By: Jennifer Saba Goldman Sachs is getting a little uneasy about the state of the industry. Analyst Peter Appert points out that 18 months ago he took the contrarian view with a cautious rating on the sector. "Today it feels very much like the consensus view. This makes us slightly nervous," the report said. "If everyone already knows how tough the operating outlook is, don't the stocks already reflect this view?"
Even the news of Knight Ridder's possible sale didn't spark a rally in the sector. Year-to-date, newspaper stocks are down 19.5% versus the S&P500's 4.1% gain.
Goldman doesn't see things getting any better for the foreseeable future. Take the recent job cuts going on in the industry, especially the focus on editorial: "The good news," the report said, "if revenue growth accelerates, there is tremendous operating leverage given the reduction in fixed costs." However, Goldman stabs any possible hope by noting: "We don't see any evidence of improved revenue dynamics."
With October results pretty much in, Q4 is starting off on a weak note. Newspaper ad revenue for the month was up just 1.3% and early indications for November are pointing to similarly modest growth.
Retail is softening and though classified remains fairly strong, auto is dragging down the results. National is starting to perk up. The category should be positive for the first time this year, according to Goldman's report.
For 2006, Goldman forecasts that retail will grow 2.5%, national will increase 1%, and classified print will advance 3.6%. Online is expected to jump 25% -- still a small percentage of overall revenue.
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