Analysts Expect Improving Q3 Results Due to Cost-Cutting

By: Jennifer Saba While the tone from executives will be more upbeat over the next couple of weeks as quarterly earnings kick off, that doesn't mean an ad recovery is at hand.

J.P. Morgan analysts Alexia Quadrani, Townsend Buckles and Monica DiCenso wrote in a note released this morning about upcoming Q3 results starting with The McClatchy Co. on Oct. 15.

For the companies in its coverage universe, the team is expecting Q3 ad revenue to fall roughly 20% a tad better than Q2 when ad revenue declined 22%. The analysts note the improvement has more to do with easing year-over-year comparisons, not an uptick in overall trends.

Overall, J.P. Morgan expects some upside from deep cost-cutting, which will help bolster margins.

Executives will be probably stress the bottom has been reached. That may be, but the analysts don't see a "bounce-back" anytime soon.

NEW YORK TIMES CO.

J.P. Morgan lowered its Q3 ad revenue estimate to a decline of 27% from a decline of 25% based on Gannett's pre-announcement that suggested a "modest sequential improvement." In Q2, ad revenue at the New York Times fell 32%.

Analysts are expecting an update from management on a new digital strategy for NYTimes.com and "whether it has in fact decided to begin charging for content." The options could range from usage-based pricing or a membership model.

The group introduced a new 2010 price target of $9 based on the New York Time's "stronger brand, good digital assets and a potential for a sale in the future by the controlling family."

J.P. Morgan maintained its "neutral" rating on the stock.

GANNETT

Advertising revenue is forecasted to drop 29% in Q3 compared to 32% in Q2, mainly on easing comparisons. Management is expected to be cautious regarding the outlook in Q4, citing limited visibility due to advertisers booking late.

J.P. Morgan is maintaining its 2009 adjusted EPS estimate of $1.63 and its "neutral" rating on the stock.


MCCLATCHY

Cost-cutting implemented by McClatchy executives should help offset weakness in revenue, analysts wrote. Ad revenue is anticipated to decrease 28% in Q3, versus 30% in Q2.

J.P. Morgan is revising up its estimates on the company in Q3; EBITDA is expected to increase to $85 million (from $80 million) while EPS should come in at 6 cents (from 2 cents).

The firm maintains its "underweight" rating on the stock due to long term concerns about McClatchy's debt burden.


E.W. SCRIPPS

Considered a favorite by the team because of Scripps' "strong balance sheet with no earnings-based debt covenants." Newspaper ad revenue is forecasted to decline 18% compared to 22.5% in Q2. J.P. Morgan introduced a new December 2010 price target of $7.