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Lee Enterprises President and Chief Executive Officer Kevin Mowbray.

While digital revenue increased nearly 11 percent, Davenport-based publisher Lee Enterprises reported a smaller profit in its first quarter. 

Lee is the parent company of the Quad-City Times, Moline Dispatch/Rock Island Argus and the Muscatine Journal. The company on Thursday posted first-quarter earnings of $10.7 million, or 18 cents per share. That's down from $35.3 million, or 63 cents per share, the same quarter last year.

Adjusted for the impact of the 2017 federal Tax Cuts and Jobs Act, earnings totaled 18 cents per share in the quarter that ended Dec. 30, compared to 19 cents in the same quarter one year ago.

"We're off to a good start in our fiscal year 2019 and are pleased with our performance in the quarter, especially as it relates to digital transformation," Executive Chairman Mary Junck said in a call with analysts Thursday morning. 

Total revenue dropped 5.3 percent for the quarter to $136.2 million, compared to one year ago. Digital revenue, including digital advertising and services, was up 10.7 percent over-the-year to $30.2 million for the quarter. 

The boost in digital revenue, president and CEO Kevin Mowbray said, was driven by 8 percent growth in digital advertising revenue and a 27.7 percent jump in digital sales revenue. 

"This double-digit growth was fueled by strong digital advertising performance, especially from local retail accounts, and substantial growth at TownNews," Junck said. "Local retail accounts are the core of our business. In the first quarter, print and digital revenue from our local retail accounts — which represents more than 50 percent of our advertising and marketing services revenue — was down 2.6 percent, better than our overall revenue trend." 

On a standalone basis, TownNews revenue increased 19.9 percent, boosted by increased market share, broadcast customers and gains in video revenue from 2018 technology acquisitions, Mowbray said.

Subscription revenue decreased 4.1 percent in the quarter, compared to one year ago. Digital-only subscribers rose 55.9 percent.

"Growing our digital-only subscriber base will continue to be a key area of focus for us," Mowbray told analysts. 

Monthly visits to Lee mobile, tablet, desktop and app sites averaged 75.4 million, according to the report, and page views per visit increased 12.9 percent in the quarter.

Advertising and marketing services revenue decreased 10.3 percent to $76 million in the quarter. The decrease, according to the report, is due to softness in print advertising demand, primarily from big-box retail stores and classifieds. 

Partially offsetting print declines, digital advertising and marketing services revenue increased 8 percent to $25.5 million, representing 33.6 percent of total advertising revenue.

Vice President and CFO Tim Millage said operating expenses were down 4.9 percent in the quarter, with cash costs down 4.4 percent. That was led by an 8.9 percent reduction in compensation costs. Compensation dropped as a result of reduced staffing levels.

Lee reduced its debt by $7 million in the quarter, Millage said. As of Dec. 30, the principal amount of debt was $477.8 million.

"In the first quarter, we repaid the remaining balance of the 1st Lien Term Loan, almost five months ahead of its maturity, and we amended and extended our Revolving Facility," Millage said in the report.

Millage said Lee is actively meeting with advisers to discuss refinancing all or a portion of its long-term debt.

Lee has around $10 million of real estate listed for sale, Millage said.

After the end of the first quarter, Lee closed on the acquisition of the Kenosha News and Lake Geneva Regional News, Mowbray said.

"Their proximity to existing Lee properties creates opportunity for synergies while greatly strengthening our audiences in southeast Wisconsin," he said.

Lee Enterprises operates daily newspapers, digital products and nearly 300 weekly and specialty publications serving 49 markets in 20 states. 

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