J.P. Morgan Forecasts a ‘Strong’ Q1 for Newspapers

By: Jennifer Saba

Newspaper advertising revenue is expected to make a modest comeback this year with overall percentage declines estimated to be in the low single-digit range, according to a Q1 preview from J.P. Morgan.

Publishers are expected to announce stronger results in Q1 and should “be more optimistic about the outlook, citing improved revenue trends, largely from stronger national spending and a bounce-back in auto classified advertising,” wrote analysts Alexia Quadrani, Monica DiCenso and Townsend Buckles.

For the companies in J.P. Morgan’s coverage universe, Gannett’s 2010 newspaper ad revenue is forecasted to be off 5.6% (compared to a decline of 28.4% in 2009). In Q1, Gannett’s ad revenue is anticipated to drop 7.2%, with approximated EBITDA of $261 million. That represents a 19.7% margin versus a 14.3% margin from Q1 2009.

At The New York Times Co., ad revenue should fall 5.5% for the year and roughly 8% for Q1. EBITDA margins should improve in Q1, anticipates J.P. Morgan, coming in at 9.7% compared to 2.7% in the same quarter of the previous year.

Advertising revenue during Q1 at E.W. Scripps is expected to decrease 12.5% with more than $25 million in free cash flow. Q1 EBITDA is forecasted at $17 million.

McClatchy’s ad revenue will likely fall 8.4% in Q1. Thanks to cost-cutting, margins are on track to improve greatly to 25% in Q1 from 12% of the same quarter last year. EBITDA is expected to be up 91% year-over-year to $83 million.

Analysts said they expect Q1 results and revised estimates to provide a “little further steam” to the recent rally in newspaper stocks.

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