A Dow Jones Downer?

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Newspaper stocks' current woes may seem like old news by now, but more and more players keep reporting lackluster results. Today Dow Jones (Nasdaq: DJ) announced its second-quarter numbers, and its weakness probably didn't surprise anyone who's been following the industry.

Dow Jones reported second-quarter earnings of $861,000, or $0.01 per share. That's down from $34 million, or $0.41 per share, at the same time last year. Excluding several charges, Dow Jones would have reported earnings of $0.34 per share, matching analysts' estimates. Dow Jones' revenue increased 3.7% to $454.2 million.

The charges and special items in today's announcement relate to events such as the transfer of Dow Jones' equity interest in CNBC International and CNBC World back to CNBC, plus restructuring charges and other items. The company said the CNBC transfer will strengthen its future chances for profitability.

The results showed no end in sight for newspapers' tough outlook, with lowered advertising at Dow Jones' Wall Street Journal unit a case in point. Notably, Dow Jones' online segment is faring better than its print version; I've previously opined that the industry's true future lies online.

Revenues in Dow Jones' print segment fell 7.2% to $235.5 million, with operating income down 58.2% due to a decline in ad sales. On the other hand, the company's electronic publishing revenue increased 33.5%, which the company partly attributed to its MarketWatch acquisition. Operating income also rose 28.1%, while paid subscribers to the online version of The Wall Street Journal increased by 8.8%.

Dow Jones' acquisition of MarketWatch was meant to take further advantage of the strong market for Internet advertising, and these latest results certainly seem to support the strategy. The company's other new initiatives include a WSJ Weekend Edition.

I've recently written several articles about the difficulties facing newspaper stocks; rivals like New York Times (NYSE: NYT) and Knight-Ridder (NYSE: KRI) face similar issues, and have come up with interesting initiatives to combat market forces. (New York Times also reported a decrease in its quarterly profit today.)

Dow Jones said that it sees its sluggish business-to-business advertising improving in the third quarter -- good news, because its shares have lost some ground recently. That doesn't mean the company represents a value for bargain hunters at the moment. Dow Jones still trades at a P/E of 34 in an increasingly rocky industry. If you take a look at rivals' P/E ratios, you'll see far lower numbers for other well-known names like Knight-Ridder and even Gannett (NYSE: GCI), which have also faced recent slowdowns in circulation and advertising revenues.

You could always argue that Dow Jones deserves its premium because it's a jewel in the industry, and therefore will rise to the challenges it faces. After all, it has an excellent reputation, national circulation, focused news coverage, and strong Internet initiatives, including the recent acquisition of MarketWatch. Even so, it still seems highly priced, given the tough climate.

Extra! Extra! More recent newspaper news:

• What's this -- a tabloid format at WSJ?
• Check out the word on newspapers' poor circulation.
• Here's a refresher on Dow Jones' first quarter.

Alyce Lomax does not own shares of any of the companies mentioned.