MICHAEL LIEDTKE

SAN FRANCISCO (AP) ¿ Newspaper publisher McClatchy Co. rode a wave of traumatic cost cutting and a one-time tax adjustment to a higher third-quarter profit, overcoming yet another jarring decline in revenue.

The owner of The Miami Herald and 29 other dailies is the first major newspaper company to detail its earnings for the summer period. Thursday's report showed that McClatchy's main source of revenue ¿ advertising sales ¿ is still unraveling at an alarming rate, even as the annual comparisons are getting easier.

What's more, the company said the dismal trends are continuing so far this month, and it projected another substantial drop in the current quarter.

McClatchy shares fell 52 cents, or 13 percent, to close at $3.50. The shares had surged in the summer on hopes that the worst of the recession is over for the newspaper industry.

Investors are more concerned with McClatchy's steadily shrinking revenue than they are impressed with the publisher's ability to remain profitable by shedding expenses.

The company said it earned $23.6 million, or 28 cents per share. That compares with $4.2 million, or 5 cents a share, a year ago.

An $11.2 million adjustment for tax miscalculations made earlier in the year accounted for a big chunk of the improvement.

Excluding one-time gains, McClatchy said it would have earned $11 million, or 13 cents per share. On a comparable basis, the company earned $10.4 million, also 13 cents per share, in the same period last year.

McClatchy probably wouldn't be making money if it hadn't been dumping payroll and other costs more quickly than its revenue eroded.

Revenue for the three months ending Sept. 27 totaled $347 million, a drop of more than $104 million, or 23 percent, from the same time last year.

Meanwhile, McClatchy's operating expenses decreased by $124 million, or 30 percent. Most of the savings have flowed from eliminating more than 5,000 jobs ¿ or about one-third of the company's staff ¿ since the end of 2007.

The company hasn't ruled out laying off even more employees. "We will have to see how revenues move forward in 2010," Gary Pruitt, McClatchy's chief executive, told analysts in a Thursday conference call. As it is, McClatchy has cut so much this year that its expenses will still decline next year, Pruitt said.

In a troubling sign for newspapers, McClatchy's advertising declines didn't slow that much during the quarter.

McClatchy's ad sales plunged 28 percent in the most recent period after falling by about 30 percent during each of the first two quarters of the year ¿ similar to what other publishers reported.

"The advertising declines we've experienced show some signs of slowing, but the ad environment remains weak overall," Pruitt said. He added that this month's numbers show "advertising revenue trends similar to the third quarter."

The slightly lower decrease in the third quarter isn't that encouraging because the year-over-year comparisons are getting easier. A year ago, McClatchy's third-quarter ad revenue had already dropped 19 percent from 2007 levels.

On the positive side, online advertising reversed its decline, climbing 3 percent from a year ago. But advertising in the biggest part of McClatchy's business ¿ its print editions ¿ plummeted 32 percent.

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AP Business Writer Andrew Vanacore in New York contributed to this report.

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