Newspaper Stocks: The Best of the Worst

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By: E&P Staff

If the October results recently reported by newspaper companies are any indication of things to come, Q4 will most likely be a disappointment.

Newspaper ad revenues increased only an estimated 4.2% — the worst performance since January (with an additional Sunday to boot), according to a report released today by Goldman Sachs — with the major retail, national, and classified categories showing signs of a slowdown.

With this in mind, Goldman’s Peter Appert wrote, “Given the sloppy trends in the ad environment and potential risk to near-term estimates, we continue to recommend an underweight position in the newspaper stocks.”

Looking at the categories, the most alarming trend is the deceleration of classified revenues and, specifically, help wanted. The investment firm noted that classified revenues were up 6.4% in October, versus 2.9% in September, 9.3% in August, and 7.5% in July. Help wanted, which has added lift to revenues over the year, and auto are weakening. “The slowdown in help wanted is noteworthy,” the report said, “as we are still comparing against relatively weak year-earlier performances.”

Costs are expected to increase, though not as badly as some have feared. Goldman predicts that newsprint costs will be up 8% (as opposed to the 10% forecast). That’s not bad, until you consider the demand for newsprint is dwindling because advertising is not robust. Labor costs are expected to rise 4% to 5%, versus the earlier forecast of 5% to 6%.

As for the newspaper stocks, which are down 6.2% compared to the S&P 500’s 6.5% gain, Appert delivers a backhanded compliment: “Newspapers are the best of the bad bunch relative to the media sector.”

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