Prudential: Slow Growth Ahead

By: Jennifer Saba A Prudential Securities report on the newspaper industry released today suggests slow growth ahead.

The investment firm noted that that for the first two months of 2005, the newspaper group (excluding Hollinger and Pulitzer) is down 5.6% versus the S&P 500, which is up slightly, 0.7%. "If the current pattern holds, 2005 will mark the tenth year out of last 15 that the publishers have underperformed the S&P 500 in the first quarter," the report said.

Prudential believes that investors are waiting it out on the sidelines and that only lower stock prices or better earnings per share will goose interest. Prudential stamped a ?neutral? rating on newspaper stocks.

The report also covers the help-wanted category, which has finally seen a recovery though not as a vigorous as hoped. Recruitment revenue grew 10%, or about 15% including online revenue. While this is good news, the category needs to accelerate in 2005. And given the current economic trends, the firm is perplexed as to why help wanted didn't grow more in 2004.

"Several positive job growth indicators have not translated into robust recruitment advertising," the report said. Hiring is favorable ?nonetheless we have not seen a significant flow through to the Help Wanted revenue line at the newspapers."

Online competitors like aren't the cause of this. The investment firm doesn't believe the potential growth of the Internet is stealing any juice from print.

Furthermore there is no clear category ?catalyst? to jump-start the year. Retail department-store advertising, which has been on ?downward spiral,? will only continue to swirl with the all the mergers taking place especially the Federated/May deal.

Automotive is ?sore spot? particularly in the short-term. And the best that can be said about the national category at the moment is that it's a ?big wild card? given the merger climate in the telecommunications industry.


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