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October 19, 2006

New Tork Times Headline Remains: Do Not Buy

New York Times (NYT) reported EPS of 10 cents but adjusted for one-time items, the figure could be as high 16 cents. Guidance was 11-15 cents, so it looks like it can be called at the high end of guidance and ahead of consensus of 12 cents. Revenues look about $10 million light after adjusting for classifying the “for sale” TV stations as discontinued. So once again, it appears that strong cost controls saved a newspaper company from a really bad quarter. Of course, 16 cent is still a bad quarter, representing negative year over year growth.

NYT’s 3Q and September revenue trends in its publishing businesses were weak similar to its peers. NYT sounds a little more concerned about 4Q trends than some other newspaper companies which might account for the weakness in the stock so far today against a positive group. Advertising revenue was down 5% for the News Media group with NY down 4% and NE was down 12%. Management stated that declines in studio entertainment and help wanted accounted for all of the decline in NY. Auto remains weak overall and real estate is still strong as home inventories are up sharply....

About .com had 29% revenue growth this quarter including a weak 9% growth in September which was against an accounting juiced unusually large month a year ago. Trends at About.com remain solid. Including About.com, NYTimes.com, Boston.com, and the other newspaper websites, overall internet revenues were $63 million, or 85.% of the total. Growth was 24% in the quarter.

NYT is trying hard to transition toward a multiplatform approach by exploiting the national reach of the New York Times and completing smaller internet acquisitions. Along with strict cost control, plant consolidation, the Discovery Times sale, and the TV station sales, management is doing everything it can to reposition the company for the long-term and battle against the secular shift away form print advertising. Unfortunately, despite having unique strengths in the shift to the web due to the national reach of the paper, the headwinds are likely too stiff to sustain positive earnings growth.

In fact, the current consensus calls for a 10% decline in EPS next year. So, like most newspaper companies, the long-term story is unattractive and only sale of the company or a cyclical upturn in ad trends is likely to produce any near-term value for shareholders. And that near term value is not significant given the pressure on public and private valuations for newspaper assets.

The headline at New York Times remains: Do Not Buy.

About .com had 29% revenue growth this quarter including a weak 9% growth in September which was against an accounting juiced unusually large month a year ago. Trends at About.com remain solid. Including About.com, NYTimes.com, Boston.com, and the other newspaper websites, overall internet revenues were $63 million, or 85.% of the total. Growth was 24% in the quarter.

NYT is trying hard to transition toward a multiplatform approach by exploiting the national reach of the New York Times and completing smaller internet acquisitions. Along with strict cost control, plant consolidation, the Discovery Times sale, and the TV station sales, management is doing everything it can to reposition the company for the long-term and battle against the secular shift away form print advertising. Unfortunately, despite having unique strengths in the shift to the web due to the national reach of the paper, the headwinds are likely too stiff to sustain positive earnings growth.

In fact, the current consensus calls for a 10% decline in EPS next year. So, like most newspaper companies, the long-term story is unattractive and only sale of the company or a cyclical upturn in ad trends is likely to produce any near-term value for shareholders. And that near term value is not significant given the pressure on public and private valuations for newspaper assets.

The headline at New York Times remains: Do Not Buy.

Posted by Steve Birenberg at October 19, 2006 03:17 PM in NYT