In the last six months, the Hoffmann Family of Companies has bought up enough stock in Lee Enterprises to become the Iowa-based media company’s second biggest shareholder. But David Hoffmann, the billionaire who serves as Hoffmann’s chairman, doesn’t like what he’s seeing in the company’s quarterly earnings results—and he says he’ll be getting on the phone today to seek answers.
Speaking to SLM just after his plane landed in St. Louis yesterday, Hoffmann says he remains bullish on newspapers and loves the markets Lee is in. But he was dismayed by its 600 percent miss on its earnings forecast, as the company reported yesterday that it not only didn’t hit its projection of minus 40 cents earnings per share, but actually lost $2.80 per share. It lost $16.7 million last quarter alone.
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“That’s a pretty big miss, which I’m anxious to talk to them about,” Hoffmann says. “There might be a very good reason, but it wasn’t apparent in the earnings call.”
He notes that Hoffmann Media Companies now owns 14 media brands (including some of Lee’s former publications in California). “I don’t want to be presumptuous, but those are big, big, big misses, and I can tell you, in the businesses that we run, we don’t have that big of misses,” he says. “And so that begs the question, why is that happening?”
He adds, “Something’s amiss here.”
Why It Matters: Fresh off a big, and controversial, investment in Augusta, the Missouri-raised Hoffmann has sought to position himself as local news’ savior—and an asset to Lee. The Iowa-based company has struggled not only with the debt it took on 20 years ago in its $1.46 billion acquisition of the Post-Dispatch (it currently carries $446 million in debt, with just $6 million in cash on hand), but the complicated task of transitioning to a digital-first company even when its print products have traditionally been the revenue drivers.
Last year, for the first time, the company’s digital revenues surpassed its print ones. According to the results released yesterday, print advertising decreased 19 percent over the same period the prior year, while digital revenue was up just 1 percent. That left operating revenue down 7 percent from the prior year, with digital subscriptions showing an 11 percent revenue increase.
But Hoffmann’s remarks suggest a growing impatience with the company’s current management. He notes that the company shared on yesterday’s earning webcast that it has identified $25 million in non-core assets it plans to sell, yet hasn’t approached his company as a possible buyer.
“You have someone who bought an asset that was very profitable for them, apparently, because they mentioned it on the call, and yet we have another asset sale, and ‘Oh, we didn’t bother to call you guys,’ which is a little concerning,” he says. “We’re in discussions with all kinds of newspapers across the United States to buy them—some public, some private. And for some reason, Lee doesn’t call us.”
Overall, Hoffmann says, “We love the markets. We love the St. Louis market. We love Omaha, we love Buffalo, we love the smaller markets they’re in in Nebraska. This is where we play, where we can make a real difference. Now, do I think they can compete head on with the New York Times? No, sure, but that’s not how they’re structured.
“But the management team has got to get a little more focused on their forecasts, and be a little more realistic with those forecasts, and have a little more visibility, we think, than what we’re seeing.”
What’s Next: Hoffmann says he’s met with Lee’s management team twice since he began buying up its stock, and plans to do so again soon. “We’re not panicked, but we’re concerned, and we hope they utilize our expertise in helping them get the company into profitability quickly,” he says.
In its earnings call, Lee said it planned another $40 million in cuts in the next quarter, which Hoffmann says is probably a good idea in light of its recent losses. “They anticipated making money, and they lost almost $17 million, so I think they’re going to have to take some action to right the ship,” he says.
