By: Jennifer Saba The Tribune Co.'s circulation problems -- scandals at Newsday and Hoy and now the steep declines at the Los Angeles Times and Chicago Tribune -- are going to haunt the company into 2005, according to Merrill Lynch.
In a note issued yesterday, Merrill Lynch predicts Tribune will only see a 3.4% growth in newspaper advertising revenue for 2005, compared with a projected 5% growth for the industry. Merrill cites mostly the Newsday fallout as a drag on the estimate.
Overall, however, Merrill Lynch thinks the company is moving in the right direction and subsequently rates Tribune shares as a "Buy" on the belief the company can "deliver industry-like bottom line growth notwithstanding that it is being handicapped top line."
Goldman Sachs took a much more negative stand, downgrading the stock to "Underperform" from "In-Line." In a report issued today the firm said, "While we applaud the steps management is taking to improve long-term growth and profitability, we believe this stock is best avoided for the time being."
Both investment firms were surprised by yesterday's announcement regarding big declines in circulation in Los Angeles and Chicago, a result of weeding out third-party-sponsored and bulk copies. "We suspect that Tribune took advantage of the heightened scrutiny to reduce circulation and look like they were doing advertisers a favor," the Merrill report said.
Goldman Sachs took it even further, writing that the hits would adversely affect advertising (which is already soft at the company), even though Tribune management protests otherwise. "Declining circulation volumes will at minimum lead to reduced ability to raise ad rates," the report said.
Merrill Lynch cites that seven out of 10 of Newsday's largest advertises have signed the settlement agreements based on the circ shortfalls there (but only 18,000 out of 40,000 total). Stu Vincent, Newsday's spokesman, told E&P they are still continuing negotiations with advertisers, despite the Oct. 15 settlement deadline.
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