24/7 Wall St.

It is no secret that the newspaper industry is in trouble and it might not be fair to only single out one individual CEO out of the whole industry.  But Gary Pruitt of McClatchy (NYSE: MNI) is being listed as one of the TOP CEO’s TO GO for 2008. 

Pruitt led the Knight-Ridder buyout that was completed in June 2006 and this company performance has been utterly dismal ever since.  At least Knight-Ridder shareholders received $40.00 cash, but they also received 0.5118 shares of McClatchy stock was well.  McClatchy shares sat above $40.00 back then, and the Knight-Ridder holders that held on probably cry themselves to sleep each night wishing they had sold out entirely in cash.

The company’s corporate governance section does show "an annual CEO review" and we would suggest the company get on this.  It may be unfair to single out only one newspaper-related CEO and we cannot blame the entire newspaper malaise on him alone.  Even a good and solid CEO can’t keep the raw number of newspaper readers in the U.S. from disappearing faster than smokers.

But if you look at the share prices, you’ll see how this one is performing extra poorly.  Mr. Pruitt has been Chief Executive Officer since 1996 and President since 1995, and he became Chairman of the Board in 2001.  What we think the board needs to do if they want to keep him in charge is to make him the non-executive Chairman and they need to bring in a new President & CEO that has more of a digital thrust in mind.  The problems will likely continue under a new head, but this company looks ripe for new blood to lead the day to day operations.

If you back out goodwill at $2.5 Billion and other intangibles at $1.07 Billion, we look at its balance sheet being severely inverted.  That isn’t really unusual for the newspaper operators, but the company is going to need to sell of more of its dailies and it’s going to have to make more severe cuts.

The last two years have been the darkest period since the late 80’s to early 1990’s.  Just two years ago the stock sat at $60+, now shares are trading with a $13 handle.  To add insult to injury, the company is expected to post lower revenues in 2008 versus 2007, and "earnings" are expected to decline as well if you evaluate the First Call earnings projections.  The company recently gave a projected rise in earnings for 2008, but there is some disbelief from Wall Street.  We’ve noted how Wall Street doesn’t trust the numbers.

If Pruitt would turn the keys over to Christian Hendricks, VP of McClatchy Interactive Media, or if he’d bring in an outside digital media superstar he’d be doing his shareholders a huge favor.  He could easily remain chairman to oversee all those declining newspaper from city to city.  He’d also be able to use his directorship at The Associated Press to lean down more and more of the newspaper operations.

24/7 Wall St.’s own Douglas McIntyre has been very cautious on McClatchy stock in our OLD MEDIA NEW MEDIA newsletter, and offered much deeper insight into the books and the fix there.  Below is a listing of its dailies from the company site:

• ALASKA: Anchorage Daily News
• CALIFORNIA: The Fresno Bee, The Modesto Bee, The Sacramento Bee, Merced Sun-Star, The Tribune
• FLORIDA: Bradenton Herald, The Miami Herald, El Nuevo Herald
• GEORGIA: Ledger-Enquirer, The Telegraph
• IDAHO: Idaho Statesman
• ILLINOIS: Belleville News-Democrat
• KANSAS: The Olathe News, The Wichita Eagle
• KENTUCKY: Lexington Herald-Leader
• MISSISSIPPI: Sun Herald
• MISSOURI: The Kansas City Star
• NORTH CAROLINA: The Charlotte Observer, The News & Observer
• PENNSYLVANIA: Centre Daily Times
• SOUTH CAROLINA: The Beaufort Gazette, The Herald, The Island Packet,  10 Buck Island Road, The State, The Sun News
• TEXAS: Fort Worth Star-Telegram
• WASHINGTON: The Bellingham Herald, The Olympian, The News Tribune, Tri-City Herald

Jon C. Ogg
December 10, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.