Newspaper Execs Expected to Take Guarded Tone During Media Week

By: Jennifer Saba Next week marks the annual financial presentations made by newspaper executives regarding the outlook for Q4 and beyond. Judging the very weak October results rolling out from various companies, it should be a quiet affair, predicts Goldman Sachs analysts.

In a note to investors, lead analyst Peter Appert wrote, "We expect the news flow from next week's conference to be relatively cautious. ... While the market likely anticipates this cautious tone, we wouldn't be surprised to see a slightly negative response from the stocks."

There are only a few positive points likely to emerge from the presentations held by UBS in New York.

To offset declining growth, many publishers are expected to continue using cash for share repurchases. They will also wield the scythe with continued head count reductions.

The negative themes will outnumber the positive: Newsprint pricing could move higher due to a strong Canadian dollar and reduced capacity; advertising revenue and circulation will slide further; operating margins are expected to be down to flat, and earnings per share will increase about 5% thanks only to publishers with large broadcast exposures (2008 should bring Olympic and political advertising). However the newspaper divisions could drag down that EPS forecast.

Goldman thinks The New York Times Co. and McClatchy are the most vulnerable in its coverage universe because of their makeup as pure-play newspapers companies. The New York Times' flagship paper has been seeing the benefits from national advertising, but Boston and the regional properties are expected to weaken.

McClatchy's total revenue is forecasted to drop 5% in 2007 and that EPS will decline 6% in 2008. Goldman rated both McClatchy and the New York Times as "sell."

Meanwhile, Gannett executives should present a conservative forecast in the first half of 2008 -- likely down in the low to mid-single digits.

Belo and E.W. Scripps will focus on the announced spin-offs. For Belo, Goldman expects newspaper EBITDA to drop 14% in 2008.