UPDATE 4-New York Times posts profit; ad concerns persist

* Q1 EPS 11 cents vs Street view 5 cents

* Revenue down 3.2 percent to $587.9 million

* McClatchy revenue down 8.2 pct

* NYT shares drop 3.5 pct; McClatchy down 11 pct

* Harbinger cuts NYT stake to 9.43 percent (Adds Harbinger reduces stake, updates stock prices)

By Jennifer Saba

NEW YORK, April 22 (Reuters) - The New York Times Co (NYT.N) reported better-than-expected quarterly results on Thursday, but its shares fell 3.5 percent on signs that advertising is not bouncing back as quickly as investors had hoped.

Revenue at the company, while ahead of forecasts, fell 3.2 percent, a reminder that the publishing industry has yet to find an answer for a painful, prolonged decline in advertising. Another publisher, McClatchy Co (MNI.N), posted an even sharper revenue decline, sending its shares down 11 percent.

At The New York Times, publisher of the namesake newspaper and The Boston Globe, national advertising dropped 6 percent, even against easy comparisons from a year ago.

"They didn't deliver the upside to advertising revenues I thought they would have," said Alexia Quadrani, an analyst at JPMorgan. She had expected the category to be flat.

Executives said on a conference call that national and retail categories turned positive in March, noting improved demand by financial services, automotive, luxury, and health care marketers. April, they cautioned, will likely be weaker.

The New York Times is facing an onslaught of competition in advertising, including The Wall Street Journal, which plans to launch a New York edition on Monday.

New York Times Chief Executive Janet Robinson brushed aside concerns from analysts that the Wall Street Journal could steal advertising share from the New York Times by deeply discounting its rates.

"We are very used to competition. When you are the lead dog people are going to go after you," she said.

McClatchy, publisher of The Miami Herald and The Kansas City Star, also reported a significant decline in first-quarter advertising revenue on Thursday. Overall, revenue dropped 8.2 percent to $335.6 million.

Both The New York Times and McClatchy made note of improving advertising trends -- revenue in both cases fell less than it did in the fourth quarter.

That, however, failed to assuage investors. Shares of The New York Times dropped 3.53 percent, or 45 cents, to end at $12.29, while McClatchy fell 10.98 percent to $6.08, both on the New York Stock Exchange.

Major shareholder Harbinger Capital Partners this week reduced its stake in the New York Times to 9.45 percent from 11.68 percent, according to a regulatory filing. Harbinger, run by hedge fund manager Philip Falcone, has been selling its publicly traded shares in the company in recent months.

One bright spot for both companies was the digital business, an area where publishers have invested substantial time and resources, hoping to win readers and beat back competitive threats from blogs and social networks.

At The New York Times Co, which plans to start charging for some online content at the flagship NYTimes.com beginning in 2011, digital revenue rose 15.5 percent to $90.4 million.

It now represents 15.4 percent of the company's total revenue, up from 12.9 percent a year earlier.

"The digital improvement was impressive," Quadrani said. "It's much more of a digital company than their peers and they have done a great job on cost cutting."

Overall, operating expenses at the publisher, which has been cutting jobs over the past year, dropped 18 percent.

That helped the company post net income of $12.8 million, or 8 cents per share, compared with a year-earlier loss of $74.5 million, or 52 cents per share.

Excluding special items, the company earned 11 cents per share versus analysts' average estimate of 5 cents a share according to Thomson Reuters I/B/E/S. (Reporting by Jennifer Saba; Editing by Lisa Von Ahn, Maureen Bavdek and Richard Chang)