SAN FRANCISCO — McClatchy Co.'s second-quarter profit more than doubled as a cost-costing spree that wiped out one-third of the newspaper publisher's staff offset the loss of more advertisers and subscribers.
The performance, announced Tuesday, sent McClatchy shares soaring 40 percent.
Analysts had been expecting the publisher of The Miami Herald and 29 other daily newspapers to lose money for the third consecutive quarter.
Instead the Sacramento-based company earned $42.2 million, or 50 cents per share for the three months ended June 28. That compared with income of $19.7 million, or 24 cents per share, in the second quarter of last year.
Excluding a gain from restructuring debt and other unusual items, McClatchy said it would have earned 30 cents per share. Analysts surveyed by Thomson Reuters had predicted McClatchy would lose 8 cents per share.
Revenue plunged 25 percent to $365 million, below analysts' forecast for $369 million.
The surprising profit raised hopes that McClatchy has shrunk down to a size that will enable it to remain in good graces with its lenders and avoid bankruptcy protection. That route already has been taken by the publishers of several other debt-ridden newspapers, including the Chicago Tribune, Los Angeles Times and Philadelphia Inquirer.
"It's really remarkable," said newspaper analyst Edward Atorino of Benchmark Co. "They have done a Herculean job in a difficult economy. Unless things get a lot worse real fast, they should be OK for the rest of 2009."
Although McClatchy management expects revenue to keep crumbling in the months ahead, recent trends indicate the second half of the year might not be quite as painful as the first. The company's ad revenue fell 28 percent in June and is hovering around the same level this month, a slight improvement from declines of more than 30 percent in April and June.
Gannett Co., the largest U.S. newspaper publisher, reported similar trends in its second-quarter earnings report last week.
Gary Pruitt, McClatchy's chief executive, all but guaranteed investors the company will spend the rest of the year within the boundaries set by bankers who hold part of McClatchy's roughly $2 billion in debt.
He said all the company's daily newspapers are still generating cash despite their difficulty selling ads as more marketing budgets shift from print to less expensive options on the Internet.
"We do think we are taking the right steps to keep the company safe," Pruitt told analysts in a Tuesday conference call.
Under the requirements imposed by its bankers, McClatchy's debt can't be seven times higher than its cash flow for the past 12 months. The ratio stood at 5.8 at the end of June, an improvement from 5.9 in March.
Meanwhile, McClatchy's next big bond payment isn't due to be paid until 2011. By then, Pruitt hopes the revenue picture for newspapers will be improving, partly by bringing in more money from the Internet. Online sales accounted for 13 percent of McClatchy's total revenue in the second quarter, up from 11 percent a year ago.
Investors were heartened by McClatchy's progress as the company's shares surged 21 cents to 75 cents in Tuesday's afternoon trading.
If an economic recovery encourages companies to spend a little more on advertising in newspapers, McClatchy should be able to boost its profits even more because it has lowered its expenses so radically during the past year of industry turmoil.
McClatchy's second-quarter cash expenses plunged 30 percent, excluding severance costs, largely because the company employs about 5,000 fewer people than it did a year ago. The company ended June with 8,755 workers.
The purge enabled McClatchy to overcome its second consecutive quarter with ad revenue declining more than 30 percent. Newspapers' print editions accounted for most of that decrease, although the company's online ad sales also dipped 3 percent, primarily because fewer employers are looking to hire.
McClatchy raked in a little more money by raising the subscription and newsstand prices at all but four of its newspapers. That helped increase circulation revenue by about $3 million, or 5 percent, in the quarter.
But many readers protested by canceling their subscriptions. The weekday circulation at McClatchy newspapers fell 12 percent in the quarter while Sunday circulation declined more than 8 percent.
AP Business Writer Andrew Vanacore in New York contributed to this report.