP says. It lost $37.5 million, or 45 cents per share, in the same period a year earlier, which included charges for severance.

Advertising revenue dropped 11.2 percent to $253 million, better than the 20.5 percent drop in the fourth quarter of 2009. In last year’s third quarter, ad revenue fell 28.1 percent.

Total revenue for the quarter was 8.2 percent less than a year ago, at $335.6 million compared to $365.6 million.

McClatchy’s stock fell following the report, perhaps, Benchmark Co. media analyst Edward Atorino told the AP, because “some investors may have been looking for more details about how McClatchy plans to cut costs, given that it expects further revenue declines.”

The company’s  costs, excluding severance payments, declined more than 21 percent in the first quarter, compared with the same period a year earlier, largely because of lower payroll and newsprint expense, the AP said. McClatchy has cut about a third of its work force since the middle of 2008.

“In a statement, McClatchy CEO Gary Pruitt said the company ‘will remain vigilant’ on costs but acknowledged that second-quarter expenses will not decline the way they did in the first,” the AP said. “During a conference call, Pruitt said the company would try to avoid further job cuts, but he didn’t rule them out.”

The debt restructuring involved extending  “approximately $1 billion in maturities from mid-2011 to mid-2013 and beyond, including the $875 million of senior secured notes due in 2017,” Pat Talamantes, McClatchy’s chief financial officer, said in the release.

McClatchy’s debt remains from its $4.5 billion purchase in 2006 of the much-larger Knight-Ridder newspaper chain.

McClatchy’s stock fell $0.75, or 10.98 percent, to close at $6.08 Thursday.

Things looked better in January when the company announced “encouraging fourth-quarter results,” Reuters says. Then the company put off its next major debt payment until 2013 by agreeing to higher interest rates.

“But McClatchy’s swaps have retraced all of January’s strengthening and are now 157 basis points wider than when its refinancing was announced, at about 1016 basis points as of Tuesday, according to data from Markit,” the Reuters report says.

“‘I think the market is smart enough to know that there are some fundamental issues here and what they’ve done is basically delayed the inevitable,’ said Shelly Lombard, analyst at independent research service Gimme Credit.”

“Despite the fact that McClatchy’s online revenues are growing rapidly, they are still a small portion of its overall business and are not expanding quickly enough to replace newspaper revenue, she said.

“On the positive side, Lombard said she does not expect McClatchy to run into problems for at least 18 months and probably two years, and investors can collect their coupons until then.”

G.D. Gearino, a former business editor at McClatchy’s News & Observer in Raleigh, provides a good explanation of  McClatchy’s bond swap on his blog. He also points out that deep in the financial statements we find that “the new bonds, unlike the previous ones, are backed by McClatchy’s assets. Bondholders will be on equal footing with the banks.  And one of those assets, of course, is The News & Observer.”

We saw the Reuters report mentioned on the Fitz & Jen blog at Editor & Publisher, where, in their daily market roundup, they point out that on Tuesday McClatchy “took the sector’s biggest hit percentage wise with its shares off 5.7 percent to $5.12. Reuters reported that credit default swaps for MNI indicate the market is nervous about the company.”

The report says that in Q4 2009 the industry “saw its 14th consecutive advertising revenue decline; the last nine of those quarters were double-digit declines.” And nothing indicates that January, typically a bad month for revenue, is looking any better.

The report examines the five publishers individually: Gannett, New York Times Co., Lee Enterprises, Media General and McClatchy Co.

At McClatchy, it finds strong online revenue growth comparatively, but scoffs at CEO Gary Pruitt’s claim that expectations of revenue declines in the low- to mid-teens percentage range in January indicate a recovery. “In other words, McClatchy expects the Q4 decline of 20.5 percent to be followed in Q1 2010 by a decline of somewhat less than 15 percent, and considers that to be an ‘improving advertising trend.’”

In another problem area, “Besides nearly $2 billion in long-term debt, McClatchy also disclosed that at year-end, its pension plans were underfunded by $494 million in the ‘qualified’ plan (their standard defined benefit plan, which is frozen), and another $100 million in the non-qualified supplemental executive-level plan. This accumulation of future obligations makes McClatchy one of the most-leveraged publishers out there.”

“Given that total ad revenues are still negative and secular challenges remain, we will continue to focus on costs,”  Pruitt said in a statement, according to a New York Times report. Over the past couple of years, “costs” has meant personnel and has translated as job cuts at McClatchy newspapers.

McClatchy posted a 16.5 percent drop in revenue from a year earlier to $393.2 million, and said advertising revenue was down 20.5 percent, to $308.7 million. But, Pruitt said, advertising trends — particularly on the Web and including classifieds — were better in October, November and December.

“McClatchy spent 2009 shrinking itself to match dwindling ad revenue in the recession,” The Associated Press said. “It ended the year with about two-thirds of the payroll it had in the middle of 2008.”

The publisher also announced a deal to delay payments on its $1.95 billion of debt by selling bonds and assuming higher interest rates.

“Don’t assume that all such companies are goners. Some will barely cling to life, while others will make a full recovery. Sure it happens, but here we’re seeking companies that have all but given up the ghost.”

“The Times Co.’s ad slide in the third quarter was comparable to what other major newspaper publishers such as Gannett Co. and McClatchy Co. have reported. Those companies have remained profitable because of job cuts and falling newsprint costs.

“… Excluding unusual items, the company said it earned 16 cents per share in the most recent quarter, compared with 5 cents a year ago.”

On Monday, the NYT said it would eliminate 100 more newsroom jobs by year’s end.

Gannett says it earned $73.8 million, or 31 cents a share, compared with $158 million, or 69 cents a share, in the third quarter of 2008.

Ad revenue fell 28 percent at the company’s newspapers, says MarketWatch, reflecting a 26 percent drop at U.S. papers, and a 29 percent decline, in British pounds, at U.K.-based Newsquest papers. Overall, revenue fell 18 percent to $1.34 billion, with gains coming via cost cutting and a tripling of payments from cable and satellite companies to retransmit the signals of Gannett TV stations.

“Gannett’s profit [which beat projections] reflects painful attempts to slash expenses during the past year, from furloughing and laying off workers to slashing pay,” Reuters says. “Similar moves at other publishers, such as McClatchy Co., which reported results last week, have helped them beat Wall Street’s forecasts.”

Gannett has been slashing its payroll costs aggressively, says the Associated Press’ report. It eliminated 1,400 positions this summer, 3 percent of the work force, less than a year after a 10 percent cut. The company also has frozen wages and imposed unpaid furloughs for most of its U.S. workers.

AP Business Writer Michael Liedtke uses such phrases as “traumatic cost cutting,” “jarring decline in revenue,” “dismal trends” and “alarming rate,” the latter to describe the “unraveling” of advertising revenue.

Newspaper publisher McClatchy Co. reported a profit over the last three months Thursday, based on an $11.2 million adjustment for tax miscalculations made earlier in the year and cost savings from eliminating some 5,000 positions over the last 12 months. But its revenue for the period shows a drop of more than $104 million, or 23 percent, from the same time last year.

McClatchy shares fell 52 cents, or 13 percent, Thursday to close at $3.50. The stock fell to $3.24 in after-hours trading Friday.

“Investors are more concerned with McClatchy’s steadily shrinking revenue than they are impressed with the publisher’s ability to remain profitable by shedding expenses,” Liedtke writes.