Goldman Sachs: Newspaper Sector Has Yet to Bottom Out

By: Jennifer Saba The newspaper industry is still in the doldrums according to a report released by Goldman Sachs, which still thinks the sector has yet to hit bottom.

"Anemic revenue growth and pressure on operating margins, despite aggressive cost control efforts, continues to translate into a downward bias in earnings estimate revisions," said analysts with the research firm.

It's not helping matters that classified revenue growth is starting to slow. Auto has been in the dumps for at least two years and now help-wanted is softening. Classified ad revenue hardly grew in June, up a scant 0.2% -- the industry's weakest performance since early 2003, analysts noted.

Goldman observed the following for some of the companies it covers:

Belo: The Dallas market, where the company is headquartered and publishes its flagship paper, is dragging down Belo. Dallas is a "key contributor to Belo's lackluster revenue trends and the associated weakness in earnings." Like other metro markets, help-wanted revenue is "deteriorating."

Dow Jones: Analysts are still unsure about this company, which recently made some aggressive moves by cutting costs and introducing new ad revenue potential. (rated ?sell?) Still, the advertising results are all over the place and "profitability is highly dependent on trends in ad volume." Goldman analysts see limited near term upside.

Gannett: Even though the company is known for putting the squeeze on costs, ad revenue growth is slow. "Even the best-managed company will have a difficult time posting positive earnings comparisons on a near-term basis," wrote analysts though they think it's the best "value-story in the sector."

Journal Register Co.: Goldman Sachs has this company rated at "sell" because of low ad growth, below industry profit margins, and limited growth potential. "Our enthusiasm would improve with increased potential for margin improvement in the publishing and broadcast segments."

New York Times Co.: Knocked to ?sell? because the stock is still challenged by volatile operating results, analysts think it has legs long-term. "However, the valuation looks full with the stock slightly above its newspaper industry peers despite lagging the sector in revenue and earnings growth."

E.W. Scripps: "Our most favorite diversified media story." Goldman's rating on the company is "buy."