Newspaper Execs See 'Bizarre Environment'

By: Mark Fitzgerald Propelled by lower newsprint costs, the new accounting change that eliminates amortization of goodwill, and higher-than-expected advertising revenue from TV properties, a number of the nation's biggest newspaper chains reported higher earnings per share (EPS) for the second quarter.

Newspaper company CEOs mixed this relatively good news, however, with warnings that all bets are off for the rest of the year.

This, for instance, is what Media General Inc. Chairman and CEO J. Stewart Bryan III told analysts when asked to explain why the company's newspaper-advertising business remains depressed -- its revenue was down 3.9% and its profit was up 7.6% -- while its TV division's revenue climbed 2.9% and its operating profit rose 30% over the year-earlier quarter: "What are the causes for that? I don't know. The general malaise, I guess. The feeling that all people in business in America are crooks these days. ... I can assure you that is not what we do at Media General, nor is it what our colleagues in this business do. I cannot think of another reason why publishing revenues do not get stronger."

Media General, based in Richmond, Va., home of its Richmond Times-Dispatch, said it earned 70 cents per diluted share, more than double the reported 33 cents of the year-earlier period. If the new accounting rules had been in effect last year, however, the company said its second-quarter diluted EPS would have been 71 cents. On a comparable basis, its quarterly net income was $16.3 million this year versus $16.2 million last year.

Gannett Co. Inc., also buoyed by a boost (7.8%) in TV ad income, met Wall Street expectations with $303.9 million in net profit and $1.13 in diluted EPS. Using pro forma accounting, its earnings for the second quarter last year were $1.08. Headquartered in McLean, Va., the nation's No. 1 chain said newspaper advertising revenue was down 1.1%, including a 4% decline in national advertising -- and a 9% decline at its flagship USA Today.

San Jose, Calif.-based Knight Ridder also beat analysts' expectations with $76.8 million in net income and 90 cents in diluted EPS. For the year-earlier quarter, its pro forma earnings per diluted share were 87 cents, adjusted for the accounting change and one-time charges related to staff reductions. Ad revenue at the No. 2 newspaper chain was down 3.5% from last year, but the decline slowed in June to 2.7%, Chairman and CEO Tony Ridder said.

In Chicago, the Tribune Co. credited gradual improvements in newspaper, TV, and interactive advertising, plus lower newsprint costs, for its $114.2 million in net profit, as well as EPS, excluding goodwill amortization and other charges, of 52 cents, versus a comparable 39 cents a year ago. The nation's No. 3 chain reported its newspaper ad revenue increased 1% and ad linage decreased 1%.

The New York Times Co. reported its quarterly net earnings, adjusted to eliminate one-time gains and goodwill amortization, of $79.8 million were flat year over year. Its diluted EPS climbed to 52 cents from 50 cents because of a reduction in the number of shares outstanding. Among newspapers, a 2.1% decrease in ad revenue was more than offset by a 12.7% increase in circulation revenue, primarily as a result of higher delivery prices of the flagship New York Times and The Boston Globe.

Headquartered in Sacramento, Calif., the McClatchy Co. beat Wall Street expectations with net income of $36.2 million and diluted EPS of 78 cents, compared with an adjusted 46 cents for the same period a year earlier. Revenue for the quarter dipped to $274.7 million from $275.8 million.

The Washington Post Co. reported net profit of $56 million and EPS, excluding one-time items, of $5.85, compared with $3.45 for the year-earlier period. The company's big revenue growth was not in its newspaper division, up 1% to $215.1 million, but in its education division, up 25% to $149.7 million.

Pulitzer Inc., parent of its hometown St. Louis Post-Dispatch, beat expectations with net income of $7 million, which worked out to 32 cents in diluted EPS, compared with 19 cents a year earlier. Excluding special items in both quarters, EPS were flat at 47 cents.

Based in Davenport, Iowa, Lee Enterprises Inc. reported quarterly net profit of $32.1 million and EPS, adjusted for accounting and other items, of 44 cents, versus a comparable 38 cents for the year-earlier period. Lee Chairman and CEO Mary Junck was exultant: "We've been waiting a year and a half for a quarter like this. With the exception of employment advertising, good news followed good news all quarter long."

In Trenton, N.J., the Journal Register Co., powered by ad revenue that increased 6.8% over the same quarter last year, reported EPS of 33 cents on net income of $13.8 million. Adjusted for the accounting change, EPS were 30 cents for the period a year earlier.

New York-based Dow Jones & Co. reported a 25% jump in second-quarter earnings thanks to the sale of the company's Essex County newspaper properties in Massachusetts to the Eagle-Tribune Publishing Co. Excluding that gain and other one-time factors from both periods, Dow Jones' income fell 53% to $21.4 million compared with $45.5 million in the same period a year ago. Per-share earnings came in at 25 cents, compared with 52 cents a year ago. Wall Street analysts had been expecting 22 cents a share. Revenues for the quarter fell 14% to $417 million against $484.1 million in the same period a year ago.

E.W. Scripps Co. of Cincinnati reported a 31% decline in net second-quarter results, primarily due to a write-down in investments including a steep decline in the value of its 2 million shares of AOL Time Warner stock. The company said it wrote down the value of investments in Scripps Ventures, a venture capital fund established in 1996 to invest in dot-coms. The company said it is winding down the fund because those businesses don't fit into the company's long-term plans. Excluding the charge, income from core operations totaled $61.6 million, up 19% from $51.6 million a year ago.

Belo beat Wall Street's consensus estimate of 30 cents with EPS of 34 cents, an increase of 17% over a comparable 29 cents in EPS in the second quarter last year. Parent of its hometown Dallas Morning News, the company reported $40.5 million in net profit. Said Chairman, CEO, and President Robert W. Decherd: "The advertising recovery has definitely begun for our television stations, and while newspaper revenue will come back at a slower rate than television revenue, we believe we are seeing the beginning signs of recovery at our newspapers."

During a conference call, Decherd later added a word of caution that might have come from the mouth of several other CEOs: "This is a pretty bizarre environment."