Goldman Sachs: Newsprint Price to Jump 30%, Take Hit On Newspaper Earnings

By: Mark Fitzgerald

Newsprint prices will jump 30% in the second half of 2008, shaving the earnings-per-share (EPS) of public newspaper companies an average 2.1% — but clobbering A.H. Belo Corp.’s EPS, Goldman Sachs predicts in a report released Wednesday.

Newsprint companies — which traditionally have lowered prices when, as now, newspapers reduce consumption in slow times — will be able to make these prices stick, the Goldman Sachs Paper & Forest Products research team predicts.

“Who said the tough environment facing publishers couldn’t get tougher?” wrote analysts Peter P. Appert and Peter M. Salkowski. “Historically, newsprint prices have fallen during periods of weak ad demand, providing a bit of a cushion to publishers’ earnings. The current cycle is proving different based on consolidation within the newsprint industry, which is allowing producers to sharply reduce output, meaningfully increasing the pricing power of producers. Unfortunately for publishers, this new pricing dynamic is likely to remain in place through 2009.”

Goldman Sachs says the companies whose earnings will be most impacted by higher newsprint prices include The McClatchy Co.; The New York Times Co.; Gannett Co. Inc. — who, along with the now-private Tribune, combined buy about 25% of North American newsprint production.

Heading the list of companies who will lose EPS because of higher prices is A.H. Belo, publisher of The Dallas Morning News. Goldman Sachs estimates newsprint will shave 10 cents of its EPS — taking it down by 112.2%.

Newsprint’s negative impact on McClatchy’s EPS could be 4.2%, Goldman Sachs said. Other predicted impacts include Lee Enterprises Inc., down 3.8%; New York Times, down 3.4%; Gannett, down -1.7%; Media General Inc., down 1.7%; Journal Communications Co., down 1.4%; E.W. Scripps, down 0.4%; and The Washington Post Co., down 0.2%.

The average impact for the sector, excluding A.H. Belo, is estimated by Goldman Sachs to be down 2.1%.

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