April 16 (Bloomberg) -- Readers were the first to abandon U.S. newspapers. Then advertisers and investors. Now analysts are joining the exodus.
Merrill Lynch & Co. analyst Lauren Rich Fine left this month after 19 years covering the newspaper industry. Last month, Thomas Weisel Partners analyst Christa Sober Quarles dropped coverage of newspaper stocks. John Morton has stopped writing his industry newsletter after 30 years, saying readers were sick of the bad news.
Analysts who cover Gannett Co., Tribune Co. and New York Times Co. are having trouble attracting investors' attention. U.S. newspapers' daily circulation fell 30 percent to 43.7 million in September from 62.3 million in 1985, the Audit Bureau says, and the Standard & Poor's 500 Publishing & Printing Index has dropped 14 percent since April 2004, while the S&P 500 Index gained 29 percent.
``Being the newspaper analyst is like being the Maytag repairman,'' said Peter Appert, an analyst at Goldman Sachs Group Inc. in San Francisco. Of the nine newspaper companies he rates, Appert has a ``buy'' recommendation on one, GateHouse Media Inc. ``Nobody calls, nobody writes. There's a very low level of interest right now.''
Appert's job may become harder this week, when the companies probably will report the biggest revenue drop in five years. Sales on average declined about 5 percent in the first quarter, Appert estimates.
`Laugh or Cry?'
The companies probably will post an average 18 percent decline in per-share earnings, said Karl Choi, Fine's New York- based replacement at Merrill Lynch. Some may tell analysts to reduce their estimates for the second quarter, John Janedis, an analyst at Wachovia Capital Markets LLC, wrote in a note to clients today.
Gannett, the largest U.S. newspaper publisher and owner of USA Today, will probably report a 1 percent drop in revenue, according to the average of 11 analyst estimates compiled by Bloomberg. Chicago-based Tribune, the second-largest publisher, will report a 5 percent drop. New York Times will probably post a 14 percent decline, according to Bloomberg estimates.
``You can either laugh or cry,'' Rich Fine, 47, said in a telephone interview from her home in Cleveland, Ohio. ``Truth is, it's gotten harder to make money in this industry. Looking around, there's been consolidation in the newspaper and broadcast industry for some time, and maybe the research on the sell side needs to reflect that.''
Merrill Lynch ``is dedicated to this space'' and has named Choi to pick up coverage, spokeswoman Susan McCabe said.
Deteriorating Trends
Thomas Weisel's Sober Quarles, who is based in San Francisco, dropped newspapers to focus on Internet and advertising companies. Credit Suisse analyst Debra Schwartz left the firm after seven years to attend business school. Credit Suisse spokeswoman Tyrene Frederick said radio analyst John Klim has taken on the companies covered by Schwartz. The firm is re- evaluating newspaper coverage, she said.
Morton and his partner Miles Grove produced their final newsletter on March 15. The issue, titled ``Passing the Inflection Point,'' said publishers had failed to adapt to the new demands of readers and advertisers.
``It's pretty clear earnings will be under pressure for a time, probably two to five years,'' Morton, who ran the publication out of Silver Spring, Maryland, said in an interview.
Some companies have noticed the change in analyst interest. ``This is a transition and we are keeping an eye on it,'' Gannett spokeswoman Tara Connell said. Dow Jones & Co. spokesman Howard Hoffman said consolidation of Wall Street firms in recent years has also lowered the number of analysts covering the industry.
Dow Jones, Tribune
Dow Jones kicks off earnings season tomorrow and is likely to be among the few to generate sales growth. The New York-based publisher of the Wall Street Journal will post a 13 percent increase in revenue, according to Bloomberg estimates. The company benefited from the purchase of the remaining 50 percent of the Factiva database business, according to UBS AG analyst Brian Shipman, who is based in New York.
Tribune, publisher of the Los Angeles Times and Chicago Tribune, reports April 19, a day later than first planned. Earlier this month, Tribune announced plans to go private by selling itself for $8.2 billion to billionaire Zell and the company's employees. Spokesman Gary Weitman declined to comment on earnings. He said analyst coverage of the company had been ``fairly steady'' since 2000.
`In My Blood'
Gannett, based in McLean, Virginia, is expected to report a 12 percent drop in profit to $208 million, or 89 cents a share, based on the Bloomberg estimates. Publishing revenue will likely drop 2.3 percent, Shipman said.
Gannett reports April 19, the same day as Tribune and New York Times, publisher of the namesake newspaper and the Boston Globe. New York Times Co. profit probably fell 17 percent to $28.9 million, according to Bloomberg estimates.
McClatchy, which added 20 Knight Ridder Inc. newspapers in June, will probably report April 24 that revenue doubled. Profit probably fell 18 percent to $22.7 million, or 30 cents a share. Sacramento, California-based McClatchy publishes the Miami Herald and Charlotte Observer. McClatchy spokeswoman Elaine Lintecum said McClatchy's expansion has attracted more analysts.
Rich Fine says she isn't giving up on following the industry. She said she has been fielding phone calls with job offers since leaving Merrill.
``It's in my blood,'' Rich Fine said. ``I love this business, it's just not necessarily something I'd invest my money in.''
To contact the reporter on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net
