The newspaper industry has its share of challenges, and the last couple weeks have provided a few more headlines that support that perspective. New York Times (NYSE:NYT) warned about earnings in its coming third quarter, and Tribune (NYSE:TRB) said it is mulling a restructuring and possibly a sale.
New York Times cited soft ad revenues as it warned that its third-quarter earnings will be a mere $0.08 to $0.10 per share. That's a steep decrease from its earnings of $0.16 per share in last year's third quarter and falls below Wall Street analysts' expectation for third-quarter earnings of $0.18 per share. Ouch, that certainly does hurt.
Meanwhile, Tribune is mulling a restructuring or possibly a sale (or a sale of some of its assets, which include well-known names like TheLos Angeles Times and TheChicago Tribune). Although investors responded to the news enthusiastically, one might wonder what buyers might emerge and at what prices they'd be interested, given the fact that the newspaper industry is at a crossroads while it tries to carve out its digital future.
These developments certainly come as no surprise. Last week, fellow newspaper publisher Dow Jones warned about its coming quarter (at that time, I pointed out that it would be interesting to see how its peers are faring, and it certainly appears that many of them might have similar issues, given New York Times' warning). Dow Jones is also shopping around, looking at a few of its community-oriented newspapers. And it shouldn't be news to anybody that if the economy declines -- and there are currently some worrisome elements to this effect -- that ad spending will be softer.
The newspaper industry isn't dead, but it's certainly facing enough growth challenges to give investors reason to proceed with caution. I've often said that when it comes to investing in the industry, I'd prefer going with the ones that have the best online properties to offset the deterioration of print circulation. I'd say Dow Jones is one of the best in that regard, with its universal business focus and its well-known brands, all of which translate well to the Internet -- The Wall Street Journal, Barron's, and MarketWatch. Of course, all the names above have Internet presences, as do other well-known newspaper companies like Gannett (NYSE:GCI) (the name behind USA Today) and Washington Post (NYSE:WPO).
Given near-term concerns like a softer climate for advertising, it seems to me that investors would do well to wait a bit before going shopping for newspaper stocks. And it's likely that a cautious approach may yield some good deals on the best names in the space.
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Alyce Lomax does not own shares of any of the companies mentioned. The Fool has all the disclosure policy that's fit to print.
