Wachovia Slashes '08 Ad Revenue Forecast; Downgrades Several Companies

By: Jennifer Saba Newspaper advertising revenue is expected to fall 8.2% in 2008, according to new estimates from Wachovia Equities Research. The firm knocked down the forecast from a decline of 6.1% suggesting a "newspaper ad recession."

Senior analyst John Janedis also lowered the ratings on The New York Times Co. and Journal Register Co. from "market perform" to "underperform" and McClatchy from "outperform" to "market perform."

"The year has started below our expectations" based on lower page counts, according to an industry note released today. "We've seen this scenario before, and trends typically haven't improved. In fact we think the deterioration of newspaper fundamentals is broadening and deepening."

Wachovia estimates that print ad revenue will plunge 9.7% (verses the previous estimate of -7.6%) this year.

The online ad revenue forecast was reduced from an increase to 15% to a gain of 13% -- due mostly to a slowing in help-wanted and real estate ads. "Broadly, we think at least one-third to one-half of classified revenues are at risk of migrating online over time," according to the note.

Classified advertising revenue for print and online is anticipated to fall 17% due mainly to continued softness in help-wanted (projected to be down 22%) and real estate (projected to be down 23%).

Local advertising revenue is expected to fall 4.7% versus the prior estimate of -3.5%.

Wachovia's national ad revenue forecast remains unchanged. The research firm estimates a 10% drop in the category in 2008.

Wachovia downgraded McClatchy after seeing no signs that the company's markets would start to show some improvements. California and Florida could weaken further said Wachovia suggesting that things could get worse before they get better.

As for the New York Times, ad revenue particularly the national category has started out this year soft. Furthermore Harbinger/Firebrand's intention to nominate four Class A directors at the New York Times annual meeting may have goosed shares but Wachovia does not believe the weakness with the New York Time's stock is management related.

The Journal Register's exposure to Ohio and Michigan is problematic since both areas are experiencing downturns. Given that exposure, "we think the weakness could continue for years, further pressuring an already stressed balance sheet."