Q3 Ad Revenue Expected to Decline 6.6%

By: E&P Staff Newspapers executives are prepping for Q3 earnings calls to take place in the upcoming weeks and Goldman Sachs warns, "there will be little reason for cheer."

In a note to investors, the research firm predicts that Q3 ad revenue will fall 6.6%. In August, ad revenue declined 6.4% -- better than July results, which were down 7.3%, and June's, down 8.2%. But lead analyst Peter Appert points out the year-over-year comparisons are easing.

"The pace of decline in ad revenue in 2007 for the newspaper industry has clearly accelerated from 2006 as cyclical factors have begun to exacerbate the secular challenges the industry is facing," he wrote.

The fact the overall economy is showing signs of a struggle -- not good news for the industry. Residential real estate is slumping, employment growth is slowing, and auto sales are declining which leaves all three classified categories extremely vulnerable.

The biggest driver affecting the sector's stock: the constant earnings revisions, according to the report. In Q3, Goldman Sachs estimates an earning per share (EPS) decrease of 21% for the group.

The research firm is rated "neutral" on all newspaper companies except for two: The New York Time Co. and McClatchy, each rated "sell." As both are "pure-play" newspapers publishers, the two companies are the most exposed to a difficult ad environment.

Commenting on the sector in general, Appert wrote: "While Belo's recent restructuring announcement has provided a short-term catalyst for the group, we would sell into strength based on our view that deteriorating fundamentals always trump restructuring speculations."