As third-quarter earnings continue to trickle in from newspaper publishers, the hit-and-miss results underscore the uneven nature of the recovery in advertising spending. Industry leader Gannett (NYSE: GCI) released some impressive numbers earlier this week, and has now posted back-to-back quarters of solid growth. New York Times (NYSE: NYT), though, quickly followed with a lackluster performance, reporting a 4% drop in net income, on a modest 1.9% increase in revenues.
This morning, Dow Jones (NYSE: DJ) announced a penny improvement to the bottom line, but TheWall Street Journal suffered a 6% drop in ad volume (the first decline in over a year), driving operating income in the firm's print segment to a $16.6 million loss. That brings us to Knight Ridder (NYSE: KRI), publisher of about 30 daily papers, including the PhiladelphiaInquirer, Detroit Free Press, and MiamiHerald. The San Jose, Calif.-based company is the latest media firm to provide a quarterly snapshot, reporting that earnings (net of a one-time tax gain) rose 3.5% to $0.88, a penny ahead of expectations, on revenues that rose 2.1% to $722.2 million.
As more pieces of the newspaper publishing puzzle are put into place, the overall picture is becoming clearer. Small and mid-size markets continue to outperform larger markets, as national advertising has been choppy at best. While companywide ad revenues rose 4.3% in September, those generated specifically from the 18 smallest markets increased by 8%.
Knight Ridder's national ad revenues dropped 0.9% (the weakest of any component) and registered a decline in five of the company's nine largest markets. While a few sectors (such as telecommunications and pharmaceuticals) showed some strength, airlines, hotels, car rentals, autos, and entertainment were all weaker.
However, real estate and classified spending were cited as robust -- rising 9.5% and 15.6%, respectively -- echoing similar observations from Gannett. Knight Ridder is particularly reliant on the labor market, as classified ads represent a larger than average 36% of total advertising revenues.
Knight Ridder lacks the diversification of other media companies, and has no cable networks or television stations to help augment revenues. However, the nation's second-largest newspaper publisher does have an active online presence, with ownership in Internet-based properties such as RealCities and CareerBuilder.
The latter -- a joint venture with Tribune (NYSE: TRB) and Gannett -- attracted nearly 14 million monthly visitors during the quarter, more the double the rate from the year before. CareerBuilder's site traffic remains 19% higher than Monster.com (Nasdaq: MNST) and 43% greater than Yahoo!'s (Nasdaq: YHOO) HotJobs. Revenues from Knight Ridder's digital segment (though still only a small fraction of the total) jumped 39% for the quarter, and operating income doubled to $10.7 million.
Knight Ridder has done a good job of containing costs (resulting in sequential decreases each quarter so far this year) and growing earnings in spite of the erratic ad market. Though, with several rivals already guiding below next quarter's estimates, the industry isn't out of the woods just yet.
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Fool contributor Nathan Slaughter owns none of the companies mentioned.
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