Knight Ridder Warns of 20% Drop in Q3 EPS

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By: E&P Staff

Knight Ridder warned investors today that Q3 earnings per share will fall 20% due to rising health care costs, a 9.1% hike in newsprint prices, and other factors like the effects of Hurricane Katrina on its Biloxi, Miss. paper.

Banc of America Securities estimates that Knight Ridder spent more than $1 million to help employees following the hurricane. In a note released today, the research firm forecasts Q3 EPS in the mid-$0.60s, below consensus of $0.89. It maintained a “neutral” rating, though the company is under review.

August results announced today were also soft. “The month was disappointing,” Tony Ridder, CEO and Chairman of the company, said in a statement. “Although recruitment and real estate have remained strong all year, we did not see the hoped-for turnaround in auto in August (I think we will see some turnaround in September). National’s growth, held back by ongoing softness in travel and entertainment, is still modest (national auto also was down). And retail, which had been running up 2.6% for the year through July, declined.”

For the month of August, Knight Ridder reported that newspaper ad revenue grew 1.2% compared to the same period last year. Retail was down 1.7%. National was up 1.3%. Classified was up 4.5%. Within the classified category, help wanted was up 15.8%, real estate was up 8.9%, and auto was down 9.6%.

Circulation revenue dropped 1.7% for the month.

Total operating revenue was up 0.4% for the month and up 1.4% for the year.

These results no longer reflect the Detroit Free Press or the Tallahassee Democrat. Comparisons have been restated to reflect the change. The results for the three papers acquired from Gannett will be included in the September report.

By paper, in St. Paul, Minn. total ad revenue for the month was up 7.2%. San Jose, Calif. grew 6.2%. Contra Costa, Calif. was up 5.0%. Charlotte, N.C. increased 2.6%. Miami rose 1.0%. Philadelphia, Kansas City, and Fort Worth, Texas were soft.

Retail was up 25.6% in San Jose and 3.5% in Charlotte, but soft in most other large markets.

National was up 9.1% in Fort Worth, 8.7% in Contra Costa and in St. Paul, and 7.3% in Miami and in Charlotte. Philadelphia, San Jose, and Kansas City were soft.

Classified was up 14.3% in Miami, 9.7% in Contra Costa, and 6.3% in St. Paul. San Jose and Fort Worth were soft.

“We believe that in the fourth quarter costs will be more in line with what they were in the first half of the year,” Ridder said in the release. “Results will benefit by inclusion of earnings from the three newly acquired newspapers and by our continued aggressive share repurchases. On a continuing operations basis, excluding the favorable resolution of prior-year’s tax issues, but including our newly acquired newspapers, earnings per share in the fourth quarter will show growth.”

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