Goldman Sachs: Slow Growth Ahead for Industry

By: Jennifer Saba Goldman Sachs expects the newspaper sector to meet Q3 earnings but not exceed already downwardly revised expectations. Newspaper ad revenue is estimated to increase a "very anemic" 1.7% compared to the same period last year.

As in the past few months, margins are under pressure from weak advertising revenue from print and television and rising costs.

The note, released today, also said that September results are looking soft, a trend that will likely continue. The retail category, which represents about 50% of all ad revenue, is slowing given the consolidation in the industry coupled with more cautious ad spending. Goldman is forecasting low single digit ad growth in Q4.

National also remains weak. Classified is the only category expected to show significant gains of 3% to 4% growth.

Newspaper revenues at Belo are expected to be up 3% -- beating the industry average of 1.7%. Higher circulation costs though should contribute to an 11% drop in segment operating income, said the report.

Dow Jones & Co. continues to struggle against a challenging environment. Goldman expects Q3 lineage at the Wall Street Journal to fall in-line with guidance of low-to-mid single digit increases.

Gannett should also have a tough quarter due to weak newspaper results and more difficult comps for its broadcasting unit. Goldman is forecasting a 1% decline in Q3 revenue and a 6.5% drop in operating income.

The New York Times Co. will most likely have a soft September, which will contribute to "lackluster" Q3 earnings: "Dilution from acquisitions and higher interest expense are also negatively impacting results."

Tribune continues to lag the industry from a revenue growth perspective with soft trends in circulation and TV ad revenue: "Aggressive cost reduction efforts and fewer outstanding shares should help mitigate the expected 6% drop in Q3 operating income."

It's not all gloomy news over at Goldman. The research firm is very bullish on the Internet sector, including Monster.com, which it expects to "sustain impressive EPS growth over the next several years" somewhere in the ballpark of 25%.