Goldman Sachs Remains Cautious on Newspaper Industry

By: Jennifer Saba

The newspaper sector is stuck in the mud, according to a report issued by Goldman Sachs today.

July advertising revenues are up 2.9% and August is looking to come in about the same. Retail is relatively stable (up 3%) and national has improved slightly (against easy comps). But what’s worrisome is that classified ad growth is slowing.

Help wanted continues to shoulder the burden with growth in the mid-teens in both print and online. The real estate category is starting to show some hairline cracks (it has slowed modestly) while automotive is just “exceptionally weak.”

Circulation revenue continues to slip, down 2.6% year-to-date.

Taking all this into account, total industry revenue growth is about 2%, year-to-date, ?the industry’s weakest performance since the 2001-2001 recession.?

And publishers aren’t likely to get any relief from newsprint prices. Newsprint producers have reduced capacity in response to a ?soft demand,? which makes it hard for publishers to resist price increases, the report said. The cost per ton of newsprint is expected to reach $630 by the end of the year. ?In the context of lackluster revenue growth, higher paper prices are an important contributor to the margin pressure we anticipate in the second half.?

Year to date, the newspaper stock index is down 7.7% compared to the S&P500’s increase of 0.8%. The research firm anticipates Q3 average earnings per share will decline 6.6% for the newspaper sector. Meanwhile, EPS growth for the S&P500 is projected to grow 12%.

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