Erratic Ad Recovery Worries Investors

By: Jennifer Saba

Newspapers might be doing better than other media — especially radio — when it comes time for ad revenue growth, but that’s not saying much. The torrent of ad revenue expected this year is turning out to be more of a trickle. According to a report released today by Goldman Sachs, investors are increasingly asking, “Where’s the Beef?”

The investment firm is further worried about the discrepancy of ad growth among newspaper companies, which only reinforces that “the recovery is spotty and lacking momentum.” For example, Gannett Co. Inc. is posting “impressive” high single-digit gains while Knight Ridder is reporting low growth.

Help wanted remains strong — classified revenues were up 9.7% in May — but any advances in that category are practically canceled out by the sluggish retail category, up only 2.5%. The retail outlook for the remainder of the year doesn’t bode well, especially as Target and Wal-Mart recently announced weak sales growth. The report said that there is little “evidence that the department store category has passed the bottom of its current ad spending cycle.” And it doesn’t help that the Fed raised the key interest rate (a quarter point yesterday) thus potentially ending the mortgage refinancing boom.

For the second quarter, the firm estimates that ad growth will increase 5.5% to 6% (versus its original estimate of 6% to 7%). As for the rest of the year, Goldman Sachs revised growth down slightly to 5%-6% versus a solid 6%.

The firm also trimmed Q2 earnings per share (EPS) growth for newspaper publishers to 10.3% from 11.5%. “While the downward revision is small, it is clearly a move in the wrong direction,” the report noted.

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