Tribune Co. profitability continues to deteriorate

by Ann Saphir, Crain's

Tribune Co.’s financial picture deteriorated even more this year as declining advertising sales continued to hammer the newspaper industry, the Chicago media conglomerate’s bankruptcy filings show.

The company is much less profitable than before its filing in December and is burning through cash, financial statements for the first five months of the year show. Tribune’s revenue declined about 23% in the first half of 2009, according to an estimate by Chicago-based Morningstar Inc. analyst Tom Corbett, who reviewed the company’s financials.

“They are just like every other newspaper company I am looking at,” Mr. Corbett said. “They are seeing vertiginous losses in ad sales and their profitability is suffering from having fixed costs.”

Nationally, newspaper ad sales declined almost 30% in the first quarter, Mr. Corbett said. Tribune doesn’t report profit, but a Crain’s analysis of cash flow shows the company had an 8% profit margin for the first few months of the year, which is less than half the 19% margin it boasted in the first half of 2008.

Tribune is “still profitable, but significantly less so than last year,” Mr. Corbett said.

The profit decline may add to the pressure on CEO Sam Zell to seal a deal on the Cubs, which went on the block more than two years ago. A bid led by Chicago bond salesman Tom Ricketts for around $850 million has been held up by disagreements over broadcast rights.

Selling the team would bring in cash that could help pay off Tribune’s $12-billion debt, an important hurdle before the company can restructure its liabilities and emerge from bankruptcy.

As a private company in bankruptcy, Tribune publishes far less financial information than it did last year, when its debt was publicly traded and it was required to file financial information with the Securities and Exchange Commission. The difference makes comparisons difficult.

Instead of revenue, the company reports operating receipts, which were down 14% from the beginning of the year to $1.36 billion as of May 31. Despite the drop in operating receipts, the company took in $112 million more in cash than it spent between January and the end of May, bankruptcy filings show.

The company is cash-flow positive and has more cash on hand today than it did when it filed for bankruptcy protection, a Tribune spokesman said. He declined to provide any details on ad sales or circulation trends this year but acknowledged that there is more pressure on the business.

“Since going private, we have re-engineered many of our existing products and introduced new ones, expanded our local news programming, dramatically reduced our expenses and positioned the company to succeed in the face of an extremely difficult ad environment and a worsening economy,” the spokesman said.

article originally published at Crain's .

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