Newspaper Earnings Preview: Cost-Cutting, Slowing Ad Declines Provide A Bit Of Breathing Room

Over the past six months, newspaper earnings results have been relatively positive as Gannett (NYSE: GCI), the New York Times Co. (NYSE: NYT) and McClatchy (NYSE: MNI) have returned to profitability and ad declines have abated. When Gannett kicks off the Q1 newspaper earnings season on Friday morning, analysts expect additional signs of stability, thanks to year of cost-cutting and a slight uptick in marketers’ ad spending.
But those reasons for optimism in the short term don’t change the bigger picture: newspapers are coming off the worst year in the modern history, and the long term still looks uncertain to say the least. Two big questions loom: Can newspaper companies maintain their lower cost models? And will they be able to grow revenues amid a tentative economic recovery?
Company: Gannett
When report: Friday
What to expect: In an analyst presentation last month (transcript here), Gannett execs indicated that though ad spending is still down from last year, the rate of decline has moderated to the single digits. In a research note issued this week, JP Morgan said Gannett’s newspaper ad revenues should decline 7.2 percent in Q1, with total newspaper revenues down 6.4 percent. JP Morgan is projecting Ebitda to come in around $261 million, a 19.7 percent margin, a nice improvement from Q109’s 14.3 percent.
High Olympics and Super Bowl ratings and rising local ad spending, particularly by automakers, have already helped boost broadcast revenues by over 20 percent. But that won’t be enough to offset continued — if slowing — ad declines at the newspapers, which have fallen 7.5 percent in the first two months of the year; also digital is being pulled down 5 percent by Careerbuilder, according to Gannett execs speaking to us at last month’s analyst event. Although that might not sound like good news, consider that in Q109, publishing revs plummeted 26.9 percent, as digital fell 13.1 percent. In the Community Publishing segment, the company sees retail and classified finishing falling about 10 percent from Q1 in 2009. Overall, a Thomson Reuters’ analysts poll calls for earnings of $0.41 per share on revenue of $1.32 billion.
Company: NYTCo.
When report: April 22
What to expect: : JP Morgan says newspaper-ad revenues will decline roughly 8 percent in Q1, slightly better than the 10 percent previously anticipated. Digital is looking stronger, mainly at the About Group, which should be up 18 percent in Q1. Cost-cutting will continue to prop up profits, but by the end of the year, unless the economy and attendant revenues show better-than-expected improvement, the company will have difficulty maintaining margins.
Wells Fargo newspaper analyst John Janedis says: “We see little if any upside to Q1 earnings for NYT,” as important ad categories like telecom could still drop 47 percent while tech is down 27 percent. (On the plus side, national auto spending is trending upward 15 percent.)
Company: McClatchy
When report: April 22
What to expect: JP Morgan forecasts that ads will be off by 8.4 percent as circulation continues to grow. While the circulation gains might not offset negativity on the ad front, cost-cuts should help margins jump to 25 percent from Q109’s 12 percent. Ebitda should rise 91 percent to $83 million. In general, McClatchy’s heavy presence in Florida and California means that its fortunes are directly tied to the economic winds in those two troubled states. Ultimately, that will add to the general industry-wide woes affecting the publisher.
Company: EW Scripps
When report: May
What to expect: : Like Gannett, it has benefitted from cost-cuts and broadcast revenue gains. And just like most other newspapers, it is still trying to slow ad declines. JP Morgan projects a 12.5 percent decline in Scripps’ newspaper revenue, an improvement over Q4