Today, Lee Enterprises (ticker: LEE) released a positive earnings report that sent it's stock up 6% to close at $2.10 per share. This is a company which has a split opinion in the value investing community. Some view newspapers as being “dead”. Others view newspapers as coping with a changing environment in terms of content delivery while trying to find their way. While the long term future may be debatable, the one thing that is not debatable is the fact that Lee Enterprises is currently doing a good job of holding it's head above water.
From the release:
Lee Enterprises, Incorporated (NYSE: LEE) reported today that for its fourth fiscal quarter ended September 26, 2010, earnings per diluted common share were 11 cents, compared with 4 cents a year ago. Excluding adjustments for unusual matters(1) in both years, earnings per diluted common share were 16 cents, compared with 5 cents a year ago.Among the bull mentality is the thought that new electronic devices such as the Kindle and iPad will usher in a new era of content delivery for local news. The moat has not changed with the internet. The moat was and remains to be local news content. The medium is simply evolving. For a more thorough discussion on Lee's strengths please read the previous article entitled An Enterprising Value - Lee Enterprises.
Lower interest expense, overall reduction in operating expenses and strong digital revenue growth contributed to the results, while newsprint costs increased and total year-over-year revenue performance mirrored the previous quarter.
Mary Junck, chairman and chief executive officer offers the following:
The economic recovery in our markets stalled a bit in the September quarter, but the revenue trend improved markedly in October, and we expect the improvement to continue in November, as we continue ratcheting up digital sales, which have been growing at a double-digit clip since February. In 2010, we have been building on our rapid digital audience growth by providing local news and information through mobile apps for smartphones, and this fall we have begun rolling out apps with extensive coverage of local prep and college sports. As technology and media choices continue to evolve, we are making sure that our newspapers and digital products remain, by far, the primary source of local news, information and advertising in our communities, reaching more than 80 percent of all adults.Lee also commented on Free Cash Flow:
Free cash flow totaled $19.6 million for the quarter, compared with $20.4 million a year ago. Timing of income tax payments accounts for the decline in the quarter. For the year, free cash flow increased 82.9 percent and totaled $104.2 million, compared with $57.0 million in 2009.
The important take away here is that LEE has a market cap of $94 million while it generated $104 million. It is trading at less than one times free cash flow. As the economy improves (as discussed in An Enterprising Value - Lee Enterprises) metrics such as revenues, earnings and free cash flow should also improve due to improvements in advertising revenue. Revenues from employment advertising should be a specific area of improvement.
The full earnings release can be found here:
Q4 2010 earnings release
One guru holds Lee Enterprises stock. John Rogers holds 10% of all shares outstanding making his interest in this company quite impressive.
DISCLOSURE: The author of this article is long LEE