All Wall Street Really Wanted to Finally Rocket US Newspapers Shares Up Was Some Good News, And This Week, Finally, The Industry Delivered. And so Did Wall Street.

Philip M. Stone December 8, 2005

First it was the New York Times that reported, unexpectedly, that its November advertising revenue grew 5,8% from November, 2004. Then the Wall Street Journal announced a 34.3% gain in classified advertising from the same month a year ago. Sure, this year there are the Saturday editions but it was clear to Wall Street that something positive was happening.

So in a down market day Wednesday, newspaper shares shot up.  The Times was up 2.4% after hitting a 52-week low before its announcement, Dow Jones, publisher of the Journal, went up 3.1%, and the increases spilled over to groups such as Tribune, up 1.7% even though it had reported more bad news earlier in the day, and Gannett was up 2.2%.

Even Knight-Ridder, forced to look into selling itself because its three main shareholders are unhappy with the share’s performance, saw a 0.45% increase on the day.

It was newspaper day at the two media conferences held in New York, sponsored by UBS and Credit Suisse/First Boston. Almost everybody was expecting more bad news about challenging markets – that’s exactly what the Times called it  -- and immediately drew a downgrade from Prudential!

But the Times had some good news to tell, and just as newspaper readers say  they like to hear good news, so the same is true in Wall Street. Ad revenue had jumped 5.8% in the year to November and overall revenues were up 3.1%. Year to date ad revenue is up 3.4%. The newspaper said it would seek a 5% increase in advertising rates in 2006.

And at its digital properties, revenues for the year should be just under $200 million, earning about 6% of the company’s overall revenue.

But there was bad news, too. Newsprint costs were up 8-9% over the year before and are forecast to increase another 11-14% in 2006.  Its staff reduction program will knock $50 million off earnings for Q4, 2005 and Q1, 2006, and the company would not give a forecast for next year, which Wall Street doesn’t like, because the outlook was too uncertain. 

And while Prudential decided the bad news outweighed the good, other saw a light at the end of the tunnel. Was the November advertising increase a quirk, or was it the start of a recovery?  Obviously enough people thought it could be the start of something good and they didn’t want to get left behind if the shares went into sustained reverse to gain value.

Giving support to the “good news” theory was the report by the Wall Street Journal. It said ad linage rose 8.7% in November from a year ago, but the 2005 numbers do include the new weekend edition. Classifieds up by 34.3%, driven by real estate, is powerful news and while some classified business is still down – particularly retail, the Journal is seeing an upsurge in insurance and professional services and the like.

Take the Times and the Journal reports together and its seemed there was a new positive trend. And the market immediately reacted accordingly.

More good news – at least what Wall Street calls good news – came from the Tribune Company that said it was closing down a printing plant at the Los Angeles Times that will provide costs savings of $55 million to $60 million annually starting next year.  The company will get all of the financial damage out of the way this year with a $90 million to $105 million charge in the fourth quarter.

In all Tribune said it has cut 900 jobs in 2005 – about 4% of its work force. That’s the kind of news Wall Street just laps up! Shares up 2%!

And Gannett said it expected record revenues in 2005 although it also called the advertising climate “challenging” That seems to be the popular expression these days.

One shouldn’t forget that Q4 is the big advertising quarter with Thanksgiving and Christmas. Department store advertising, long a newspaper’s advertising staple,  had cooled down considerably early in the year through consolidation of many brands under Federated Department Stores (for instance in Florida the Burdines brand disappeared and all stores became Macys).

Early Christmas shopping statistics are indicating, however, that the holiday sales are not as high as the department stores had forecast and already major stores like Saks 5th Avenue, are beginning heavy discounts. Those discounts mean stores will be doing more advertising than planned and newspapers should enjoy a merry December.

It will take until Q1` to really see if the advertising increases enjoyed by the Times and the Journal really are trends, but at least the events this week showed that Wall Street has not given up on the newspaper industry. It just needs some proof form time to time that all is not lost.

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