Last week McClatchy Co. (NYSE: MNI) reported disappointing results for the third quarter of 2016, including a net loss of $9.8 million, compared to net income of $1.1 million for the same period last year. The adjusted net loss after compensating for severance payments, technology conversions costs, etc. was $2.1 million, compared to an adjusted net income last year of $3.2 million.

Other Q3 financial highlights include:

• Digital-only advertising revenue grew 15.2 percent.
• Operating expenses declined 4 percent and adjusted operating expenses decreased 5.2 percent.
• Average total unique visitors grew to 60.2 million (43.3 percent growth) and local unique visitors grew to 14.4 million (15.6 percent growth).
• Total revenue was $234.7 million, a 6.6 percent decline year-over-year, but a 1 percent increase over the second quarter.
• Total advertising revenues were $133.2 million, down 11.1 percent year-over-year, due to the “softness in traditional print advertising and direct marketing.”
• Audience revenues were $91.0 million, a 1.9 percent increase year-over-year.
• Digital-only audience revenues (subscriptions) were up 10.7 percent.
• The total number of digital-only subscribers at the end of the quarter was 80,300, a 3.3 percent increase year-over-year.

“Ad revenue trends were relatively stable compared to the first half of 2016 and audience revenues grew. In short, we remain diligent in identifying ways to improve total revenue trends while reorganizing our business to reduce legacy costs and propel our digital transformation,” said Pat Talamantes, McClatchy’s president and CEO, in the earnings report.

“We remain confident in our advertising sales force reinvention and our focus on a digital news strategy. We have created strong digital teams and tools, including greater use of video. Not coincidently, our total unique visitors are up 43.3% in the third quarter of 2016 versus the same period last year while local unique visitors grew 15.6% over the same period. More visitors not only means an increased interest in our content, but additional advertising opportunities for our sales teams,” Talamantes added.

Operational highlights for the third quarter include:

• $4.7 million was paid out in severance charges. ($13.4 million paid year-to-date.)
• Conversion costs related to co-source information technology operations totaled $4.6 million.
• The cost of reorganizing sales and other operations totaled $2.1 million.  
• Company launched excelerate™, a new, full-service, enterprise-wide digital marketing agency, on August 30.
• Company completed the sale of the Wichita Eagle headquarters, and is considering the sale of other properties and buildings.

Year-to-date, total revenues for 2016 were $714.9 million, a 7.2 percent decline year-over-year. Advertising revenues were $410.4 million, down 10.7 percent year-over-year. The net loss year-to-date was $37.3 million. The adjusted net loss for the year was $11.5 million.

What’s next? McClatchy said it expects digital-only advertising revenue to grow at a double-digit rate for the year. The company expects print advertising to continue to decline and become a smaller percentage of total advertising revenue and total revenue. McClatchy expects “audience revenues” (subscriptions) to remain relatively flat for 2016, as the company continues to reduce legacy costs and find efficiencies wherever possible. Other goals include growing digital revenue, stabilizing adjusted EBITDA, reducing debt and interest costs and creating shareholder value.

Investors are not impressed. On October 20, the day the financials were posted, stock closed at $18.46 per share. At 4 PM Eastern on October 26, McClatchy Co. stock was $15.74 per share, a 14.7 percent drop. Even though the stock price has dipped, it is still higher than the $13.30 per share it was on October 27, 2015 and well above the five-year low of $8.10 on July 31, 2015.

Insider Take:

In some ways, McClatchy is making progress. It did see some success in growing its online audience and an increase in digital ad revenue. It was also able to cut costs which will help it weather the rest of the year, but it will still be challenging to overcome a year-to-date net loss of $37.3 million.

McClatchy isn’t alone in having to address declining print advertising revenues. Earlier this week, we reported on the Wall Street Journal’s latest reorganization and its offer to buy out a “substantial number” of news employees. Legacy companies are having a hard time making the transition from print to digital in a way that is financially sustainable.