Newspaper companies have certainly taken some tough licks this year. Just look at all the issues facing the industry: declining circulation numbers, increasing newsprint costs, Google
One standout, however, has been Cincinnati-based E.W. Scripps
But Scripps still faces its own challenges. At an investor conference this week, the company lowered its fourth-quarter earnings guidance for the second time in a month. Why the revision? There seem to be two culprits. First, this fall's Hurricane Wilma has negatively affected the advertising business of Scripps' Florida television stations worse than initially expected. Second, its "Shop at Home" channel and website will reportedly lose $10 million-$12 million rather than the $2 million the company anticipated. It seems that consumers aren't particularly smitten with the products "Shop" is selling. Scripps' management now sees company-wide earnings of $0.48 to $0.50 per share in the fourth quarter versus the lower end of its original forecast of $0.52 to $0.56. So do these results bode poorly for Scripps' shareholders? I don't think so.
The company is very-well positioned for the future. It's aggressively building its online presence through its newspaper, television, and network websites, as well as its investment in the comparative shopping service Shopzilla (purchased this past June), which will add to profits next year. The company expects to grow its Network segment (Food Network, HGTV, DIY Network) by 18%-20% in 2006 and its operating profits even faster. It's also bullish about its 10 television stations, which expect revenue growth of 10%-12% next year. So while Scripps may report a weaker fourth quarter this year, the company has made all the right long-term decisions to profit from the consumers' shift away from reading newspapers.
The company's stock currently trades at a price-to-earnings (P/E) ratio of about 21 times next year's earnings, which is a 17% premium over its main competitors. I still think this is a little pricey, even for a company that generates a higher percentage of its revenues from offline newspaper properties. But I continue to keep a close eye on it. Maybe the newspaper industry's bad news will knock the stock down a few pegs to where I might be inclined to pick up some shares.
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Andy Cross is a disheartened yet life-long Eagles fan and co-host of "Taking Stock," The Motley Fool's weekly Podcast. At the time of publication, he had no financial interest in any stock mentioned.