By: Lucia Moses
Newspaper companies have historically been reliable cash-flow engines with relatively little debt.
But consolidation in recent years has led some companies to pile on debt. Then the economic boom came to a halt, leaving them holding more debt than usual with less ability to pay it down. Major credit-rating agencies, citing pressure on newspapers’ revenue growth, have lowered their outlooks on several companies in the past few months. If financial conditions worsen as some predict, the price of participating in future consolidation could get steeper.
“This is an ongoing concern,” said Donald Wong, director of corporate ratings for Standard & Poor’s Corp.
Two of the most highly leveraged companies in the industry are Gannett Co. Inc., which assumed more debt to finance a $6.4-billion newspaper buying binge in 1999 and 2000, and the Tribune Co., which bought the Times Mirror Co. last year in an $8-billion cash-and-stock deal. Moody’s Investors Service recently downgraded Gannett’s credit rating and revised Tribune’s debt-rating outlook to negative from stable.
Some newspaper companies may be active acquirers in the months ahead, with operating pressure and the anticipated relaxation of federal newspaper-broadcast station cross-ownership rules expected to fuel continued consolidation.
But next year’s economy will be at least as bad as this year, which will impact newspaper companies’ ability to generate cash, said Glenn Eckert, a senior analyst for Moody’s. “I think our largest concern is, consumer confidence is still on the downswing, and a lot of layoffs that have been announced are just now being executed,” he added.
On the whole, however, newspaper balance sheets are still in good shape compared to the rest of Corporate America. Because of its ability to consistently generate cash, the industry’s credit ratings are far from poor, analysts said. Additionally, most companies have cut staff, slashed capital-spending plans, and scaled down stock-buyback programs this year.
The down market also could work to newspapers’ advantage should prices for properties come down. Bear Stearns & Co. newspaper analyst Kevin Gruneich predicted that companies may avoid added debt by using their own stock as currency, a method they haven’t used in the past. Said Gruneich, “The newspaper industry doesn’t have [its] back up against the wall.”