15 Companies That Management Can’t Fix: McClatchy

There are certain companies that probably cannot be turned around no matter who runs them. They tend to be in industries where macro-economic trends are against them, like the buggy whip business 150 years ago.

Investors are not likely to get much out of these firms, unless and until the trend that is hurting them is reversed.

There are a number of newspaper companies the could be put this list. Probably The New York Times Company (NYT) and The Tribune (TRB). But, McClatchy (MNI) doubled down on its bet on the newspaper industry when it bought Knight-Ridder. And, the move does not look very good.

McClatchy’s stock is down almost 50% in the last two years. Shares in the Journal Register (JRC) another newspaper chain are down almost 60%.

The problem for all of the companies in the industry is the same. The internet. Consumers are moving away from paying for newspapers. Newspaper circulation drops. Advertising rates go down, and the medium becomes less attractive for marketers.

Because McClatchy bought Knight-Ridder during the last year, it shows pro forma numbers. On that basis, revenue in the fourth quarter of 2006 dropped 3.4% to $630.7 million. The company said the advertising revenue would be down in the first half of 2007.

While most newspaper groups are trying to capture readers with online versions of their products, the revenue from these initiatives is not growing fast enough to match the attrition from their traditional businesses. Even The New York Times Company, with it large online presence, only got 9% of its revenue from online operations in the last quarter. But, this figure includes About.com, an internet property that has no direct relationship to the company’s newspapers.

Newspapers have done most of their cost cutting. The printing and drivers unions were driven out two decades ago. Newsroom lay-offs continue but can only go so far without damaging the editorial products. Paper and transportation costs are beyond management’s ability to control.

Newspaper stocks will probably not fall another 50%. Most of these businesses have good cashflow, but over time that is likely to dwindle.

Better management? What for?

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.