Bear Stearns Takes Tribune Co. Down a Notch

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By: Jennifer Saba

Bear Stearns has downgraded the Tribune Co. to “peer perform” from “outperform,” citing a weak ad environment.

“Although the company has made significant strides to stem its circulation declines, move past its circulation misstatements and is working to appeal the Bender tax case, a weak newspaper and television ad environment continue to hurt company results and we see little room for stock outperformance at this time,” said a note released today by Bear Stearns analyst Alexia Quadrani.

Year-to-date as of November, newspaper ad revenue at Tribune rose 1%. There is not much improvement on the horizon in 2006, said the note, since national advertising remains soft and Tribune still has to deal with the troubled markets of Los Angeles and New York. Tribune is also more exposed, especially in the Los Angeles market, to the affects of retail consolidation.

Furthermore, the research firm interpreted the 900 staff cuts that Tribune announced in 2005 as a signal that next year will prove challenging. While Bear Stearns applauds the company for “undertaking necessary cost initiatives,” the note points out that in Los Angeles, Tribune slashed 110 jobs with the closing of one of its production facilities, yet “a significant amount of cuts have been from the newsroom ranks, as opposed to operations.” This move might reflect management’s expectation of a rough year ahead.

Bear Stearns thinks the probability of Tribune sale is unlikely though analysts do acknowledge the company might shed “non-operating assets.”

The research firm reduced its Q4 earnings per share estimate by $.05 to $.61 and lowered its 2006 EPS estimate by $.05 to $2.00.

Tribune shares are trading down $.46 to $30.53 late this morning.

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