Earnings bonanza in third quarter

By: Steve Yahn Prospects look good for the year 2000, analysts predict

Except for stunted growth at E.W. Scripps Co., the initial round of third-quarter financial results from publicly held newspaper companies portends a bumper crop.
Three bellwether companies ? Gannett Co. Inc., Dow Jones & Co. Inc., and the Tribune Co. ? last week reported earnings that exceeded analysts' expectations.
Of particular note was that the earnings surge was propelled by flagship newspapers. At Gannett, USA Today, often derided for its borderline profit standing, saw advertising revenue rise an eye-popping 21%.
Add in a decline in newsprint costs and firm advertising results across the board for its 73 other daily newspapers, and Gannett's profits climbed to $207.5 million, or 74 cents a diluted share, up 19.4% from last year's third quarter. Wall Street analysts were expecting earnings of 71 cents a share. Revenue in the period advanced at an impressive 10.8% clip, to $1.36 billion.
Newspaper results reflected "the impact of continued strong advertising demand, particularly in classified and national advertising; very strong results at USA Today and USA Weekend; and a 9% decline in newsprint expense," the company said.
At Dow Jones, print revenues grew nearly 18% to $310 million. Ad linage at the flagship Wall Street Journal rose a rousing 27.4% in the three months ended Sept. 30. The company's earnings per share rose 35% to 50 cents from 37 cents in the same year-earlier period, results that topped analysts' consensus expectation of 48 cents a share.
Tribune Co. reported record third-quarter earnings, led by its broadcasting group, which was up 33%. The company's publishing group saw operating profit rise 5% to a third-quarter record of $82 million. Revenues increased 11% to $837 million.
The company said the publishing group's increase was "due mainly to higher advertising revenues and lower newsprint prices, partially offset by higher losses from Tribune Interactive." The operating results of Tribune Interactive, a newly created group, are currently included with publishing.
Third-quarter advertising revenue gained 4% to $283 million, with a 4% increase in retail advertising and a 25% gain in "general advertising." Classified advertising was flat in the quarter.
Newsprint and ink expense decreased 13% as average newsprint prices were down 15% from 1998. Expenses other than newsprint were up 11%, due to acquisitions and higher costs at Tribune Interactive.
With the exception of Scripps ? which saw earnings drop to $24.9 million from $26 million last year ? all of this adds up to the prospect of continuing flush times for the newspaper sector.
"As long as the economy remains strong, this rally should go well into next year," said Ed Atorino, director at Wasserstein Perella in New York. "Ad linage trends continue to look good, particularly in national advertising. Overall, ad linage gains should be in double digits, easy."
Atorino expects a good showing for newspapers in general during the all-important holiday sales season. "There should be a pretty good pickup in sales," he said.
In the classified category, Atorino sees mixed trends. In today's tight job market, help-wanted ads are soft. But he noted that joint Web site-newspaper sales appear to have aided papers in combating online classified competitors.
Like most other industry observers, Atorino, a veteran analyst, said the biggest surprise is the robustness of national advertising.
"The dot.com companies are out in full force, of course," noted Atorino. (See Cover Story, page 24.) "But there's also the telecom companies, media companies, and utilities all looking for a way to get out a national message. Plus there's a lot of new product and corporate advertising going on."
Attractive newsprint prices are another major positive for newspaper companies. "Even with any price increases, the cost of newsprint is down 12% from last year," said Atorino, expressing the prevailing opinion of industry observers.
Douglas Arthur, an analyst at Morgan Stanley in New York, added that the healthy financial results at newspaper companies have been "propelled by continued sharp increases in national advertising, indications of a bottoming and gradual recovery in classified advertising, and surprisingly depressed newsprint costs."
So what's driving this surge of interest in national advertising in newspapers? "The continuing fragmentation of broadcast seriously inhibits the ability of national advertisers to generate the level of reach they enjoyed in the past, whereas a newspaper can deliver 50% to 60% reach levels on a daily basis," noted Bob Watson, vice president of media and marketing at the Newspaper National Network, a group established in 1995 to act as a clearinghouse for national advertisers.
Watson pointed to the example of Procter & Gamble. "Two years ago, we had no advertising from Procter. A year and a half ago, we had Tide. This year we'll do business with 14 Procter products."
Added Watson: "Our business is up 50% over this point last year. Advertisers are finding a new old medium that's working for them."

(Editor & Publisher Web Site: http://www.mediainfo.com) [Caption]
(copyright: Editor & Publisher October 16, 1999) [Caption]