Early Earnings Reports May Indicate Soft 3Q Ad Revenue for Sector

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By: Jennifer Saba

While only a handful of companies, including Gannett, have reported 3Q results, there?s every indication that more publishers will announce similar soft ad revenue this week.

Some data trends caught the eye of Bear Stearns analyst Alexia Quadrani: Online revenue growth is not offsetting print revenue declines, help wanted is deteriorating ?faster than expected,? and easy comps are not helping.

There is one positive thing to come out of the quarterly conference calls — newsprint pricing has appeared to peak.

Yet, online growth and stable newsprint prices still can?t lift 3Q since ?the consolidated top line remains very weak,? Quadrani wrote in a note released today.

?Our primary concern is classified as help wanted, which became the largest component (29.6%) in 2005, is weakening quickly and that real estate, which posted an impressive 22.8% growth rate in 1Q06, is also moderating.?

Given that the auto category is in a free-fall, Quadrani expects classified to show declines in 3Q.

In a report released on Friday, Wachovia Equity Research analyst John Janedis looks for signs of improvement in 4Q. “More of the same,” was his conclusion, though he notes that many publishers are doing a good job managing costs.

Janedis also keeps a running tally on ad lineage at The Wall Street Journal and The New York Times. At the Journal, October lineage is up 3% year-over-year. Still, a slowdown in real estate ads is expected since the category experienced strong growth last October (up 15% for the month in 2005).

At the New York Times, help wanted lineage is down 20%, real estate is up in the mid-single digits, department stores are flat, and movies and telecommunications are both down 20%.

Meanwhile, Prudential Equity Research analyst Steven Barlow does a run-down on last week?s rumor that the New York Times Co. could be up for grabs in a report released on Sunday.

Barlow estimates that if the speculation has legs, the ?best case result is a purchase price of $26.?

However, he wrote that it would be difficult for private equity to earn a ?significant return? for that deal to be attractive.

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