A Sneak Preview of NAA's Mid-Year Media Review

By: Jennifer Saba Next week, newspaper executives will flock to New York to give some sort of guidance for the rest of 2005 during the Newspaper Association of America's Mid-Year Media Review. Yet it's expected that investors will walk away from the meetings with a cautious outlook, according to a note released today by Goldman Sachs, which stamped the publishing stocks as "value traps."

No surprises are in store either, especially since May results have started to trickle in. In fact, the presentations will likely be the same song sung for the first half of the year: uninspiring ad revenue, falling circulation revenue, and increasing concerns over the shift of classifieds to online. Goldman believes "there is a high probability of further reductions to Street estimates as publishers struggle to maintain margins in an unfriendly revenue environment." On the upside (or downside, depending on your view) it's not anticipated that any of the presentations next week will move the market.

Goldman forecasts that newspaper ad revenue will grow about 2.5% to 3% in Q2, below the 3.3% increase in Q1. The reasons for the slowdown in ad growth have to do with a weak national category and the decelerating trend in classified growth.

With newspapers taking extra caution with circulation numbers, circ revenue will most likely be down 2% year-over-year, versus flat-to-up 1% in 2004.

Q2 earnings per share gain are expected to increase about 1.3%, below the Q1 growth rate of 3.8% and far below the 10.5% increase for the S&P 500 in Q2.

With all this mind, investors will be interested in learning more about recent acquisitions of Internet companies, subscription-based models for online content, and the continued launch of new publications aimed at younger readers, according to the report.

Here is what is likely to be presented by some companies.

Dow Jones: Executives will probably highlight the company's effort to shake up its advertising mix and to break its dependence on the technology and financial categories. They will most likely give an update on its progress with the Saturday Wall Street Journal and the recent acquisition of MarketWatch.

E.W. Scripps: A favorite among analysts, executives will focus on its fast growing cable unit along with the recent acquisition of Shopzilla. Goldman said the "ongoing evolution in the company's business mix makes Scripps one of the best long-term growth stories in the media sector."

Gannett: Newly appointed CEO Craig Dubow will make his debut. Gannett is one of the best-performing companies in the industry, but "the company faces a headwind versus its peers as it is challenged by more difficult comparisons," the report said. The stock is viewed as the "most appealing value story" in the sector.

Journal Communications: Management will likely discuss its telecommunications contracts and its focus on broadcast acquisitions. Also expect questions from investors regarding the company's interest in Emmis Communication's TV assets, which are up for possible sale.

Knight Ridder: The presentation will focus on the company's abilities to manage costs and new revenue initiatives. Expect to learn more about the launch of new publications and the possibility of tabs in many of its markets.

McClatchy: In 2004, the company enjoyed beating the industry average in revenue performance. Those days could be over -- difficult comparisons are expected. "The generally cautious (but charming) Gary Pruitt is likely to stick with his normal pattern of offering a conservative view of the near-term outlook," the report stated.

New York Times Co.: Management will provide Q2 earnings guidance and Goldman predicts it will decline given the company's slow ad growth rate. Expect to hear about plans for the Internet, including the recent acquisition of About.com and its initiative to charge for some content.

Tribune Co.: More of the same, as the company still lags behind the industry from a revenue growth standpoint with lackluster circulation and TV ad revenues.