Publishing Stock Outlook - Aug. 2015 - Industry Outlook

Will Diversification Bring Better Times Ahead?

The U.S. newspaper publishing industry has long been grappling with sinking advertising revenues, a situation worsened by the global economic meltdown. The downturn in the newspaper publishing industry aggravated further over the last few years, as print readership declined with more readers opting for free online news, thereby making the print-advertising model increasingly irrelevant.

Changing consumer preferences and the advent of new and innovative technologies have been altering the way news is offered and read. Readers now have a myriad of choices to collect and read articles or news through devices such as netbooks, tablets or other hand-held devices.These have been weighing on the print industry, as advertisers now get low-cost avenues through which they can reach their target audience more effectively. We believe that an alternative and stable source of revenue is the demand of time, to salvage the dwindling print newspaper industry.

Waning Newspaper Advertising Revenues

Advertising remains a significant source of revenue for the industry that in turn depends on the health of the economy. The macroeconomic factors such as sluggishness in business spending, high unemployment and falling home sales may affect the level of national, retail and classified advertising revenues, as advertisers cut their budget in response to weak economic conditions.

Advertising volumes remain under pressure as advertisers still deter from making any upfront commitments in an economy under recovery. According to the data released by Kantar Media, advertising expenditures fell 16% year over year at Local Newspapers and 13.5% at National Newspapers during the first quarter of 2015.

The McClatchy Company ( MNI ) witnessed a drop of 16.3% in print advertising revenues during the second quarter of 2015 following a decline of 13.6% in the first quarter. In the first quarter of 2015, print advertising revenues decreased 9.2% at The New York Times Company ( NYT ), while pre-print and other advertising revenues tumbled 13.1% at Journal Media Group, Inc. ( JMG ).

Newspaper Companies Adapting to Changing Trends

Newspaper companies have now been remodeling and restructuring themselves to better align to the growing need of marketers, targeting younger people, affluent households and other demographic groups with multiple web and print publications. The publishing companies are adapting to the changing face of the multi-platform media universe, which currently includes Internet, mobile, tablet, social media networks and outdoor video advertising in its portfolio.

Newspaper publishing companies have been offloading assets that bear no direct relation with the core operations, diversifying revenue base and even separating their broadcasting and digital properties from the sluggish print business.

The companies are gradually advancing toward the pay-and-read model. The New York Times Company, on Mar 28, 2011 launched a pricing system for, whereby after browsing a certain number of free articles, readers will be asked to subscribe for complete access to its articles on phones, tablet computers and the Internet.

Zacks Industry Rank

Within the Zacks Industry classification, Publishing forms part of the Consumer Staples sector, one of 16 Zacks sectors, though the media industry is part of the Consumer Discretionary sector. We rank all the 260 plus industries in the 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. To learn more visit: About Zacks Industry Rank .

As a point of reference, the outlook for industries with Zacks Industry Rank #88 and lower is 'Positive,' between #89 and #176 is 'Neutral' and #177 and higher is 'Negative.' The Zacks Industry Rank for Publishing Newspaper is #174.

Analyzing the Zacks Industry Rank, it is apparent that the outlook on the Publishing Newspaper industry is showcasing a Neutral view.

Earnings Trends

The broader Consumer Staples sector portrays a soft trend. In the second quarter of 2015, total earnings for the sector are expected to decline 0.4%, while total revenue is expected to fall 5.4%.

Looking at the consensus earnings expectations, we remain apprehensive about 2015, earnings for which are projected to fall 1.2%. But for 2016, the earnings forecast indicates a 9.2% increase. On the revenue front, we remain cautious on the sector, which is forecasting a decline of 8.5% in 2015 but building up confidence for 2016 with projected growth of 3.9%.

For more details about earnings for this sector and others, please read our ' Earnings Trends ' report.

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MCCLATCHY CO-A (MNI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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