Merrill Lynch Ad Outlook: Up 4%

By: Jennifer Saba Merrill Lynch issued a report today projecting that ad revenues for last year's Q4 would increase 4.2%. This is down from pervious quarters, which grew somewhere in the 4.5% to 5% range. Merrill also sees gains of around 4% for 2005.

No surprise, classified is expected to lead the charge for Q4, with gains of 5%, boosted by double-digit growth in help-wanted ads and real estate. National will likely increase 5% to 6% due to resumed wireless spending.

As for ad growth in 2005, the 4% prediction includes online. The Sears/Kmart and AT&T/Cingular mergers could chip away at that forecast if these companies pull back on advertising.

Merrill estimated that circulation revenues will decline 1.5% this year. "Increased discounting has helped stave off bigger volume declines but we remain concerned that advertisers are less inclined to pay for discounted circulation. We expect continued circulation pressures in 2005," the report said.

Online is expected to grow in the double digits, though the report acknowledges the "dollar amounts are still small and still present a challenge long term against increased competition."

Revenue growth for this year is expected to come in around 3% to 4%, and earnings-per-shar growth should be up in the mid single digits -- "hardly the type of growth to get excited about," the report said.

The investment firm remains "neutral" on newspaper stocks. The report notes that merger and acquisition speculation, particularly around the possible sale of Pulitzer, and share repurchasing activity are driving investor interest.

Merrill Lynch's stock picks: E.W. Scripps, Tribune, and The Washington Post Co.


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