Newspapers Report Sunnier 1st Quarters

By: Lucia Moses

Newspapers are notching better-than-expected revenue results, generating more flickers of hope that an advertising recovery may be close at hand. Still, doubts remain about the pace and strength of such a recovery for newspapers.

For now, February numbers were encouraging enough to lead to upward revisions in first-quarter earnings estimates for several companies. Merrill Lynch analyst Lauren Rich Fine, who had forecast a 7% year-over-year decline in newspaper ad revenue in February, now believes the slippage was closer to 5% to 6%.

A top performer has been the McClatchy Co., which reported that revenue in February declined only 1.5% after an 8.3% drop in January. One of its strongest properties, The Sacramento Bee, is starting to fill long-open sales positions after two consecutive months of revenue increases, said Steve Bernard, the Bee‘s vice president of sales and marketing. He credited the boosts to a sales reorganization as well as the market’s growth.

Gannett Co. Inc. also experienced a big improvement in February, as newspaper revenue declined 3% after an 8% decline in January. Looking ahead, Gannett said last week that its acquisition taste extends to Internet companies — it considered before Yahoo! bought it recently — but that it hasn’t yet found any that are cheap enough.

There’s reason to be cautious, however. The Conference Board said its index of leading U.S. indicators was flat in February after four months of gains, signaling that the path to recovery may be bumpy.

The help-wanted ad category continues to drag down newspapers. Retail pains include store closings by Kmart and Albertson’s supermarkets as well as anticipated ad-spending cuts by Kroger and Winn Dixie supermarkets. Ernie Pricco, vice president of newspapers for Publicitas North America, said that while he doesn’t expect more than a small increase in newspaper spending this year by national advertisers, “a lot are waiting until the last minute to make decisions – and that benefits newspapers.”

Still feeling the effects of the slowdown, the Tribune Co. reported that its first-quarter earnings will be hit by a pretax charge of roughly $270 million to write down the value of assets, including “newspaper mastheads [and] TV network affiliation agreements,” and a separate charge of roughly $20 million to $30 million related to further newspaper staff cuts.

All in all, though, this year is starting out much better than the last one, when newspaper ad revenue declined 4.3% in the first quarter. The Barry Group’s Miles E. Groves has predicted newspaper ad spending would dip 2% in the current quarter.

“What I hear from people in the industry is, they’re seeing the light at the end of the proverbial tunnel, and they’re seeing ad revenue starting to turn around,” said John F. Sturm, Newspaper Association of America CEO and president. “I personally think it’s going to be a slow, but hopefully steady, recovery.”

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