Knight Ridder (KRI) reported results in line with reduced expectations following management’s lower guidance a month ago. Excluding unusual items EPS came in at 67 cents, down 18% from a year ago. Revenue was flat and shares outstanding were down about 10% so the problem in the quarter relative to its industry peers was on the cost side. The following quote from the press release summarizes the quarter quite well:
“When you strip away the complexities associated with our asset sales and acquisitions, the story of the quarter is relatively simple: Excluding the acquired newspapers, total operating revenue was up 1.1% and costs — in a stark aberration from our normal pattern — were up 7.0% (or 5.5% if you exclude severance costs of $8.6 million).”
The press release went on to say in relation to costs “that level of cost increase will not be repeated in the fourth quarter.” On the conference call, management was emphatic that costs trends would improve dramatically in the fourth quarter, specifically guiding to 1% growth. Guidance for 4QEPS was also specific with management stating that above the year ago $1.16 was a sure thing and that current estimates of $1.25 were “in the ballpark.”

KRI has almost all its exposure in major market metro dailies. This leaves the company particularly vulnerable to current industry trends where national, retail, and auto advertising are the worst performing ad categories. Furthermore, KRI’s papers in Philadelphia and Kansas City are underperforming. I still don