NEWSPAPER STOCKS HOLD STEADY

By: Lucia Moses But Belt-Tightening Continues


Newspaper stocks held fast in last week's roiling financial markets, as a number
of value-minded institutional investors continued to buy into the group. While
the S&P 500 Index declined 4.85% between March 9 and March 15, adding momentum
to fears of a recession, the S&P Newspaper Index was down only 1.73%.

The stocks responded "beautifully" amid the turmoil, Merrill Lynch analyst
Lauren Rich Fine said. "This is the group that doesn't want to go down."
Explaining the lack of volatility, Fine and other industry watchers said
investors were well-prepared for the weakness that has plagued the newspaper
group of late.

Brian Shipman, publishing analyst for Prudential Securities, noted that
newspaper stocks tend to discount bad news six months in advance. "I think if
the market starts to believe in market recovery and stabilization, this group is
going to recover well."

Share prices of the biggest U.S. newspaper companies dipped in midweek, but
regained all or some of their value late in the week. Gannett Co. Inc. stock
declined 8.4% from March 9 to March 13, but rebounded later in the week. Knight
Ridder stock declined 6.4% from its March 9 close, then made up for some of it
to close March 15 down 3.2% from March 9. And the Tribune Co.'s stock declined
6.3% midweek, but closed March 15 down 4.5%.

The group remains down from its 52-week high, however, beset by the
deteriorating ad climate and the spectre of rising newsprint costs. Dow Jones &
Co. Inc., the New York Times Co., and, most recently, the E.W. Scripps Co.,
announced that they will miss first-quarter earnings targets. In its latest ad
outlook revision, Merrill Lynch forecast 2.5% growth in newspaper ad revenue
this year, instead of 3% as earlier predicted.

While several Wall Street analysts have lowered their recommendations on
newspaper stocks in recent weeks, some institutional investors are capitalizing
on the negativity. Ariel Capital Management has added to its positions this year
in three newspaper companies: Lee Enterprises Inc., the McClatchy Co., and
Tribune. Ariel Vice President John P. Miller said the industry's fundamental
strength and those companies' record of consistent management matters more than
short-term downturns.

And famed fund manager Mario Gabelli said he continues to buy stock in such
companies as Gannett, Knight Ridder, Tribune, and the Times Co. He criticized
analysts who focus on the absence of last year's dot-com ad dollars instead of
long-term factors that could drive stock prices, such as the anticipated repeal
of cross-ownership rules and an accounting rule change that will allow companies
to make acquisitions without diluting earnings. Newspapers are merely in an
"old-fashioned air pocket" with the absence of last year's dot-com spending,
Gabelli said. "I'm very bullish about the dynamics of the industry."

For now, however, belt-tightening among newspapers continues. Scripps is looking
at ways to cut costs throughout the company after revising its earnings per
share (EPS) estimate downward for the first quarter and full year. It expects
EPS for the full year to fall between $2.30 and $2.50, compared with $2.20 last
year.

Dow Jones is postponing indefinitely its online launch of the "Weekend Journal"
section of The Wall Street Journal, originally scheduled for this year,
because of the poor ad climate.

And The Philadelphia Inquirer, already trimming staff through buyouts,
said in a staff memo last week it will reduce the number of daily zoned suburban
sections. The change will occur April 16 when the paper converts to a narrower
page width, as many papers around the country are doing to cut newsprint
expenses.



Lucia Moses (lmoses@editorandpublisher.com) is an associate editor covering business for E&P.



Copyright 2001, Editor & Publisher.