Newspapers report 'tidy' profits in '98

By: Lucia Moses Ad revenue up, despite dragging stocks

Despite lackluster stock market performance by most newspaper stocks and slackened ad growth in the fourth quarter, 1998 was a good year to be in the newspaper business.
Strong ad growth in the first half of the year, plus tapering newsprint costs and an overall strong economy, led to tidy profits at newspapers in the last quarter and full year.
Newspaper executives also kept their eye on the bottom line in 1998, continuing to cut costs on a number of fronts.
"They're meeting or beating expectations," Lauren Rich Fine of Merrill Lynch says of newspaper companies' year-end performance.
With fourth-quarter and full-year results of most publicly owned companies now in, many industry watchers are ratcheting up expectations for 1999.
"It looks like the GDP is doing a lot stronger than what people thought," says Asa Graves, analyst with Wheat First Union brokerage based in Richmond, Va. "Our economists have been raising forecasts, as most people have been."
Overall newspaper ad revenues grew 6.2% in 1998 to $44.3 billion, lifted by sports and political spending. By comparison, ad revenues grew 8% to $48.1 billion in broadcast and 8.2% to $14.6 billion in radio, according to preliminary estimates from forecaster Robert Coen of McCann-Erickson Worldwide.
Newspaper stocks, however, told a different story. After a strong performance in the first half of 1998, about one dozen stocks were dragged down an average 28.2% amid recession jitters, compared with the Standard & Poor's 500 Index, which dropped 19%, says Credit Suisse First Boston's Steven Barlow.
As of Feb. 19, the S&P 500 had grown 29%, but the same stocks had regained only 20%. What had held down stock prices for much of last year, analysts say, were lower-than-expected revenues, fears of an Internet threat to classified advertising, and a belief that the newspaper industry had peaked.
Radio, cable, and television stocks tended to outperform newspapers in 1998, with the best stocks representing a mix of sectors, Barlow says.
Here's a sampling of what forecasters see for 1999:
? Slower ad revenue growth. This year will face tough comparisons with 1997, when ad spending jumped 8.5% to $41.7 billion. Growth rates are predicted to range from 3% to 5.5%, with millennium-related advertising providing a boost.
? Use of preprints will continue to increase, says Miles Groves, outgoing chief economist with the Newspaper Association of America.
? Slower classified ad growth. If the economy remains strong, newspapers could face fewer classified ad revenues, which are driven by help wanted and real estate.
? Flat to lower newsprint prices. Prices of newsprint, which account for about 20% of newspapers' expenses, are predicted to fall as much as 5%.
"I think the key thing is the economy," Groves says. "If the economy continues to show the strength in '99 it ended on in '98, you might see a push. Right now, no one's making any major mistakes."
He also predicts slower circulation losses and increases in Sunday and single-copy sales, while calling on publishers to focus on stemming erosion of readership and look for local advertising, which he says will play a more prominent role for newspapers.
?(Editor & Publisher Web Site: http:www.mediainfo. com) [Caption]
?(copyright: Editor & Publisher February 27, 1999) [Caption]


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