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October 20, 2005

New York Times: Still Too Early

Maybe it is the redundancy of listening to my fourth newspaper conference call this earnings season but I found little of interest in the New York Times (NYT) earnings release or conference call. The company slightly exceeded its sharply reduced guidance, reporting 21 cents before adjustments against guidance of 15-20 cents. Revenue, expense, and margin trends appear close to analyst estimates so the variance appears to be non-operating. Revenues of $791 million were up 1% against a year ago indicating the tepid environment the company and the industry faces....

Although I didn’t hear anything on the call that excited me, the shares began the call trading down 1% and concluded the call trading down almost 3%. I don’t think a seller was reacting to the call specifically but rather someone else just threw in the towel.

NYT faces a slightly tougher operating environment than other newspapers because it has added expenses of maintaining a national brand while also suffering fro advertising weakness that is concentrated in national categories. Based on commentary on the call it appears that the elevated expenses (low to mid-single gidit growth) will continue into 2006. Therefore, without an acceleration in the top line, hope for earnings growth is minimal. Urrent consensus for 12006 calls for 5% EPS growth.

Highlights of the call include:

• At the New York Times paper ad trends improved in the second half of September with the improvement continuing so far in October. More movie advertising was mentioned as a contributor.
• Trends at the Boston Globe remain poor with negative ad growth in 3Q (NY was up). I wonder if the Red Sox World Series victory in 2005 might add a tough comp in 4Q.
• About.com is growing very rapidly (up 67%) but remains a tiny portion of the company with revenues of just $14 million in the quarter, only 2% of the corporate total.
• The company spoke positively about the initial reaction to TimesSelect noting that the archives as much as the content were helping to drive subscriptions.
• In response to an analyst question, management said it had no plans to increase the pace of its share buyback despite the dramatic decline in the stock price.

NYT remains low on my list of potential investments in the newspaper industry. The stock isn’t cheap compared to its peers and faces more challenging fundamentals. I also wonder whether as a national brand the internet challenge means that NYT's ad growth issues have more secular aspects than its peers.

Posted by Steve Birenberg at October 20, 2005 01:02 PM