All entries tagged: Media General
Earnings season: Newspapers finish 14th straight revenue-losing quarter; some intel from Wall Street filings
When revenue is still seriously down, but profits are up, is that good news? The U.S newspaper companies that have reported fourth quarter 2009 results so far would have you believe it is. But based on their reports, it’s clear the industry as a whole is still in deep trouble, with no strong indication that better days are ahead.
Five of the ten publicly-owned U.S. newspaper companies have reported their fourth-quarter 2009 results; five more to go. (Those reporting so far are Gannett, New York Times Co., Media General, Lee Enterprises and McClatchy. We also have results from News Corp., but News publishes newspapers on four continents, and much of its revenue comes from films, television, cable, and book publishing. Its U.S. newspapers represent perhaps 10 percent of News Corp.’s total revenue and are not broken out for comparison.)
Pension funding gap looms as another newspaper problem
Get ready for something else to hit the fan: underfunded pension plans at newspaper companies. In general, this won’t have an immediate impact on cash flow, but it’s another looming liability for publishers, meaning their bankers won’t be buying them lunch, or writing loans for them, anytime soon.
Pension plan funding hasn’t been an issue for most companies in the last couple of decades, because most of the time the plan investments have done so well that required company contributions to pension plans have had little impact on cash flow. But pension plan funding becomes an issue particularly when (a) the market value of plan investments take a dive, as has happened during 2008, and (b) the size of the company shrinks, creating a situation similar to the Social Security problem: a shrinking pool of workers supporting a large pool of retirees. Newspaper publishers have both of those problems.
We’re talking here about defined-benefit plans — old fashioned pensions — not 401(k) defined-contribution plans. In a defined-benefit plan, employers fund an investment pool designed to pay benefits to retirees in proportion to their earnings and years of service. In theory, they make contributions every year to keep the value of the pool equal to the actuarially-determined present value of the benefit liabilities. In practice, permissible funding delays and market fluctuations can create underfunding situations. Many companies have frozen their defined-benefit plans, but even such plans can become underfunded in market declines. Typically, companies are required to make up underfunding caused by market declines over a seven-year period (so the market, itself, might help the fund catch up); underfunding due to other causes, like plan changes, must be remedied on a shorter timeline.
