OUTLOOK FOR 2003: NO WAR, KICKED-UP ECONOMY, IT MAY BE OK Some publishers predict 'double-digit' growth despite everything

NewsInc, Feb 10, 2003

Doug McCorkindale and Gary Pruitt probably don't agree on much. The chief executives of Gannett Co. Inc. and The McClatchy Co., respectively, have divergent views on how to run their businesses (for just one difference, note that Gannett is a multimedia company and McClatchy is a pure-play newspaper company).

That said, it's interesting that these newspaper industry leaders would use the same word to describe their outlook for the near-term future of the newspaper business.

"We expect the economy to continue to grow this year, barring external factors," McCorkindale was reported to have told analysts last week. "But there [are] of course uncertainties surrounding the geopolitical events, and that uncertainty is not good for the markets as most of you know, nor is it good for our advertising customers," he said.

Two weeks ago, Pruitt said, "The geopolitical and economic climate in 2003 remains uncertain and 2002, with its record financial results, will be a hard act to follow."

It's clear that international relations and the domestic economy will be the driving forces as to whether 2003 will continue the recovery that the newspaper business saw in 2003.

There are other factors though.

Pruitt said that despite expense increases in three areas which are "largely beyond our control" -- newsprint prices, retirement costs and medical care expenses -- "we will continue to work hard to hold overall expense growth to the same low to mid single-digit range for next year."

The McClatchy chief executive said his company expects the revenue growth rate to be "similar to the fourth quarter and earnings to range between 55 cents to 57 cents per share, compared to 51 cents per share in the first quarter of last year."

Wall Street analysts see the year ahead from at least two perspectives.

"The real litmus test for this group is going to be in 2003," Douglas Arthur, who follows the newspaper business for Morgan Stanley and owns shares in Tribune Co., told Dow Jones Newswires. "There is tremendous cost pressure in the pipeline right now. Newsprint, health care, pensions, labor, bonus accruals, overhead -- there is just tremendous pressure across the board. It's going to take a mid- to high- single-digit ad revenue increase in 2003 to come close to making Street consensus estimates" quarter by quarter and for the year.

Other analysts are more optimistic. In a recent note quoted by Dow Jones Newswires, Merrill Lynch Capital Market's Lauren Rich Fine thought that "a limited ad recovery is in place," and she said publishers would mix "steady but slow improvement in advertising revenues with burgeoning cost pressures."

With the exception of Dow Jones & Co., Fine told the Dow Jones Newswires, she expects publishers to show 2003 gains in earnings per share of an average 25 percent.

At Belo Corp.'s newspapers, executives were quoted in a release as saying that they "currently expect revenue in the first quarter of 2003 to be up in the low-to-mid single digits versus the first quarter of 2002."

Of course, they said this last week, after they'd had a peek at at least five of the 13 weeks revenues for the quarter. BLC newspaper advertising revenues in January 2003 increased approximately four percent compared to January 2002, the company said.

BLC said its newspapers expect to show revenue increases in "all major advertising categories except classified employment" in the first quarter.

"We do not expect a significant turnaround in classified employment volumes at the Dallas Morning News until there is job creation associated with the economic recovery," said BLC executive DuniaShive.

Journal Register Co.'s Robert Jelenic was mildly upbeat: "Our 2002 fourth quarter results mark our fifth consecutive quarter of year-over-year same-store quarterly improvement in advertising revenue trends," he said. "And we are optimistic that this quarterly trend improvement will continue into 2003."

At Media General Inc., Chief Executive Officer J. Stewart Bryan said that the publishing division expects "moderate revenue growth of three to four percent with improvement in all categories."

He said that employment lineage is expected to fall short of last year's first quarter, but that decline should be offset by gains in automotive and other classified categories.

Bryan said he expected only one newsprint price increase of $50 in 2003. "We think the timing for full implementation of that increase will be around the end of the second quarter or the beginning of the third quarter," said Bryan, whose company owns not only newsprint consumers such as newspapers, but also newsprint suppliers.

Here are some other newspaper executive thoughts:

*Pulitzer Co.'s Robert Woodworth expects both advertising and total revenue to grow and expects earnings-per-fully-diluted-share of at least $1.95 in 2003, versus $1.62 in 2002.

*The New York Times Co.'s Russell Lewis believes "earnings will continue to improve in 2003." He cited an earnings per share growth rate from "the mid-single digits to low-double digits."