Papers face squeeze

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No news would be good news for newspaper companies these days if that news resembled the first quarter.

After the record highs of 2000, newspaper companies suffered slumping ad sales and lower revenue than expected in the first three months of 2001. And though the companies, and the analysts who follow their stocks, still hope for a second-half recovery, don't write any headlines yet for that upturn.

"There is zero visibility ... It's a bit scary," says Lauren Rich Fine, advertising industry analyst at Merrill Lynch & Co. April results look even worse than March's and the second quarter looks worse than the first. "It all depends on how the economy does," Ms. Fine says, "and I don't know if anybody's good at calling that."

Ms. Fine estimates that, based on the preannouncements of newspaper companies for the first quarter, ad revenue will be down 2.5% from a year ago and earnings will tumble 25%. Looking ahead, the Merrill Lynch report projects earnings will be down 2% for the year.


Zenith Media has cut its estimate for overall U.S. ad growth after seeing the carnage in the first quarter. The media buyer cut in half its estimate for spending growth in U.S. advertising, to a rate of 2.4%, or flat after factoring in inflation. Zenith, co-owned by Cordiant Commu-

nications Group and Publicis Groupe, didn't restate its newspaper outlook, which was already depressed in December.

After an 11.4% surge in 2000, ad spending in newspapers will only grow 3.5% in 2001, according to Zenith's forecast. The agency pegs newspapers as a $50.4 billion industry this year.

National and help-wanted advertising was weak during the first quarter and is expected to remain weak into the second quarter. Most analysts note classified ads-particularly help-wanted and real estate-have dropped sharply as the economy slowed and unemployment began to rise in the first quarter. The Conference Board reported help-wanted advertising had dropped 21% in February from a year ago,

Newspaper advertising usually is the first to drop in a slowing economy and the first segment to recover as help-wanted and real estate ads start to rebound. But the combination of a sharp drop in ad revenue, combined with an increase in the price of newsprint, puts newspapers at a disadvantage, according to Wall Street. Ms. Fine estimates newsprint prices were likely to rise 16% to 18%, even as newspapers reduce their consumption due to fewer ad pages.

"The jury is still out on the $50 increase" per ton, says Stephen Sullivan, VP-newspaper operations at E.W. Scripps Co., which operates 21 dailies. Newspaper companies are still negotiating with newsprint suppliers to hold back the projected price increase, he says.

Newspapers also are reducing their appetite for paper by trimming down the size of their pages. Earlier this month, Knight Ridder's two Philadelphia dailies, The Philadelphia Inquirer and tabloid Philadelphia Daily News, reduced the size of their pages. The Chicago Tribune also recently downsized its pages.

A report from Credit Suisse First Boston analyst William Drewry notes that, at the end of March, seven of the 12 newspaper companies he covers had revised downward their first-quarter earnings guidance, and in some cases the entire year's projection.


The rapid deceleration of the economy and ad spending is reflected in the early results, says Peter Kann, president-CEO of Dow Jones & Co. Dow Jones reported weak first-quarter results, highlighted by a sharp drop in ad revenue at its flagship The Wall Street Journal, and expenses related to a series of related layoffs.

As other newspaper companies report first-quarter results, no one is expecting good news. Even before its scheduled earnings announcement, The New York Times Co. said it would cut staff across all units to make up for slowing ad revenue.

The current economic reality is putting pressure on corporate earnings, notes Kenneth W. Lowe, president-CEO of Scripps, which said its revenue dropped 10.6% to $367.4 million in the first quarter. Newspaper revenue, which makes up half of Scripps' total, was flat. "I'm still cautiously optimistic we'll begin getting a bit of stability" in the second half, says Mr. Sullivan.