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Friday, June 02, 2006

Gannett, Tribune downgraded at Morgan Stanley

Also: Money spent on Web-based newspaper ads jumps 35% in first quarter

By David B. Wilkerson, MarketWatch
Last Update: 12:17 PM ET Jun 2, 2006

CHICAGO (MarketWatch) - Morgan Stanley analyst Lisa Monaco cut her ratings on newspaper publishers Gannett Co. and Tribune Co. Friday to equal-weight from overweight, saying she doesn't see anything near term that could lift the stocks' value.

Monaco also lowered her advertising-revenue forecasts for the newspaper industry in reaction to what she called "greater than previously expected secular pressures from the Internet" as well as the adverse effects of consolidation among advertisers.

She now sees newspaper ad revenue rising 2.1% in 2006 from 2005, compared with her previous estimate of 2.8%. She then sees increases of 2.7% in both 2007 and 2008.

At Gannett, (GCI) the analyst said, results will probably continue to be hurt by "weakness in the U.K. and volatility at USA Today."

In the first quarter, USA Today's ad revenue fell 4.2% as paid ad pages fell to 1,020 from 1,101 in the year-earlier quarter.

Monaco says Tribune (TRB) is troubled by "ongoing ad revenue softness" at the Los Angeles Times - which represents about a quarter of the company's publishing revenue -- and its recovery from a circulation overstatement scandal at Newsday.

Weakness in movie-studio ads has hurt the Times, which was the centerpiece of Tribune's $8 billion acquisition of Times-Mirror Co. in 2000.

Tribune said earlier this week that it would buy back as many as 75 million of its common shares, and that it expects to sell at least $500 million in certain noncore broadcasting and publishing assets outside its top three markets. See full story.

While the market reacted well to the move, Monaco said Friday that its benefits are likely to have already been priced into the stock.

Gannett shares were down nearly 1% at $54.18 in Friday trading, while Tribune was up 8 cents at $29.90.

"Our base cases for both Gannett and Tribune assume that newspapers continue to lose readers and therefore advertising share to the Internet," Monaco told clients. Although "under this scenario, we do assume that the newspapers are able to stem some of their share losses by gaining traction with advertisers and readers with their own online offerings."

Separately on Friday, the Newspaper Association of America said advertising spending on newspaper Web sites in the first quarter rose 35% from the year-earlier quarter, to $613 million.

Spending on print and online ads combined totaled $11.1 billion, a 1.8% increase from a year earlier.

Within the print category, classified advertising rose 4.7% to $3.8 billion. Retail slipped 1% to $4.8 billion, while national fell 4.8% to $1.7 billion.

Among classified print ads, real estate and help-wanted continued to be strong categories for newspapers. Real estate rose 26% to $1.1 billion, while help-wanted rose 2.4% to $1.1 billion. Automotive ad spending continued weak, dropping 15% to $940 million.

Summarizing the results, NAA President John Sturm said in a statement that newspaper publishers are "winning" in their efforts to generate online users and monetize their Web-based investments.

"Meanwhile, newspaper print advertising continues to hold its own in the face of overall ad softness, reflecting our industry's ongoing dialogue with the advertising community to demonstrate the enduring value of newspapers' reach and engagement with consumer audiences," Sturm said.

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