Friday, March 13, 2009

GateHouse CEO: We're cutting expenses and going online

GateHouse Media CEO Michael Reed did not use the words above to describe the path his company is going to take in the next few months, but that is what the statement he filed today with the Securities and Exchange Commission and issued as a press release said.

Of course, as noted in an earlier post, Reed did not take any questions, canceling the quarterly call-in, not only for now, but forever. The text of his statement is printed below:

“In my 21 years in the local media sector, 2008 was by far the most challenging year. Our print classified business, our category that is most sensitive to the economy, declined nearly 20% on a same store basis in 2008 and accounted for over 75% of our total advertising revenue decline. In the fourth quarter, the big three classified categories - help wanted, real estate and automotive - each experienced the largest decline in the last six quarters.

“Advertising spend in the three primary classified categories has declined dramatically, but we have not seen a significant shift to other mediums in our markets. We continue to believe that the majority of our overall revenue declines are cyclical and that when the economy turns, advertising revenue will improve.

“Our local businesses have held up well during this treacherous environment. Local print advertising, excluding classified, was down only 3.8% in 2008 on a same-store basis. In addition, online revenue increased 21% and circulation revenue increased approximately 2%. Our print audience remains relatively stable as evidenced by our circulation results. In addition our overall audience continues to grow through the development of our interactive strategy.

“As we look ahead over the next 12 to 24 months, we think the economy will remain very weak. Our focus is on improving our products and operations, aggressively pursuing reductions in controllable expenses, finding ways to become more efficient and continuing to invest in our fastest growing category, online. I am proud of the efforts and dedication all GateHouse employees have shown this year and am confident we will emerge a stronger company when the economy improves.”

The following breakdown of the company's 2008 results was included in the news release:

The Company reported full year 2008 total revenue of $683.1 million, an increase of 17.9% over full year 2007. As Adjusted Revenues were $698.5 million, an increase of 14.1% over full year 2007. The increase in revenues was driven by the Company’s acquisitions and implementation of its online strategy, partially offset by declines in print classified advertising revenues, in particular, help wanted, real estate and automotive.

Reported operating loss for the full year 2008 was $582.9 million. Excluding the impairment charge associated with goodwill and mastheads and other long-lived assets, operating income in 2008 was $32.6 million, as compared with $45.2 million in 2007. As Adjusted EBITDA was $131.4 million for the year ended December 31, 2008, down 20.3% on a same-store basis.

GateHouse Media owns The Carthage Press, Neosho Daily News, Pittsburg Morning Sun, Neosho Post, Big Nickel, Greenfield Vedette, and Aurora Advertiser in this area.

GateHouse Media stock closed at six cents per share today, down one cent from Thursday.


Anonymous said...

Thank you, Randy, for posting this analysis. It's the second one I've seen anywhere yet online of the Gatehouse filing today.

GateHouse Media also owns the Waynesville Daily Guide, Rolla Daily News and Camdenton Lake Sun Leader in my area. Its fourth-quarter report and annual 2008 financial report on Friday morning. That report can be found here:

I seriously considered writing a news article or an analysis piece for the Pulaski County Daily News but finally decided I was simply too close to the situation as a former GateHouse employee and would need to do this as a opinion piece on the Pulaski County Web. For those who want to see the web version, it’s here:

It’s hard to say “enjoy reading this” – it’s basically reporting the collapse of the parent company of the major local print news outlet in three of our area cities. With losses like this, I can’t imagine any possible way GateHouse could survive.

Some are going to point out that there are still positive operating revenue figures. I am well aware of the difference between operating revenues and net revenues — in this case, the difference may be a critical indicator of how the core businesses of GateHouse may do if the company gets rid of unpayable debt by declaring bankruptcy, or sells local newspapers that would do okay on their own but are being pulled down by the need to send revenues to headquarters to pay off corporate debt. But the company as a whole is in serious trouble.

Here's the first analysis I've seen yet of the GateHouse $673.3 million loss, issued today in the fourth-quarter financial report and 2008 annual report:

They note that while Gatehouse lost $182.74 million in the last quarter of 2008, that's about $30 million less than the earlier losses.

I don't know of any way for a company with total annual revenues of $683.09 million to say it's good news that they've lost only $182.74 million in a single quarter, even if it's less than earlier losses. As the article notes, "for the full-year, net loss was $673.3 million or $11.80 per share, compared to a loss of $231.42 million or $4.99 per share in the previous year."

Remember, these losses per share should be compared to current stock values of less than 10 cents per share.

According to the latest stock reports, which can be found here...

... and the two-year chart, which can be found here ...

... GateHouse Media closed Friday at 7 cents per share, down 0.5 cents or 6.67 percent from yesterday. This is down from a price of about $22 in 2007, which dropped to about $7 in April 2008 and $5 in May 2008.

In other words, there's been a 99.7 percent drop in the stock price in the last two years.

In a May 9, 2008 quarterly filing with the Securities and Exchange Commission, GateHouse CEO Michael E. Reed wrote: “While the first quarter operating environment remained very challenging, our business strategy remains sound and continues to yield performance significantly better than the newspaper industry at large and positions us very well for growth with an economic recovery. Our solid, steady performance against the current economic headwinds is a result of our focus on operating strong local media franchises in smaller markets combined with our acquisition strategy of identifying attractively valued assets ... Longer term, I am confident we will see a turnaround in advertising spend. Conversations with advertisers support our belief that the majority of the slowdown in ad spend is cyclical in nature and that it will return when economic conditions improve. In the meantime, we will continue to execute on our small local market strategy and position the company for future growth.”

Economic conditions didn't improve, and neither did GateHouse's stock price. The stock went into virtual free-fall from May until October, dropping under $1 by mid-July and down to less than a quarter by mid-October.

When the stock prices failed to recover, the New York Stock Exchange announced that GateHouse Media was in danger of being kicked off the stock exchange.

On October 20, 2008, New York Stock Exchange regulators announced “that it determined that the Common stock of GateHouse Media, Inc. (the 'Company') – ticker symbol GHS – should be suspended prior to the market opening on Friday, October 24, 2008” and that they “also determined that the 'abnormally low' price of the stock makes it appropriate to suspend the Company’s common stock at this time rather than provide the Company an opportunity to cure its non-compliance with the NYSE’s quantitative requirements.”

The stock had been trading at 18 cents per share on October 15, 2008, and since November, has rarely been above 10 cents per share.

It seems clear not only that GateHouse has failed to turn around its operating losses, it continues to hemorrhage red ink at an only slightly less rapid pace.

Anonymous said...

Editor & Publisher's staff apparently agree with you about the "no comment" by Gatehouse's CEO being a bad idea.

They're attacking GateHouse not only for not taking questions but also for being late with their quarterly report. The title, "Silent GateHouse slow out of the gate" probably says it all.

Here's an earlier comment by the same people:

"No Questions, Please. We're GateHouse

Fitz: That clicking sound you heard at 10 a.m. EST Friday was analysts slamming down their pens or closing their laptops as GateHouse Media Inc. CFO Mark Maring announced during the chain's Q3 earnings conference call that executives would take no questions. (snip) "Refusing to take questions on a conference call is more telling than any answers they could give," one analyst e-mailed "Fitz & Jen" during the call. So Friday's conference call was essentially a stage reading of their earnings release."