McClatchy Co. (NYSE: MNI) Chief Executive Gary Pruitt was considered by Wall Street a pretty savvy operator, but his reputation has taken a nosedive following his ill-advised decision to acquire Knight Ridder last year. Now, he seems perplexed as to why Wall Street isn't as bullish on newspapers as he thinks it should be."Certainly newspaper stocks are out of favor on Wall Street," he told Forbes.com. "That's happened before, and that will happen again. But we're not going to go away."
Then, he defended the Knight Ridder deal, saying that it helped boost revenue and cash flow, and strengthens the company in the long-term. The problem, as he noted, is that investors aren't buying his logic. Shares of the publisher of the Sacramento Bee, Kansas City Star and Miami Herald, have tumbled more than 70% this year, underperforming rivals including Gannett Co. (NYSE: GCI) and New York Times Co. (NYSE: NYT), which dropped 40% and 30% respectively.
The reason for the decline is that the business is sucking wind. As of October, advertising revenue was down 8.5% and total revenue fell 7.8% on a pro-forma basis.
Pruitt is right that newspapers aren't going away. They are in a good position to take advantage of the growth in local online revenue. That's going to take time. Although newspaper publishers love to babble on and on about the web, they are still in the print business and will get most of their revenue from dead trees for some time to come.
The best hope for McClatchy shareholders is a buyout, which Pruitt told Forbes remains a "long-term option" that's not being seriously pursued. Given the trends in the industry, Pruitt may have to change his tune fairly quickly before the company's value erodes further. The company has attractive properties that would attract private equity players.
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