Cary yellow pages publisher sees sales drop

Yellow pages publisher R.H. Donnelley, whose stock has nose-dived 97 percent in the past year, today lowered its ad sale forecast for the year and announced a new round of cost-cutting that probably will include eliminating more jobs.

The Cary-based company announced before the stock-market opened this morning that ad sales would fall 7 percent to 8 percent this year. Ad sales are a key indicator of future revenue.

“We know that as a result of weak ad sales this year we will have a challenging revenue line next year,” CEO David Swanson said during a conference call with analysts. “We are taking action now to prepare that.”

Swanson said a team of as many 80 employees and consultants will focus on ways “to improve productivity and quality in every function of the company.”

That restructuring includes the company’s sales force, which represents about half of its more than 4,000 employees nationwide. The company has about 600 workers in the Triangle.

Swanson said the company can reduce its sales force without hurting ad sales. Investments in technology have reduced sales agents’ administrative tasks, and more efficient routing could enable fewer sales agents to cover the same territory.

“It’s likely that we will be operating with fewer salespeople,” Swanson said.

Donnelley initiated a round of cuts earlier this year that eliminated at least 240 jobs, mostly through attrition but including some layoffs.

Restructuring charges for the latest initiative are expected to hit $40 million.

“This is a very large, 40-to-60-week initiative,” Swanson said. “We expect to generate significant savings from the initiative.”

Donnelley reported today that second-quarter ad sales, which are a key indicator of future revenue, totaled $678 million, an 8.6 percent decline compared to a year ago.

The company did confirm its earlier projections for one measure of profit, EBITDA, earnings before interest, taxes, depreciation and amortization.

Swansons said that softness in ad sales, which a year ago was limited to key markets such as Las Vegas and Florida, has spread across the company's operations.

Swanson said he sees the downturn in ad sales as cyclical, and that sales will recover when the economy does. He noted that advertisers that are prospering today, such as pawnbrokers and bankruptcy attorneys, are spending more money on yellow pages ads.

"What is different today than what we have seen in the past," Swanson said, "is there are just more challenged categories than growth categories."

In addition to being impacted by the struggling economy, Donnelley, like other traditional media, is being hurt by advertisers shifting more of their dollars to the Internet. Although it is beefing up its online business, Donnelley generates the bulk of its revenue from printed directories in 28 states.

This morning, Donnelley reported a second-quarter loss of $339 million, which was driven by a $660 million non-cash write-off for goodwill triggered by the decline in the company's stock and, hence, its market value. A year ago, Donnelley posted a $25 million profit.

Revenue for the quarter totaled $664 million, roughly on par with $667 million a year ago.

The company lowered its debt in the quarter by $230 million, leaving it with net debt of $9.7 billion.

In midday trading, Donnelley shares were down 6 cents to $1.64.

david.ranii@newsobserver.com or (919) 829-4877