Struggles Remain As Newspapers Release 3Q Results

By: As newspaper publishers prepare to release third-quarter results, their struggles remain the same. Advertising revenue continues to decline as readers keep moving online, leaving publishers scrambling to find ways to stop the bleeding.

Many publishers, including Tribune Co. and McClatchy Co., experienced declines in classified advertising revenue in August. The housing slump permeated classifieds, with most companies experiencing significant drop-offs in real estate advertising.

At Tribune, which is being taken private in a deal led by billionaire Sam Zell, real estate sales slid 30.4 percent in August on significant declines in Los Angeles, Chicago and Florida. Similarly, McClatchy, which owns The Miami Herald and The Sacramento Bee, pointed toward real estate ad weakness in California and Florida for its 17.3 percent drop in classified advertising.

Others in the sector experiencing soft August revenue due, in part, to real estate advertising declines include New York Times Co., Journal Register Co. and Lee Enterprises Inc.

Alexia Quadrani of Bear Stearns said her research shows negative real estate trends spreading into other newspaper advertising segments.

"We expect retail advertising to soften especially in markets hit hard by real estate," she wrote in a Wednesday client note.

Quadrani is cautious on Tribune and New York Times due to their exposure to the softening California and Florida markets.

Morgan Stanley analyst Lisa Monaco said in a Sept. 26 client note that August classified advertising had its worst showing since January 2002, and lowered her 2007 ad revenue forecast to a decline of 7.2 percent from her prior estimate for a 5.8 percent drop-off.

She trimmed her third-quarter earnings estimate for McClatchy to 30 cents per share from 32 cents per share.

Meanwhile, Joe Arns of Banc of America Securities said in a Tuesday note that he is cautious on the sector near term due to the slumping real estate market. He said he expects a 5 percent decline in 2008 ad revenue compared with consensus estimates for an approximately 3 percent drop-off.

Edward Atorino of The Benchmark Co. has an even more pessimistic near-term view, expecting third-quarter earnings to fall, across the board, for the newspaper publishers that he covers.

Companies with broadcasting operations, such as Gannett Co. and Tribune, may face further difficulties in the third and fourth quarters due to lower political advertising than last year, Atorino said.

He estimates Gannett's third-quarter earnings at $1.05 per share and provided a profit forecast of 27 cents per share for McClatchy on continued ad revenue declines.

However, Atorino is more optimistic on the sector long term.

"These stocks are likely to continue to remain under pressure in the near term, but we believe they are worth holding, as we expect the newspaper publishing industry environment to stabilize in 2008 and believe the industry will be positioned for recovery in 2009," Atorino said in a client note Wednesday.

McClatchy, is scheduled to kick off the sector's earnings on Tuesday.