By: Jennifer Saba Though Goldman Sachs thinks that shrinking The Wall Street Journal makes "tremendous economic sense" the research firm recommends that investors "avoid DJ shares... given an uncertainty surrounding the magnitude and timing of an ad recovery."
On Tuesday, Dow Jones
announced plans to reduce the web-width of the Journal from 60 inches to 48 inches to combat rising newsprint costs. Goldman notes that the Journal is coming late to the game since most U.S. publishers moved from 54 to 50 inch webs in the late 1990s.
To do this, Dow Jones will retrofit 19 presses, which is estimated to cost $43 million (with $3 million capitalized in 2005, $36 million capitalized in 2006, and the rest in 2007). Additionally, Dow Jones plans to spend about $13 million for training and other expenses related to the redesign.
Goldman has lowered its 2006 earnings per share forecast to reflect the costs from $1.46 to $1.39. Once launched in January 2007, Dow Jones should save $22 million in newsprint expense (offset by $4 million in additional depreciation expense). Goldman is raising its 2007 EPS forecast from $1.80 to $1.91. This estimate assumes there is no pushback from advertisers on ad rates.
As of late Wednesday morning, Dow Jones was trading down $.39 to $35.65.
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