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April 17, 2008

Terrible Quarter For NY Times

New York Times reported terrible 1Q08 results. Adjusted EPS of 4 cents missed the consensus of 14 cents. Revenues of $748 million were a little short of the $752 consensus. 1Q07 EPS were 17 cents so this quarter represents a total collapse in profitability. Making matters worse, March advertising revenues decelerated further even after for adjusting the shift of low advertising Easter holiday into the first quarter vs. the second quarter a year ago. Most troubling was a marked slowing in national advertising, a category critical to NYT and one that that had thus far held up well. After hovering around flat or down very low single digits, national advertising fell 6% with management noting weakness in airlines and auto. Piling on, internet advertising grew just 12% in the quarter. About.com growth moderated to 15% implying that growth at newspaper sites, primarily NYTimes.com, had single digit growth.

Estimates will definitely be coming down although maybe not as much the results suggest since management is saying that some costs got pulled forward and planned cost savings are back end loaded in 2008. Regardless, the stock should come down more that the 2% decline so far today. NYT trades at a significant premium to other newspapers for two reasons. One reason is the disproportionate exposure to national advertising which has been holding up better than local advertising. This quarter probably will end up marking a turn in the relative fortunes of national ads.

The second reason for NYT's premium is activist shareholders who recently gained Board seats and are pushing for restructuring....

....I think this quarter supports my view that there is no value to be realized at NYT unless one assumes a sharp cyclical upturn starts soon in classified advertising or that secular pressures on print advertising will abate. If I believed those things, I'd rather invest in Gannett anyhow, which is much cheaper.

There really is no reason to write more. NYT is managing costs as tightly possible. NYT is trying to diversify to digital revenues (now 11% of revenue). There just is not anything they can do about the secular headwinds they face which are being exacerbated by cyclical pressures. This nugget pretty much says it all: March classified advertising fell 26%, composed of -3% for help wanted, -30% for real estate, and -20% for automotive.

Posted by Steve Birenberg at April 17, 2008 02:03 PM in NYT