Washington Post's March Backwards

It's probably a good thing that Washington Post's (NYSE: WPO  ) share price of more than $750 keeps it out of the comfort zone for most of us price-conscious Fools. Until something changes at the company, there's little to get us excited. I really don't mean to be cruel here, but Washington Post has taken the questionable economics of traditional media and topped it with for-profit education, which itself consists of some questionable economics -- at least for now.

In addition to its flagship newspaper, The Washington Post, the company publishes Newsweek and other periodicals and guides, operates six television stations, is a cable provider, and offers for-profit and supplemental education services, primarily under the Kaplan and Score! brands. The educational unit, providing more than 40% of total revenues, is actually the company's largest. 

For the quarter, Post's earnings slid 6.4% to $95.5 million, or $9.97 per share, from $102.4 million, or $10.65 a share, in the last quarter of 2005. But despite the drop in profits, revenues actually rose 9.7% to $1.04 billion.

The biggest culprit on the cost side was the education division, where increases in stock-compensation expenses and transition outlays related to acquisitions raised costs and crimped earnings. The newspaper division saw trends similar to those at rivals New York Times (NYSE: NYT  ) , Tribune (NYSE: TRB  ) , and McClatchy (NYSE: MNI  ) -- continued declines in both circulation and advertising figures. 

Indeed, in the quarter, the Post's classified, national, and zoned advertising all fell, with classified recruitment advertising down 22% year over year. Similarly, revenues in the magazine unit fell 3% in the quarter, although with political and Olympics advertising kicking in, the unit's operating income increased 20% from the final 2005 quarter. The operating income from broadcasting climbed 20% for the quarter, while the operating-income contribution from cable was 8% higher, largely because of the effects of Hurricane Katrina on several of the company's franchise areas in the prior year.

What, pray tell, should Fools do about Washington Post? At least until the educational unit matures and begins to increase its earnings, I would suggest that you do any combination of the following that moves you: Read the Post and Newsweek, if you're so inclined; watch the television stations or become a cable subscriber, if you live where you can do so; or take a Kaplan course, if you're so inclined. You might even hum Sousa's "Washington Post" march loudly and enthusiastically, if you'd like.

But as with most of the other companies that consist of large newspaper publishing components, please, oh please, don't buy the stock.

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To get the other side of the newspaper story, take a free 30-day subscription to theMotley Fool Income Investor newsletter, where New York Times is a current recommendation. The newsletter is beating the market, so it just might be worth a front-page read or two. Check it out free for 30 days.

Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your comments and questions.       

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