TV stations, Kaplan unit boost Washington Post Co. earnings

By Steven Mufson
Washington Post Staff Writer
Saturday, November 6, 2010

The Washington Post Co. reported sharply higher earnings in the third quarter, bolstered by political advertising at its television stations and gains in post-secondary school programs at its Kaplan education unit.

The company's newspaper division - including the flagship newspaper and Web site, the online Slate publication, Express and El Tiempo - narrowed its losses, thanks to an 8 percent cut in expenses as well as a modest 5 percent increase in revenue. The division would have shown a small profit without a charge associated with the company's exit from pension plans shared with other employers.

Overall, the company said it earned net income of $60.9 million ($6.84 a share), more than three times the $17.1 million ($1.81 a share) in profits during the third quarter of last year. Revenue rose to $1.19 billion, up 7 percent from $1.11 billion a year earlier.

The results included a number of one-time charges. Income adjusted to reflect continuing operations was $81.4 million ($11.43 a share) in the period that ended Sept. 30, up from $59 million ($7.21 a share) in the third quarter of 2009.

Those continuing operations exclude Newsweek, which was sold to audio equipment tycoon Sidney Harman. Harman paid $1 in cash for Newsweek, less than the price of a newsstand copy, but he assumed undisclosed millions in liabilities.

The Post took a charge of $11.5 million on the magazine's sale, which closed Sept. 30, in addition to the $8.8 million in operating losses from the weekly, which The Post acquired nearly half a century ago. During the first nine months of this year, Newsweek lost $28.8 million, slightly less than the $35.4 million it lost in the first nine months of 2009.

The engine of the company continued to be the Kaplan division, especially the higher-education programs that are the fastest-growing part of the company. International programs also grew quickly, while the test-preparation business - excluding Score tutoring centers - shrank 6 percent.

Kaplan revenue overall in the third quarter rose to $743.3 million, up 9 percent over the same period a year earlier, and profits more than doubled. Kaplan accounted for 62 percent of the entire company's revenue and 75 percent of its operating income.

The company's Cable ONE unit, the second-biggest segment, showed little change in the face of competition for customers. Revenue declined slightly for the quarter to $188.7 million, off about 1 percent.

At the company's half-dozen television stations, revenue jumped 29 percent in the third quarter and operating income soared 68 percent thanks to improved advertising demand, including auto ads and political ads.

In the newspaper division, print advertising at The Washington Post increased 3 percent to $72 million, up from $70 million in the third quarter of 2009, but was still down for the year so far.

Revenue from online activity at both The Post and Slate jumped 21 percent to $27.2 million for the third quarter, up from $22.6 million a year earlier. Online display advertising grew 26 percent, while online classified ad revenue moved up at a slower 6 percent pace and was still down 1 percent for the first nine months of the year.

Circulation at the paper continued to sag. For the first nine months of the year, Post daily circulation fell 8.7 percent, and Sunday circulation slid 8.3 percent. The decline appeared steeper because of its comparison to early 2009, when sales were boosted by the popular presidential inauguration editions.

Recently, The Washington Post Co.'s stock has been under pressure because of rising concerns about its profitable Kaplan division, which has helped carry the company through the savage downturn in the newspaper business. On Thursday, an analyst at UBS downgraded his recommendation from buy to neutral. The Post's stock closed Friday at $398.38 a share, up nearly 4 percent.

Ariel Sokol, the UBS analyst, had cited concerns that Kaplan could find itself in violation of the Education Department rules that limit for-profit schools from getting more than 90 percent of their tuition receipts from a government-lending program for students. In 2009, Kaplan Higher Education received 83 percent of its revenue from the program, known as Title IV.

The Education Department is expected to issue new regulations for the Title IV program early in 2011 and put them into effect July 1, 2012.

In August, Kaplan was one of 15 for-profit universities featured in a Government Accountability Office report titled "For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices."

Kaplan has responded to critics by announcing a program that would enable any Kaplan University or higher education student to withdraw from a program after four to five weeks without payment. The company said in its release Friday that the program, if it had been in place during 2010, would have lowered revenue by about $100 million during the first nine months of the year. The program is not yet in place.

© 2010 The Washington Post Company