Newspaper stocks have been losing ground this year and rightly so. The newspapers continue to lose readers and advertisers to online sources. However, earlier this month, we received some positive news from two of the largest newspaper companies. And just yesterday, there was a deal announced showing that owning newspapers at a certain price is still attractive. Although we may be getting ahead of ourselves by calling this the beginning of a turnaround, these events do signify that the newspaper companies deserve a closer look. Maybe newspapers aren’t going to die after all.
On December 7, McClatchy’s (MNI) management said that it saw improving advertising revenue trends that began in September and continued in October and November 2011. Advertising revenues were down 8.7% in October and 2.4% in November (down 5.6% for the two months combined), compared to declines of 10.1% through the first nine months of 2011. Gary Pruitt, McClatchy's chairman and chief executive officer, said,
The improving advertising trends in the first two months of the fourth quarter have been led by retail and national advertising. This is particularly encouraging given that October and November were our strongest months in 2010, and so are our toughest comparisons of the year.
There was also positive news on the circulation front. Pruitt pointed to the growth of Sunday circulation as "one of the more positive developments" of 2011. "While daily circulation has shown improvement over the year, Sunday circulation has improved dramatically and is now growing, up 1.9% in the last five months," Pruitt said. "There is no discounting the importance of the Sunday newspaper. On average, Sunday drives nearly 36% of advertising revenues.”
Gannett (GCI) then followed up the sentiment in a statement later that day. The company’s CFO, Paul Saleh, said that the company has seen a “slight improvement in business activity recently.” He added that Gannett is also “very comfortable with the current consensus of earnings per share estimates of 69 cents.”
Yesterday, NY Times (NYT) announced that it has entered into an agreement to sell its Regional Media Group, consisting of 16 regional newspapers, other print publications and related businesses, to Halifax Media Holdings for $143 million in cash, subject to certain adjustments. The company added that the transaction is expected to close within a few weeks and upon completion of the sale.
Regional Media Group generated revenue of $277 million for the company in 2010. Assuming that revenues for the group will decline 10% in 2011 to $249 million, NY Times sold its division for an EV/sales ratio of 0.57. This is below what newspaper groups are trading for, however, this may set a bottom for valuations. Here is what some of the companies are trading at: Gannett is trading at 0.93, McClatchy is trading at 1.39, Journal Communications (JRN) is trading at 0.85, and Media General (MEG) is trading at 1.18.