Tribune Publishing Co. (NYSE: TPUB) has wrestled with attempts by wealthy locals to buy the Los Angeles Times, which is its flagship, as well as the firing of the Times publisher and accusations it has been too aggressive in dropping its financial forecast for its West Coast properties. While these are important issues, much more important is whether Tribune should be a large company with very low net income and a great deal of debt, or a smaller one with a better financial future.

In the most recently reported quarter, Tribune Publishing posted revenue of $410 million, down from $430 million in the same period a year earlier. Net income fell from $15 million to $3 million. Its long-term debt added up to $408 million. At some point soon, Tribune may have trouble meeting its debt service.

Tribune dropped its guidance on September 18, to a large extent because of problems at its West Coast properties:

Tribune Publishing Company today announced that based on preliminary results through the end of August and the Company’s outlook for the balance of the year, the Company now expects the following full year 2015 results:

Total Revenues of $1.645 billion to $1.675 billion, compared to prior estimates of $1.67 billion to $1.70 billion
Adjusted EBITDA of $145 million to $160 million, compared to prior estimates of $165 million to $175 million

Tribune Publishing’s Chief Financial Officer Sandra J. Martin said, “Revised guidance reflects lower forecasted revenue estimates for the year, concentrated in Southern California. Expense mitigation efforts partially offset this decline, but are expected to be unfavorably impacted by the delay of implementation of these efforts, principally in Southern California.”

Put another way, the West Coast is a drag on the fortunes of the overall company.

Tribune Publishing owns two large papers in California, the San Diego Union Tribune and Los Angeles Times. The wealthy residents of Los Angeles only want the Los Angeles Times. While it is impossible to estimate what it is worth, the Washington Post was sold for $250 million. The Los Angeles Times probably would sell for more, both because of its size and a very ready set of buyers.

Tribune Publishing should stop fighting with its problems in Los Angeles and at the same time clean up its balance sheet.

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