By: E&P Staff Knight Ridder's presentation at the Mid-Year Media Review in New York on Tuesday highlighted positive developments at the company, with the aim of hitting a long-term margin target of 25% (versus 19.3% in 2003). While trends are positive in many areas, some analysts still believe the San Jose, Calif.-based publisher lags behind the industry as a whole in some key areas.
Merrill Lynch responded by raising its second-quarter earnings per share (EPS) estimate by $0.04/share to $1.07 (up 13.4% year over year).
However, Merrill Lynch analyst Lauren Rich Fine noted that KR "indicated that June ad revenue growth was not distinctly different than the roughly 2% pace set in April and May," placing the company "at the low end of the industry." At the same time, she added that the publisher is on track to deliver savings this year, by "using lower weight newsprint (27.6 lb. vs. 30 lb.), employing national purchase contracts, and working on labor efficiencies."
KR indicated it had suffered retail losses due to Kmart and Lord & Taylor closures and general weakness in department store spending. Overall ad revenue at the San Jose Mercury News was still down 5.3% "but has turned positive of late." Classified nationwide for the company is up 4% through May.
A Goldman Sachs analysis of the presentation highlighted the company's cost-control efforts in this "still challenging ad environment." It concluded: "Upside in [KR] shares is contingent on improved revenue growth performance and closing the revenue growth gap versus its peers. ... [KR] is well-positioned to post upside earnings surprises when ad growth accelerates."
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