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February 09, 2007

Tribune: Earnings Stabilizing But No Growth

Tribune (TRB) reported slightly better than expected 4Q06 earnings with adjusted EPS coming in at 65 cents against a consensus estimate of 61 cents. Revenues also come in ahead of expectations at $1.47 billion vs. a consensus estimate of $1.43. 4Q06 contained an extra week compared to 4Q05 so it is possible some of the upside came from analysts not quite getting the extra week fully into their models.

Adjusting for the extra week, the quarter is nothing to get excited about. At the corporate level, revenues and EBITDA would have fallen by 1% without the extra week. Within Publishing operations, ad revenues fell 3% without the extra week while circulation revenues fell by 6%. TV results were better as there was some improvement in New York, Los Angeles, and Chicago. Adjusted for the extra week, TV revenues grew by 4%.

Digital revenues, which for TRB are primarily related to classified advertising, rose by over 30%, reaching 6% of total revenues. Adding back TRB's share of joint ventures, digital revenues represented 10% of total revenues. This is clearly a bright spot but online classifieds are usually priced a big discount to newspaper classifieds so it is not a clear win as overall yield is falling in the transition to online. If digital revenues continue to grow at 30%, there will be a boost of about 3% to overall corporate growth. Again, nothing to complain about but not large enough yet to drive TRB's overall top line....

TRB indicated that its December results in newspapers were down about 2.5% on the advertising line with January staying at this level or a little worse. This sounds pretty much inline with what other major newspaper chains have reported.

The best that can be said for TRB's recent results is that trends appear to be stabilizing. There is still no growth on the top line but results are not getting worse. Cost controls are tight and TRB will exceed its cost savings targets by $200 million over the 2007/08 time frame including savings in newsprint as prices and volumes are falling. TRB could return to very low single digit top line growth next year which coupled with cost cutting and the 22% drop in shares outstanding can drive EPS higher.

I still don’t think that is enough to get anyone interested in bidding the shares much above current prices so although the worst may be over for TRB, I can’t construct a bullish scenario.

Comments on the call related to the company's consideration of strategic alternatives were limited to a statement that the process would be wrapped up this quarter.

Posted by Steve Birenberg at February 9, 2007 01:15 PM in TRB