The Real Story at Tribune

CEO Dennis FitzSimons has sidestepped questions about his critics, but the company reports results that back up their case

In a conference call with analysts in which Tribune Co. (TRB) announced its second-quarter results, the major story line for the company in July, 2006—the noisy demands voiced by its leading shareholder for significant change, and soon—went largely unaddressed.

In his only comments on the matter, Tribune Chairman-CEO Dennis FitzSimons left unclear whether he had even been talking with representatives of the Chandler family, which owned the Times Mirror newspaper chain before Tribune bought it in 2000 and which is now a major shareholder in Tribune. "Now that the tender offer is completed, we look forward to working constructively with the Chandlers," he said, in response to an analyst's question. He declined to comment on any negotiations.

It was just a month ago, on June 13, that the Chandler family went public with a stinging rebuke to Tribune, saying that the company's strategy of seeking synergies by pairing big-market newspapers with adjacent TV stations had failed. The letter called for Tribune to separate its newspaper and broadcasting businesses and explore other options for the company as well. FitzSimons has dismissed the Chandler's contentions as being driven by "economics and tax risk," since the Chandler family is known for striving mightily to avoid taxes.


  FitzSimons characterized the company's massive share-buyback plans as "on track." (Tribune's plans to buy back up to 25% of its shares outstanding, which the company announced in late May, brought the simmering tensions with the Chandlers to a rolling boil.) The company will complete its buyback by purchasing about 20 million shares on the open market by yearend.

But if the Chandlers still want to squawk about poor performance and strategy, there's little in Tribune's current results that disproves their contentions. Overall revenues for the quarter fell 1.4%, to $1.4 billion, as revenue declined in both its broadcast and newspaper divisions. Net income tumbled 62%, to $87.8 million, although the company emphasized the results from continuing operations. Not counting assets that the company plans to sell, profits declined 29%, to $164.0 million.

The results were in contrast to those at McClatchy (MNI), which also reported its earnings on July 13. The Sacramento-based newspaper company handily beat Wall Street's expectations, with revenues that rose 0.5% to $304.2 million and net income that was flat at $44.1 million.


  The big-market strategy continues to hurt Tribune. In the conference call, the company disclosed that ad revenue at its Los Angeles Times was up 1%—but was down 4% at the flagship Chicago Tribune and down 10% at Newsday, which is based in Melville, N.Y.

FitzSimons spoke in general terms of how to improve revenue growth at the company, which largely entails beefing up Tribune's Web sites and "redeploying resources" toward that end. Interactive-related revenues rose 20% in the second quarter, FitzSimons said. In FitzSimons' last public remarks last month, though, he told investors that interactive will account for just 7% of Tribune's revenues this year—and this figure will only rise to 12% to 15% by 2010.

Circulation revenues at the newspaper division were down 5%, Tribune Publishing President Scott Smith said, owing to slight circulation declines and "selective discounting" of subscription prices to hold onto existing subscribers.


  The company has said it will shed $500 million on what it deems "non-core assets," but FitzSimons on July 13 left the door open—if only slightly—to additional asset sales. He said in response to an analyst's question that "if we don't have or feel we have competitive advantages, those assets will be the ones we look at." He added that the company would also carefully study the tax situation with such assets.

In one potential bright spot for the company—and for the newspaper industry at large—Smith said that online classifieds in Tribune's large markets are selling for roughly the same price as print classifieds. In a conference call that offered few glimmers of hope for newspapering in general, this can only count as good news for an industry in which classifieds, the most profitable form of advertising, are sliding from print to online.

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