Outlook Bleak for Newspaper Companies

By: (AP) Hurt by erratic advertising demand, many of the nation's newspaper companies will fail to deliver the profits they had hoped for in the latest quarter.

Four large publishers -- Dow Jones & Co., Knight Ridder Inc., New York Times Co. and Tribune Co. -- have cut their third-quarter earnings forecasts, blaming unexpected weakness in advertising sales, particularly in September.

The apparent slowdown in the pace of ad revenue growth at the end of the quarter could persist into the fourth quarter, Wall Street analysts cautioned. The fourth quarter already faces tough comparisons from a year ago, which saw a surge in ad demand.

"We're not happy that we're bumping along," New York Times chief executive Russell Lewis told investors this week at a Goldman Sachs media conference in Manhattan. "We want to get back to the growth rates that we enjoyed from 1995 to 2000."

Lewis said that technology, entertainment, and real-estate advertising has been particularly disappointing.

For a while now, relatively weak demand from national advertisers, such as movie studios and technology giants, has allowed newspaper companies with a smaller market focus to outpace those with larger market properties, Lauren Rich Fine, publishing industry analyst with Merrill Lynch, said in a recent research report.

That trend is continuing. For instance, New York Times, which publishes The Boston Globe in addition to its flagship The New York Times, and Tribune, publisher of the Chicago Tribune and the Los Angeles Times, may see only 3 percent revenue growth in the third quarter, Merrill said. In contrast, Merrill expects Gannett Co., publisher of 100 daily newspapers in the United States, including USA Today, to post revenue growth of 7.5 percent, excluding the effect of acquisitions and currency.

A string of scandals involving inflated circulation figures and the recent hurricanes in Florida and the Gulf Coast also may batter the profits of some publishers in the third quarter.

The hurricanes will be "a wild card" for companies with newspapers in the Southeast, including E.W. Scripps Co., Tribune, New York Times, and Knight Ridder, Fine said. However, she added, "while the hurricanes likely hurt near-term trends, they do tend to boost advertising during the rebuilding effort."

Meanwhile, compensating advertisers for overstated circulation figures is expected to take a bite out of profits at Belo Corp., which in August disclosed circulation problems at its flagship Dallas Morning News, and Tribune, which in June revealed that Newsday and the New York edition of its Spanish-language newspaper Hoy had overstated their circulation figures.

"In what is seasonally the largest quarter of the calendar year, we think the (third quarter) has challenged investors' confidence in the publishing sector's ability to drive earnings growth," Steven Barlow, who follows the publishing industry for Prudential Equity Group, said in a recent research report. "Questions persist regarding the sustainability of a recovery in help wanted (ads), a possible rebound in automotive advertising, the continued sporadic performance in national advertising, and the recent spate of circulation restatements."

Newspaper companies, which begin reporting their quarterly results next week, will see a median earnings gain of about 5.4 percent, a more sluggish pace than the second quarter's 11.4 percent increase, according to a forecast from Goldman Sachs.

"With the (fourth quarter) presenting the most difficult (year-over-year) challenge of the year, we look for further deceleration in ad revenue growth over the balance of the year," Goldman publishing analyst Peter Appert said.

Gannett, of McLean, Va., considered an industry bellwether, has posted the strongest ad revenue gains among its peers, bolstered by spending on advertising for the Summer Olympics at its NBC-affiliated TV stations.

Knight Ridder, based in San Jose, Calif., warned in mid-September that absent a 9-cent-a-share gain related to tax matters, its third-quarter profit would fall short of Wall Street expectations because hurricanes had taken a toll on several of its newspapers, including The Miami Herald.

Blaming lower-than-anticipated publishing and TV revenue, Tribune last month cut its third-quarter earnings outlook below analysts' expectations to between 49 cents and 51 cents a share. The estimate excludes additional charges to compensate advertisers for a circulation overstatement at Newsday and Hoy, which the Chicago publisher and TV broadcaster estimated would amount to between $45 million and $60 million, on top of a $35 million, or 6-cent-a-share charge, in the second quarter.

New York Times, citing inconsistent ad revenue growth, warned last month that its third-quarter earnings would fall a few pennies below analysts' expectations to between 30 cents and 33 cents a share.

Dow Jones early last month cut its third-quarter earnings outlook amid weaker-than-expected September advertising bookings at its flagship publication, The Wall Street Journal. The New York company, which also publishes Dow Jones Newswires and Barron's, said it expects earnings per share roughly in line with the 14 cents a share of a year ago, excluding items in both periods. Previously, the company expected to earn about 20 cents a share.