There's little intrigue in Tribune's second quarter earnings announcement. As the company says, "Our publishing results are, for the most part, in line with industry trends, which remain consistent with what we reported in the first quarter." Such consistency, unfortunately, is not something you want to be a part of.
All the print numbers are now trending down:
- Advertising revenue generally: -15%
- Classifieds revenue: -26%
- Circulation revenue: -2%
- And the kicker, online revenue: -4%, as Tribune becomes the fourth company (after Lee, Belo and Scripps to announce a first-in-modern-history reversal of online revenues fortunes)
Even broadcast nudged up only a bit, at +2%. Overall operating revenues down: -6%
Ouch. Ouch. Ouch. Ouch. Ouch. Ouch.
But I think there are three other numbers that tell Tribune's larger story, going forward:
- -2%. That's the operating cash flow from continuing operations. As cash flow declines, Sam Zell's flexibility at moving the pieces on the New Tribune chessboard decreases. If, as it looks, ad fortunes will be worse 3Q than 2Q (based on June looking worse than the quarter as a whole for some of the news companies), cash flow will further decline.
- $161 million: That's the cash and cash equivalents being held by the company. It's a cushion without much stuffing.
- $12.5 billion: That's how much debt the New Tribune is still holding.
The last number is still the biggest one too. I think of the New Tribune as owning a row of townhouses. It has taken out one big mortgage of $12.5 billion to pay for the townhouses. Its plan is to sell off the townhouses, or the land under the townhouses, one by one. That's what it did by selling Newsday to Cablevision, a deal that recently closed. The money from that sale -- $589 million -- helped to pay off a debt payment of $807 million. ( It also needed a loan against receivables, always a later resort, of $218 million to make that payment.)
So now there is one less townhouse -- Newsday -- producing cash flow to help pay down future debt payments. But the $12.5 billion total remains. You don't need to be a real estate man to do the end-game arithmetic.
For Tribune, this is a game of months. Each sale -- Bud Selig buddying up with Mark Cuban's $1.3 billion valuation of the Cubs may solidify the next one, and reinforce Zell's superior deal-making skills, if not timing, after pulling off a Newsday auction -- buys just that, months.
It's the combination of those three numbers -- overall debt, small cushion and decreasing cash flow -- that will have even a riverboat gambler like Zell looking for an exit.