Papers' profits in media spotlight

By David B. Wilkerson, MarketWatch
Last Update: 12:05 AM ET Apr 8, 2006

CHICAGO (MarketWatch) -- Newspaper companies will be in focus as earnings season begins next week -- including McClatchy Co., which last month reached an agreement to acquire Knight Ridder Inc. for $6.5 billion -- as analysts will again look for indications that the industry's long slump is abating.

Newspapers face a number of serious challenges.

One is an uneven advertising environment, which, of course, plagues the wider media sector. For newspapers, there has been ongoing weakness in classified automotive ads and in many national categories, including technology, movies, wireless and transportation.

A shift toward online news consumption has hurt circulation at many newspapers, particularly in larger U.S. cities. And the National Do Not Call Registry, implemented two years ago, has made it more difficult for newspapers to solicit new subscribers.

Increased use of the Web has benefited newspapers in one way: Their online ad revenue has been climbing steadily as online help-wanted and real-estate ads have grown more popular.

McClatchy (MNI) is slated to post first-quarter results before the market opens Thursday. Analysts polled by Thomson First Call are expecting a profit of 67 cents a share on revenue of $285.7 million.

In the year-earlier quarter, the publisher of the Minneapolis Star-Tribune reported net income of 69 cents a share on revenue of $280.9 million.

Analysts are likely to ask McClatchy executives for an update on the dozen Knight Ridder newspapers that McClatchy plans to divest, including the Philadelphia Inquirer and Philadelphia Daily News, the San Jose Mercury News and Ohio's Akron Beacon Journal.

Dean Singleton's MediaNews Group is believed to be the top contender to pick up some of the most desirable of those 12 properties. At an investor conference last month, USA Today publisher Gannett Co. (GCI) said it would consider some of the newspapers McClatchy has for sale.

Without necessarily commenting on who the suitors are, McClatchy may be asked whether the sale prices will be in line with prior expectations.

McClatchy may also provide an update on whether it will be able to hold on to Knight Ridder's stake in CareerBuilder, a three-way venture with Tribune Co. (TRB) and Gannett. Under the current agreement among the companies, Gannett and Tribune hold the right to buy out the one-third owned by Knight-Ridder if it is to be acquired.

When it announced the Knight Ridder deal, McClatchy said it would be talking to Tribune and Gannett about maintaining a partnership in CareerBuilder.

Tribune and Gannett will also be asked about the situation during their quarterly earnings calls next week.

Knight Ridder (KRI) also is on the docket to report first-quarter results next week. Analysts foresee the company posting a profit of 59 cents a share on revenue of $732.8 million. A year ago, it reported net income of 79 cents a share on revenue of $724.7 million.

Gannett

Gannett is set to report first-quarter results Wednesday morning. It's expected to earn 99 cents a share on revenue of $1.87 billion. A year earlier, it rang up a profit of $1.05 a share on revenue of $1.79 billion.

Wall Street lowered its expectations for Gannett after the company said March 23 that it saw first-quarter earnings at the low end of a range between 98 cents a share and $1.02 a share.

Revenue at the company's 21 television stations should be up 40% from last year's first quarter, Gannett said, bolstered by ad sales related to Winter Olympic coverage on its NBC stations and the Super Bowl on its ABC affiliates.

At the newspaper division, Gannett said ad revenue was up in the first two months of 2006.

On the heels of Gannett's report, Tribune Co. and New York Times Co. are on deck to post first-quarter results Thursday morning before the market opens.

Tribune

Tribune will undoubtedly be asked whether it has plans to sell any of its divisions, including its television stations or the Chicago Cubs baseball team. A Wall Street Journal story last month quoted Chairman Dennis FitzSimons as saying Tribune does not want to sell any of its units.

The company is also likely to be questioned about its hopes for the CW Network, the TV outlet that will debut this fall when CBS Corp. (CBS) and Time Warner (TWX) shut down the UPN and WB networks. Some 16 Tribune stations have signed 10-year affiliation agreements with the CW.

Among WB and UPN shows expected to be part of CW's slate are the WB's "Smallville," "Gilmore Girls," "Supernatural" and "Reba," along with UPN's "Everybody Hates Chris," "Veronica Mars" and "Girlfriends."

At Tribune's newspaper division, one focus of the quarterly earnings call will be the Los Angeles Times, which accounts for about a quarter of the company's total publishing revenue.

Full-run advertising volume at the Times fell by 5.6% in 2004 and then by 9.5% last year. Analysts will take note of any sign of a turnaround.

At the publishing unit as a whole, circulation declined 3.9% in February 2006, compared with the same month a year ago, with advertising down 2.2%. Ongoing weakness in national and retail advertising was partially offset by a 7.2% gain in classifieds, as real-estate and help-wanted sales continued to grow.

Tribune is expected to post a first-quarter profit of 36 cents a share on revenue of $1.3 billion. A year ago, it earned 44 cents a share, including a one-time gain of 3 cents, on revenue of $1.32 billion.

New York Times

New York Times' first-quarter net income is expected to come in at 27 cents a share on revenue of $832.1 million. A year ago, nonrecurring gains totaling $63.3 million on two significant property sales lifted its profit to 76 cents a share, on revenue of $805.6 million.

The company will offer an update on its premium product TimesSelect. Last September, the New York Times began charging consumers who don't receive home delivery a $49.95 fee for access to items written by its stable of op-ed columnists, including Tom Friedman, Maureen Dowd and Frank Rich.

In the fourth quarter of 2005, the company said TimesSelect was a key factor in a better-than-expected advertising-revenue performance at the New York Times Media Group. Ad sales rose 8% over the year-earlier period.

In February, ad revenue at the New York Times Media Group was up 3.3% on growth in the hotel, international fashion, domestic fashion and corporate categories.

Overall, ad revenue rose 3.7% for the month, to $178.8 million, but was only up 0.6% excluding About.com, the online information provider New York Times Co. acquired last year.

Classified revenue was up 4.8%. The company saw real-estate ads jump 29.3%, with help-wanted ads down 5.1%. Classified automotive ads continued their decline, falling 15.3%.

The company was again plagued by weakness at the New England Media Group, which includes the Boston Globe, where ad revenue dropped 12%. Analysts will be curious about what steps are being taken to stop the bleeding at the unit.