By: Jennifer Saba
After attending this year’s Newspaper Association of American and North American Newsprint Producers joint confab, analysts from Goldman Sachs think that newsprint producers will continue to push for an increase. Given the uneven ad recovery, the investment firm predicts producers will have an uphill battle.
For example, the proposed $50/ton increase slated for Sept. 1, 2004 still has yet to stick. In a report on newsprint pricing, Goldman Sachs wrote that only some of the smaller publishers are paying a portion of the price hike. It’s expected that newspaper companies will have to pay “roughly half the increase, probably by year-end” and “according we look for another year of high single digit price increases in 2005.”
Newsprint costs account for about 15% of operating expenses. Gannett, Knight Ridder, and Tribune are the largest consumers of newsprint, totaling 25% of North American production.
Any price increase affects a company’s earnings per share. The investment firm believes that Knight Ridder and the Washington Post Co. are best positioned to endure any hikes since they both own interests in newsprint mills that represent 50% or more of company consumption. Media General produces more newsprint than it consumes, “thereby receiving an EPS benefit from higher paper prices.”
Those companies most vulnerable: McClatchy, Tribune, The New York Times Co., and Dow Jones & Co.
Goldman Sachs did a rough estimate of the impact a $25/ton increase will have on 2004 earnings per share, as follows:
McClatchy: ($0.07) or -2.1%
Tribune: ($0.05) or -2.0%
The New York Times Co.: ($0.04) or -1.9%
Dow Jones & Co.: ($0.02) or -1.8%