Newsonomics: What's The Sound Of A Tronc Crashing?
Thursday marked a day of reckoning for Tronc. The company — the last big public newspaper company to report year-end earnings — released those numbers for 2017. They weren’t good, as I had signaled in my earlier reporting on the chaos at and subsequent sale of the Los Angeles Times. But what followed seems to be much more than a reaction to that report. In a single stunning trading session, Tronc lost almost a quarter of its market value — or $160 million, down 24 percent.From a January high of $21.55, Tronc shares closed at $15.05. That’s 30 percent down in total. (Update: On Friday, Tronc dropped another 2% in the market.)
Why? It’s always tough to pinpoint investor rationale. In this case, though, three factors seemed to drive the crash.
First, the company’s financials themselves. Its adjusted earnings per share fell by more than 35 percent year over year, and overall revenue looked down by almost a tenth.
Second, the company, oddly, offered little “visibility” into how it would perform this year. That’s de rigueur on such quarterly analyst calls.
Instead, Tronc CEO Justin Dearborn surprised the call’s four analysts by saying: “Looking ahead to the remainder of 2018, given the pending material divestiture [the L.A. Times sale]…we are going to deviate from our normal practice of providing a financial outlook for 2018. We anticipate providing it on our first quarter 2018 earnings conference call as we have a better understanding of the impact of our recent actions on full-year performance.”
In other words: We haven’t yet figured out how Tronc will perform financially without the Times and San Diego Union-Tribune. Or alternatively: You wouldn’t like what we’d have to tell you.
Third, it failed to answer several questions from the analysts on the call. Read the call transcript, and you can see the analysts pushing for answers on the business ahead, the impact of tax changes, and even the performance of the recently purchased New York Daily News. Further, analysis of Tronc’s performance was made more difficult by the need to account for a “53rd week” in the fourth quarter, something the calendar forces them to do every few years. Most newspaper companies have broken out both a 53-week and 52-week comparison on their key metrics, but Tronc’s such reporting was limited.
First published at Harvard’s Nieman Journalism Lab on March 9, 2018 as part of “Newsonomics: Tronc “Crashes”, DFM Owner Sued, News Guard Funded, Advance Tiptoes Into Paywalls — and The Big Lesson From Hypergrowing The Athletic”
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Doing the math, Tronc appears to be down 9.6 percent in overall revenues year over year, on a “same-store basis.” That puts it no better than the middle of the pack of its newspaper group peers.
The fourth quarter posed particular issues — and no surprise, sources tell me, the circus at the L.A. Times exacerbated ad sales.
In that fourth quarter, Tronc was down 19.7 percent in its print ad revenue. Circulation revenue was down 3.5 percent. TroncX, the company’s digital division, was up 1.4 percent in revenue. (These results all reflect close-to-apples-to-apples 2017 to 2016 comparisons, with that 53rd accounting week of third and fourth-quarter financial contributions of the New York Daily News removed.)
Overall, analysts found themselves unpleasantly perplexed, and we have to believe that their investor advisories helped send Tronc shares tumbling.
If the numbers and the lack of outlook were surprising, the bigger questions may have sounded an alarm with the investors who had bid up the stock since September. That question, in a nutshell: What’s chairman Michael Ferro’s strategy now, after selling the California papers?
On Feb. 7, as it announced the Times’ sale, Tronc said it was “embarking on a national digital growth strategy through its newly reorganized Tribune Interactive division.” On Thursday’s call, again oddly, there was no mention of the Tribune Interactive push, or of its leader, the newly reinstated Ross Levinsohn, the just-departed L.A. Times publisher.
That digital strategy also now includes more promises of newsroom transformation.
According to Poynter’s Rick Edmonds’ well-detailed piece, “the company is launching big plans to get its editors and reporters pivoting to digital.” Yes, pivoting to digital in 2018, at a company that as Tribune had been an early digital innovator and that was renamed Tronc — short for Tribune OnlineContent — by Ferro two years ago.
Tronc’s strategy, of course, has been a moving target since Ferro took over the company, with a series of transformations promised and under-delivered. Instead, the company has been much more about deal-making in its short history. Just this month, Tronc lost its bid to buy the Austin American-Statesman (as did with Hearst) to GateHouse Media. Now, as I’ve reported that GateHouse will likely be the winner of the Palm Beach Post auction as well, Tronc is probably looking at another failed buy. It’s in the market for more digital properties as well, as I reported in February, including talks with The Street.(Last year, the Department of Justice thwarted its efforts to buy the Orange County Register and the Chicago Sun-Times. Tronc has been successful in buying the New York Daily News and a majority interest in the BestReviews shopping comparison site. )
Why are those losses significant?
When Patrick Soon-Shiong formally takes over as owner of the L.A. Times and San Diego Union-Tribune, a deal that is now likely to close before the end of the month, Tronc becomes a much smaller company. By various metrics, it will lose as much as half of its size. And to Ferro — who has talked about building a big national network — size matters. Tronc has long touted its march toward a national digital audience of 100 million; selling the Times puts it farther from that goal.
Secondly, the company finds itself confronted by “trapped overhead” costs.
Chains like Tronc routinely allocate the cost of corporate management to their properties. These headquarters costs — from top executive compensation to HR, finance, and other increasingly centralized functions — form a significant outlay for companies like Tronc with struggling financials. As the California newspapers disappear from Tronc’s books, so do their substantial payments to the mothership, their “allocated expense.” Now, Tronc needs more newspapers (or other properties) to help make up those lost payments.
Takeaway: For a company that is used to shooting from the hip, Tronc seems unusually tight-lipped. Maybe Ferro will pull another rabbit out of his hat — or maybe the market is turning on him.
