Goldman Sachs Lowers Scripps Rating on Exposure to Newspapers

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By: Jennifer Saba

Goldman Sachs downgraded E.W. Scripps from “buy” to “neutral” on Tuesday. Lead analyst Peter Appert wrote the rating change was due to “reduced earnings visibility” and more notably, “lower confidence that the company will take near-term action to reduce its exposure to the troubled newspaper industry.”

In early January, Scripps executives commented at length how the company was considering either spinning-off its newspaper division or selling some properties. Analysts were keen on such a prospect, since Scripps was making headway with its interactive and cable divisions. The thinking on the Street, including Goldman Sachs: Scripps could unlock more value, if it unloaded parts (or all) of its newspaper properties.

Executives at Scripps quickly tamped down their original comments stating the company had no plans to spin-off or divest Scripps newspapers, which took Goldman Sachs “by surprise.”

“Our sense,” wrote Appert, “is that some combination of negative employee response, complications associated with the Scripps Trusts, concerns over valuation, tax challenges, and/or related issues may have caused the company to at least temporarily shelve a possible restructuring of its newspaper assets,”

Meanwhile, Scripps reported on Tuesday that pro forma revenue growth at its high-flying interactive division slowed considerably to 21% in Q4 from 50% in Q3. Though earnings per share for Q4 beat Goldman Sachs? estimate by 4 cents to 75 cents (not including a tax adjustment).

Executives also forecasted that Q1 is off to bad start concerning its newspaper properties, with segment revenue dropping 5% to 7% due to softness in classified revenues. Scripps faces tough comparisons in the real estate classified category with its Florida papers, but still “the negative revenue trend does not bode well for overall newspaper industry trends as we enter 2007.”

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