By: Jennifer Saba
Next week newspaper executives will give presentations at dueling media conferences in New York — hosted by Credit Suisse and UBS — to what is sure to be a restive audience of investors and analysts.
This year, with shareholders breathing down their neck and a softening ad environment, don’t look forward to joyful presentations.
“We are expecting the mood to be pretty somber from a fundamental perspective,” wrote Merrill Lynch analyst Lauren Rich Fine in a note with the title “Lousy fundamentals; who cares?”
She is forecasting that Q4 ad revenue is going to dive 3% to 4% (excluding the extra week) for the companies Merrill Lynch covers. To take the sting out falling circulation and advertising revenue, executives will most likely chat up the one positive aspect going for them right now: their growing online businesses.
Goldman Sachs analyst Peter Appert isn’t anticipating much in the way of surprises. He wrote in a note today that next week’s conferences will be “relatively cautious” in terms of both the Q4 and 2007 outlook.
On the upside, Appert expects publishers to address financial restructuring, more cost cutting initiatives focused on labor, falling newsprint prices, and share repurchasing programs. The negative themes: financial restructuring will only prove beneficial in the short term; long term, the industry is still facing serious challenges. Margins are under pressure and ad revenue continues to drop.
Here are points made about some of the companies Fine, Appert and their teams cover:
Appert notes that Tribune, the latest newspaper company under the gun, will not be present next week — “its first absence since becoming a public company.”
At The New York Times Co., both Merrill Lynch and Goldman Sachs think it’s highly unlikely that the company will cave to increasingly hostile shareholders who are demanding that the company unwinds its dual-class stock structure. (Indeed, the structure shields them from such ornery shareholders).
Fine points out that the fundamentals “remain miserable” at the New York Times because of the Times and The Boston Globe. Though, she’s doubtful that the company will put itself up for sale or scrap its two classes of stock.
She does raise this possibility: “While it’s hard to understand what makes a family-controlled company decided to sell, it is also hard to gauge the impact of public pressure and its role in a decision to sell. We also note that there is not just one family that owns [the New York Times]; there are at least five.”
Since shareholders are feeling brazen these days, it’s likely that Gannett, with its one class of stock, will be on the hook. Merrill Lynch asks: “Investors continue to speculate that [Gannett] is the next company under pressure to surface value; will they raise the dividend? Increase share buybacks?”
As such, Merrill Lynch stamped Gannett with a “buy” rating.
Goldman Sachs does not think that Gannett executives will address the recent rumor that the company is interested in Tribune. Merrill Lynch pegs the possibility Gannett acquiring Tribune as “very unlikely.”
During the McClatchy presentation, investors will be curious to see how the Knight Ridder acquisition is going since it catapulted McClatchy from a mid-sized growth company to the largest pure play newspaper company in the country. “A higher debt level and greater exposure to classified ad revenues makes McClatchy more vulnerable to an earnings miss in the context of the challenging newspaper industry backdrop,” wrote Appert.
Expect those with an interest in Dow Jones to pay close attention to the Weekend Edition, since it has passed its one-year anniversary. Executives will focus on their digital strategy (and perhaps the newly redesigned paper).