Goldman Sachs: More Challenges Ahead

By: Jennifer Saba The MediaWeek conference held in New York didn't offer any relief from what is shaping up to be "annus horribilis" according to Goldman Sachs.

November and December results are expected to be just as soft as October's, which fell 6.9%. "The overall ad picture for the newspaper industry remains exceptionally challenging," Goldman Sachs analyst Peter Appert wrote in a note.

"We see nothing on the near-term horizon to alter our long-held view that investors should remain underweight the sector."

The next year could be even more of a mess if the economy sputters and newsprint prices rise.

Meanwhile, Appert and his team remarked on the conditions of several companies in their coverage universe.

Though Gannett is an "exceptionally well-run company" particularly when it comes to cost control, it's not immune to industry trends. "Even the best managed company will have a difficult time posting positive earnings comparisons on a near-term basis," according to the note.

Nor is GateHouse sheltered from the environment despite its strategy to maximize free cash flow. "Near-term organic revenue trends are challenging and the market's reduced appetite for risk has weighed on Gatehouse shares," Appert wrote.

McClatchy is the most vulnerable company given its newspaper-only make-up. Goldman Sachs admires the company?s management but says it's an uphill trudge given its high debt and exposure to ad revenue. This "places McClatchy in a very difficult position in the context of the challenging newspaper industry backdrop."

Goldman Sachs is remaining on the "sidelines" when it comes time to Tribune. Noting that if the deal closes at $34 a share the returns would be "impressive," the research firm points to Tribune's poor fundamental trends, pending government approval, and turmoil in the credit markets as major risks.

Journal Communications gets a nod for selling its slow growth cable telecom business and newspapers. The company should see upside from its broadcast properties due to the election and Olympic year.

Goldman likes the spin-off plans for both Belo an E.W. Scripps, though Scripps' stock was "already valued on a sum-of-the-parts basis."

The New York Times Co. will have to wait for its digital initiative to contribute more or an uptick in national advertising to restore top line growth.