Post Co. Moves Back Into the Black: What Does It Mean?
The Washington Post Co. -- employer of The Ticker -- moved back into profitability in the second quarter of this year and the newspaper division trimmed its losses, though on first glance it doesn't look that way.
Click here to read my story on the earnings. Now, I'll add some context.
Two things are pretty well known by now, I think:
a) Newspaper revenue and readership have been shrinking for years as advertisers and readers turn elsewhere. Despite its strong position in a large, metro market, The Post is no different.
b) The Post Co. is now largely an education and cable company, thanks to its Kaplan Inc. subsidiary, which provided 58 percent of second-quarter revenue, and its Cable One subsidiary, which contributed 17 percent. The Post Co's newspaper division -- which is mostly made up of The Post newspaper -- chipped in only 15 percent.
The Post Co. got back into the black thanks to continued growth at Kaplan. Cable One mostly held its ground in the quarter, which is noteworthy in a recession.
Now to the newspaper division.
In the first quarter, the newspaper division had an operating loss of $40.3 million, taking out depreciation.
In the second quarter, the division had an operating loss of $89.3 million.
You might say: "Whoa! That's worse than the first quarter!" And, on paper, you'd be right. But you have to dive deeper to get to the truth.
Included in that $89.3 million loss is a one-time $56.8 million charge related to early-retirement packages taken by 220 Post employees in the quarter. To cut costs by reducing payroll, The Post paid employees over 50 years old with at least five years of service to retire early. It's the fourth early retirement, or "buyout," offer The Post has had in the past six years.
The cost of the buyouts -- employees were paid up to 1.5 times their annual salary -- is paid by The Post Co.'s pension fund. However, to conform to accounting standards, the cost has to be shown as a charge in operating results.
The bottom line is, you can subtract the $56.8 million charge from the $89.3 loss, because it does not relate to daily operations -- how The Post and the other newspapers are actually performing. So that leaves you with a loss of $32.5 million.
Now, you can subtract the accelerated depreciation of the newspaper division, which was marked at $14.3 million. Make no mistake: Depreciation is a real thing. It means the value of your business has gone down. In the case of newspapers, it's due to decreased advertising revenue and readership. But, again, it's not an operating expense. So you can subtract it from the quarterly loss, leaving you with a final loss of $18.3 million in the newspaper division.
In sum: newspaper division first-quarter loss: $40.3 million. Newspaper division second-quarter loss: $18.3 million.
Now, you need to know that most of that movement back toward neutral came from cost-cutting. The newspaper division cut 12 percent from its operating budget compared with the second quarter of last year, and that's a lot.
As everyone knows, you can't cut your way to profitability. Eventually, you have to actually be a business again, and in The Post's case, that means selling ads and getting more readers.
The third-quarter earnings will tell the business story of The Post. There are signs that the economy is bottoming and this recession -- which enters its 20th month tomorrow -- may be drawing to a close: After a June burp, the stock markets have continued their March rally. This morning, it was reported GDP declined only 1 percent in the second quarter.
During this quarter, we will find out if people want to buy ads in The Post again.
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