Blog examines future of St. Louis Post-Dispatch parent company

In the wake of an auditing firm's statement of concern about the possibility of Lee Enterprises defaulting on $1.4 billion worth of debt, the Reflections of a Newsosaur blog, written by former San Francisco Chronicle and Chicago Sun-Times editor Alan D. Mutter, offers an examination of what could happen to the company, which numbers the St. Louis Post-Dispatch among its holding:

While Lee is in a distinctly unpleasant position with respect to its shareholders and lenders, it is important to note that the business generated $207.2 million in operating profits last year on sales of a bit more than $1 billion. Its operating margin of 20.1% surpasses that of Exxon Mobil Corp., which generated a 19.1% margin in the last 12 months. And Lee’s profitability positively blows away Wal-Mart, the largest Fortune 500 company, whose margins were only 7.4% in the prior 12 months.

As rich as Lee’s profits are, however, they used to be richer. Its earnings before interest, taxes, depreciation and amortization (EBITDA) were 30.7% lower in 2008 than in the previous fiscal year. And that’s a big problem for a company that shouldered some $1.4 billion in debt to buy Pulitzer in 2005 in the expectation that rising sales and profits would enable it to repay the loans.

Unfortunately for Lee and several other publishers who also loaded up on more debt than they can handle, newspaper ad sales began collapsing after reaching an all-time industry high of $49.4 billion in 2005. (In 2008, sales probably were no better than $38 billion, reflecting a 23% plunge in just three years.) You can blame the collapse on major changes in the behavior of consumers and marketers, aggravated last year by the scariest economy since the Depression.