Tuesday, April 18, 2006

The New York Times- Is it Finally Stabilizing?

The New York Times Company (NYT) is starting to feel like it is stabilizing at least. Pessimism has abounded for most of the newspaper stocks, and justifiably so. Circulation trends and revenue trends have been weak for some time. The Knight-Ridder-McClatchy deal did little to excite holders of newspapers and in fact, the increased leverage in McLatchy seems to have incensed some holders.

NYT reported first quarter numbers which were a penny better than consensus, which I regard as just noise.

But looking how they got there I find encouraging. Advertising trends are improving; revenues came in slightly better than most estimates. The flagship New York Times itself should report a slight gain in circulation to the end of March in the ABC numbers. The Boston Globe on the other hand will report a decline. The small regional papers in the portfolio appear to be doing reasonably well.

About.com had been regarded as a too little too late strategy when the acquisition was first announced roughly a year ago. WRONG! Revenue growth is exceeding expectations at 14% sequential quarterly growth. The conference call provided some discussion of taking About.com international as well as developing handheld and video capabilities. Over 7.5% of NYT revenues are derived from its digital properties.

The other positive element is cost control. Ex severance costs and digital products development, costs were up by 3.2% in the quarter, and costs will rise by much less than this for the year.

Today, we see that Morgan Stanley Investment Management is becoming activist in the NYT! Apparently, the firm, with about 5.6% ownership in NYT, is withholding its vote for the board and asking for elimination of the two class voting structure. Non-family shareholders elect only 4 of the 13 seats. Class B “Sulzberger” shares represent 1% ownership but elect the balance and the majority. Way to go MSIM!

Valuation is modest at 10.6 times EBIT on an EV/EBIT basis. ROIC is about 11%.Dow Jones enjoys higher ROIC at about 16% but trades on an EV/EBIT of 29 times.

Disclaimer: I. my family, and clients have a position in NYT. None have a position in DJ, KRI, or


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