Merrill, Goldman Expect Dreary Spring Circ

By: Jennifer Saba Anyone expecting newspaper circulation trends might miraculously turn around this spring should start hoping for something else. "March ABC Figures likely to be ugly," said a headline on the latest Merrill Lynch report, issued yesterday.

The declines will probably be above the historical 1% pace. The quarterly earnings calls slated for the next few weeks should provide a sneak peak of the numbers due in May. "Circulation remains an industry issue both short and long term, which is a change from the past when circulation revenues were viewed as a fairly steady revenue stream," the report said.

As for Q1 circulation revenue, only McClatchy is expected to show a gain, though slight, up 0.3%. Tribune brings up the rear with an estimated "startling" 8% drop, the report predicted.

Goldman Sachs is also bracing for circ-revenue declines -- it's estimating a 2%-plus drop -- calling the trend ?troubling? and noting that it will affect earnings per share, according to a report issued today.

Advertising revenue for Q1, typically a weak quarter anyway, probably won't fair much better. Merrill lowered its ad revenue forecast to 3.3% growth, from 4%. The firm is still betting on a 4% increase in ad revenue for 2005, which includes online revenue.

Goldman is forecasting a 3.8% gain in ad revenue for Q1, and because of the ?sloppy? ad environment the firm predicts many companies will lower their Q2 outlooks.

In terms of ad growth, Merrill estimates that Gannett will post the best results for Q1, with a 4.7% increase. The New York Times Co., a current caboose of the industry, should see 1.4% growth.

Earnings will probably grow in the low single digits, according to Goldman. Gannett and McClatchy should come out on top in EPS gains, posting above the industry average. Dow Jones will mostly be the ?laggard.? Goldman estimates Dow Jones' EPS will fall 50% on a year-over-year basis, given the challenging ad trends facing The Wall Street Journal and dilution from the acquisition of MarketWatch.

On the upside for the industry, online revenue should make some solid gains, with double-digit increases. "Unfortunately," the Merrill report said, "this only represents 3-5% of revenues."