Oct. 16 (Bloomberg) -- McClatchy Co., the publisher of 31 daily newspapers including the Miami Herald, said third-quarter profit fell 55 percent as shrinking U.S. home sales cut real estate advertising. The stock fell to its lowest since 1996.

Net income declined to $23.5 million, or 29 cents a share, from $51.8 million, or 64 cents, a year earlier, Sacramento, California-based McClatchy said today in a statement. Sales dropped 9.2 percent to $540.3 million.

Florida and California, where McClatchy publishes eight newspapers, accounted for 68 percent of the decline in advertising sales as the housing slump hurt real-estate classifieds, the company said. Those states will contribute to a similar advertising drop in the current quarter, McClatchy said.

``Big city publishing is probably one of the toughest businesses to be in right now,'' said Peter Appert, an analyst at Goldman Sachs Group Inc. in San Francisco, who has a ``sell'' rating on the shares and doesn't own any. ``They've had heavier than average exposure to California, which has magnified the broader loss of classified advertising going to the Internet.''

McClatchy fell 25 cents to $18.92 at 4 p.m. in New York Stock Exchange composite trading. It's the stock's lowest price since May 1996. The shares have declined 56 percent this year.

Real Estate Slump

Real-estate classified ads fell 26 percent to $48.3 million, while total advertising sales dropped 9.8 percent to $457 million. Real-estate advertising declined about 40 percent in California and Florida, the company said.

The company's controlling shareholder, the McClatchy family, is interested in having the company buy back stock, Chief Executive Officer Gary Pruitt said on a conference call.

``We are disappointed in the share price,'' Pruitt said, without being more specific.

The company is the first U.S. newspaper publisher to report third-quarter results, with Gannett Co. and Dow Jones & Co. scheduled to follow later this week. Their results will also reflect the housing slump and advertiser defections to the Internet that have caused newspaper stock prices to fall.

Third-quarter profit, excluding 3 cents a share in costs related to taxes, was 32 cents a share, beating the 31-cent average of six analysts' estimates compiled by Bloomberg.

McClatchy said it expects additional costs this quarter after moving up its annual assessment of goodwill and intangible assets because of a ``challenging business environment.'' The company typically revalues assets at yearend.

Web Traffic

Traffic to McClatchy Web sites will increase this quarter because of a new content-sharing deal with Yahoo! Inc. that began in April and has been expanded, according to McClatchy Vice President for Interactive Media Christian Hendricks. McClatchy is a member of the 19-company Yahoo Newspaper Consortium aimed at increasing advertising revenue.

Yahoo's expanded use of stories from McClatchy's newspapers began two weeks ago and hasn't added to the company's revenue, Hendricks said on the call. McClatchy's online ad sales rose 1.4 percent to $41.6 million in the quarter, the company said.

Ad sales at McClatchy's California newspapers fell 19 percent. They dropped 17 percent in Florida. McClatchy doesn't own television stations, which have helped diversified media companies counter declining newspaper revenue.

Last year's third-quarter results were the first to account for the $4.1 billion purchase of Knight Ridder Inc. in March 2006. McClatchy acquired 32 newspapers in the transaction and then sold 12 including the Philadelphia Inquirer.

``The planned restructuring charge is an acknowledgement that the media business has deteriorated substantially since the time they purchased Knight Ridder,'' Appert said.

Third-quarter results from a year earlier also included the Minneapolis Star Tribune, which McClatchy sold to Avista Capital Partners in March for $530 million.

To contact the reporter on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net.

Last Updated: October 16, 2007 16:14 EDT