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Goldman: Newspaper Industry Performance Likely to Stay 'Anemic' in '08

Magazine article Editor & Publisher

Goldman: Newspaper Industry Performance Likely to Stay 'Anemic' in '08

Article excerpt

In its monthly review of newspaper industry trends released Tuesday, Goldman Sachs concludes that ad revenue will remain "anemic" for the rest of 2008 -- even as easier comparables with last year show improving numbers.

"Having spent time with management from Gannett, New York Times and Scripps over the past week, our sense is that investors should not expect a change in ad revenue trends into May," the firm said.

"We note that year-over-year comparisons will ease over the balance of 2008, which will likely translate into modest improvement in reported numbers. However, investors should not be lulled into believing that this implies improving business trends, as we expect the underlying tone of ad demand to remain exceptionally soft in the context of a challenging macro backdrop and continued loss of market share in the classified category."

April ad revenue: The publicly traded newspaper companies tracked by Goldman Sachs dropped 10.7% from the year before, even with the benefit of an early Easter. Classified ad revenue fell 20% for the group.

Goldman Sachs said it remains bearish on the newspaper sector, as it has been for some time. "While revenue comparisons ease somewhat in the second half, cost comparisons will become more difficult as recent newsprint price increases begin to impact operating results," it said.

The investment firm said its Forest Products research team is forecasting a 20% year-over-year increase in the cost per ton of newsprint in the second half of 2008.

Goldman Sachs made these observations about specific companies in its report:

McClatchy, which it recommends as a "sell" stock, "is particularly vulnerable to the current industry malaise" as a newspaper pure-play company.

"While we have high confidence in management's execution capabilities, high debt levels and significant exposure to a weak newspaper advertising revenue environment, particularly in the classified categories, places McClatchy in a very difficult positions in the context of the challenging newspaper industry backdrop."

Scripps, on which Goldman Sachs has a "Neutral" recommendation, is a "study in contrasts" with struggling newspaper and television businesses, and "impressive gains" in its cable and online businesses. …

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