Banc of America: Circ, Not GM, Is Tribune's Big Problem

By: Jennifer Saba Another investment firm weighed in on Tribune, knocking the publishing company down a notch. John Janedis, an analyst with Banc of America Securities, lowered his rating from a ?buy? to ?neutral? in a report issued today.

The reason has less to do with General Motor's decision to pull advertising from the Los Angels Times last week -- an estimated $10 million hit, though some are pegging that figure to be double that amount. Similar to Merrill Lynch's Lauren Rich Fine, Janedis said in his report that while GM's move is ?disappointing,? he doesn't think it will materially impact the company overall.

What does concern Janedis: soft ratings for the WB network -- many of Tribune's TV stations are WB affiliates -- and, most especially, potential negative effects from the newest circulation numbers for the period ending March 2005.

?Our buy rating on Tribune was predicated on leverage from a faster-growing WB network, strong preprint growth, and an overall up tick in advertising in Tribune's larger markets, notably, Los Angeles and Chicago. However, the results in these areas have been disappointing over the last several months,? the report said.

As for preprint growth, Janedis expects the Los Angeles Times, which was on a roll, to take a hit. The paper has shown double-digit preprint volume growth over the last seven quarters. Preprints were up 18% in 2004.

That streak will most likely halt as Janedis estimates that the Times' circulation will drop again (it was down 5.4% for the period ending September 2004). ?We expect the results [for the six months ending March 2005] to reflect meaningful declines in circulation at the Los Angeles Times, which could pressure pricing,? the report said.

Overall, print advertising remains ?choppy? and ?sluggish.? The report points out that Tribune has higher exposure to the Federated/May merger because many of its markets have overlapping stores. "Ongoing weakness in auto, entertainment and other categories? is expected to drag on results.