By: Jennifer Saba
Newspaper executives reporting fourth quarter earnings in the coming days are expected to keep that sunny tone they adopted during Mediaweek financial presentations last December, suspect J.P. Morgan equity research analysts in a recently released note.
As newspaper companies head into Q4 earnings, J.P. Morgan analysts Alexia Quadrani, Monica DiCenso and Townsend Buckles are expecting newspapers to beat their December ad revenue estimates — improvements that should carry on through 2010.
The better than expected results — though they are still noting double-digit ad revenue declines — could push up stocks even further. “We believe potential upside to estimates in Q4 and this encouraging tone may further fuel the recent rally,” analysts wrote.
For the companies they cover, advertising revenue at Gannett is anticipated to decline 20% in Q4 but with top line improvement driven by recent cost cutting. Classified advertising will remain weak but the national — though J.P. Morgan notes that USA Today is still “volatile” — and retail categories are registering improvements. Projected EBITDA in Q4 is $349 million, up from an estimated $341 million with a 24% margin — the only quarter last year with a margin improvement.
At The New York Times Co., analysts anticipated a Q4 ad revenue decline of 21% versus a previously estimated decline of 25%. J.P. Morgan tweaked its 2010 ad revenue projections for the company from a 9.5% drop to 7.1%, noting the New York Times will likely outperform its peers. For the quarter EBITDA margins are expected to come in at 21.5% compared to 18.5% in Q4 2008.
Quadrani, DiCenso and Buckles appear unmoved by the recent NYTimes.com metered model announcement: “It is unclear how meaningful the revenue upside could be in the near term given that current print subscribers will receive online content for free as part of their subscription.”
McClatchy is forecasted to improve in Q4 with ad revenue declines in the low 20% range but positive EBITDA growth due to cost cutting (also in the 20% range). Total revenue in Q4 is expected to be down 17% because of positive circ revenue growth. Analysts still think McClatchy will keep cutting this year but that its 2010 convents should remain secure.
Q4 ad revenue should drop in the mid-teens at E.W. Scripps — a company that will benefit from its broadcast division in a sure-to-be heated political year along with the Olympics. Scripps is also in the position of carrying very little debt — some $20 million — and analysts suggest that the company could reinstate a dividend at some point in the year.