DISQUIETING Q3 EARNINGS ENCOURAGE COST CUTTING

By: Lucia Moses Newsprint Prices, Lower Ad Revenue Worry Execs





The first of the third-quarter earnings reports showed signs of a continued slowdown in advertising growth and sharply rising newsprint costs as newspaper companies braced for what is expected to be another tough quarter ahead.



Adding to the newsprint problem, the economic outlook, already clouded by high oil prices, grew increasingly uncertain as tensions in the Middle East erupted last week.



"In the fourth quarter, with ad revenue slowing and newsprint increasing, it certainly isn't going to be a slam-dunk," Merrill Lynch newspaper analyst Lauren Rich Fine said. Newsprint prices are up 30% from $470 per metric ton a year ago and expected to go as high as $700 in 2001.



Another wrinkle is the Internet threat, which costs newspapers as each spends to build a Web presence. Companies are counting on the shift to narrower paper widths to defray higher newsprint prices, but all costs are under scrutiny as they try to meet year-end expectations and put together their budgets for next year. For example:





Knight Ridder's Philadelphia Inquirer and Philadelphia Daily News plan to trim full-time staff by 100, or 3%, through buyouts.



Tribune Co. cut 80 of 650 positions at its Internet unit last week to hasten profitability. Last month, the company slashed 170 jobs when it closed 14 community news sections and restructured the ad department at the Los Angeles Times.



Belo's Press-Enterprise in Riverside, Calif., recently cut 14 jobs at its free weekly newspaper group and said it will start charging subscription fees to reduce newsprint costs, said Publisher Marcia McQuern, adding that some of the people cut will be absorbed elsewhere in the company.





After an unusually strong third quarter last year, newspaper earnings are coming back down to earth. Dot-coms have reigned in the ad spending that lifted profits last year, dimming the shine in this year's third quarter.



At Gannett Co. Inc., weakness in the local and classified advertising categories partly offset strong national ad demand and held back revenue gains. Total newspaper ad revenue rose 3% on a pro forma basis.



Difficult comparisons with last year's third quarter, higher newsprint prices, and Internet spending tempered profits at the New York Times Co., which earned 37 cents per share, up 2.8%. On a pro forma basis, newspaper revenue rose 5.3%. National and help-wanted advertising fueled ad revenue growth of 7.4% at The New York Times and 5.3% at The Boston Globe. Poor market conditions for public offerings led the company to scrap plans to issue a tracking stock for its Internet business, citing poor market conditions.



After strong financial and technology advertising gains last year, Dow Jones & Co. Inc.'s The Wall Street Journal posted a modest 6.1% linage gain on a per-issue basis, as a falloff in financial advertising partly offset technology and classified advertising growth.



At the E.W. Scripps Co., moderate growth in the newspaper division was supplemented by strength in broadcast and cable TV, which powered earnings past expectations. Pro forma newspaper ad revenue increased 4.7% to $181 million, with local retail the weak spot, down 1%.



Journal Register Co. had mild earnings and revenue gains in the third quarter as tight cost controls offset higher newsprint prices. Ad revenue was flat for September, with retail declining 3.6%.



Higher paper costs and other expenses led to an earnings shortfall at Southeastern publisher and broadcaster Media General Inc. of 36 cents per share, down from 44 cents last year.


And Pulitzer Inc. reported ad revenue rose 5.1%, reflecting higher national advertising at the St. Louis Post-Dispatch and rate increases at the Arizona Daily Star in Tucson.







Lucia Moses (lmoses@editorandpublisher.com) is an associate editor covering business for E&P.



3rd Quarter Earnings Reports:



NEW YORK TIMES CO. MEETS ANALYSTS' EXPECTATIONS (10/12/00)



DOW JONES' ELECTRONIC PUBLISHING REVENUE UP 10% (10/12/00)



ACQUISITION EXPENSES TEMPER EARNINGS AT GANNETT (10/11/00)



BROADCAST UNITS DRIVE EARNINGS AT SCRIPPS (10/10/00)







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