Black and White and Red All Over

About a year ago, Fool buddy Seth Jayson and I got curious about the newspaper industry. Seth is a former ink-stained wretch himself -- whereas I'm just a garden-variety wretch -- and we were both intrigued at the way many newspaper companies were getting beaten down in the market.

As it turns out, most of those beatings were pretty much deserved, and neither of us bought so much as a single share. That was a good move. The best-performing newspaper/media company over the past year is Scripps (NYSE: SSP), and its stock has risen by a whopping 3.5%. Everybody else is down, down, down, including a near-disaster for me in the form of JournalCommunications (NYSE: JRN) -- one of the worst performers of this already sorry lot.

So what's the state of Journal Communications today? Not too pretty, I'm afraid. Overall revenue was down by more than 4% this quarter, and each of the operating segments had a negative top-line performance. Well, for that matter, each of the segments but printing services had a negative bottom-line performance too. So, it's no great shock that operating earnings fell almost 15% and reported earnings from continuing operations were down almost 18%.

I'm not sure there's much to be gained or gleaned from a segment-by-segment autopsy. Ad sales were weak in publishing and broadcasting, and the telecom business is suffering from lower prices for space on the company's fiber-optic network.

The only reason I'm really writing this company up now is that there may be a sliver of hope that things will improve. After all, we have another Olympics coming up, as well as midterm elections this fall. And maybe, just maybe, we're at or near the bottom in newspaper ad conditions. In addition, I'd love to see this company jettison the telecom business. I don't care if Journal sells it, spins it off, or puts it on a train with a $20 bill pinned to its coat. Whatever, just make it go away. Please.

I think (hope?) that what we have here is a pure, unadulterated turnaround opportunity. The publishing and broadcasting businesses have value, and the company does produce free cash flow. Heck, even modest single-digit cash flow growth forecasts get you a price target above today's value. I'm not saying "buy," but I'm going to dig into this stock once again. Sure, things are ugly now, but tomorrow's another day.

For more Foolish thoughts from our paper route:

• Scripps Slips, But Will It Get Back Up?
• Scripps Writing a New Script
• Reading Between Tribune's Lines

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).