Q3 Is 'Uninspiring,' Says Goldman Sachs

At the half-way mark for Q3 earnings, based on what's been reported so far, the quarter is shaping up to be "uninspiring," commented Goldman Sachs in note released today. Dreary revenue growth, tough comparisons, margin pressure, and downward-moving estimates, make it "hard to imagine a scenario under which the newspaper stocks outperform in the Q4."

Nor does the investment firm think the outlook for the first part of 2005 is very promising.

As of now, it looks like ad revenues grew roughly 5%. Yet classified is slowing, which is "particularly troubling," Goldman said, because it's the category that has been pulling its weight and then some in terms of lifting revenue.

Based on the companies that have announced earnings, Gannett and to a lesser extent Knight Ridder are the shinning examples in a dull quarter. Goldman Sachs notes Gannett's discrepency between revenue and margin growth, the later of which is weak, because the company is investing in new products. The investment firm applauds this strategy in the long term.

Knight Ridder experienced a margin gain this quarter after improved results in the Philadelphia market. But the note warns that the company gained from "aggressive cost management" and a benefits windfall, usually a one-time deal.

The New York Times Co. and Dow Jones, specifically The Wall Street Journal, raised red flags with the firm because of declines in help-wanted, real estate, and auto categories and for the Journal, softness in the technology and financial sectors.

E.W. Scripps fell below consensus, slammed by hurricanes, and "weakness in the newspaper unit," Goldman said.