Times Mirror Co., a diversified media company, Thursday reported a sharp decline in third-quarter operating profit, blaming the drop on weak demand for advertising and costly expansions at its newspaper and magazine divisions.
The company, which owns the Los Angeles Times, Newsday and Baltimore Sun among other newspapers, said its third-quarter operating profit before income taxes and one-time gains fell to about $111.3 million--a 21% decline from the same period last year.
Net income for the quarter ending Sept. 25 rose 14.7% to about $81 million on revenue of $814.8 million, up 4.8%. However, that includes one-time gains from the sale of timberlands and Times Mirror Press. The firm also benefited from a lower effective tax rate, which declined to 34.2% from 47.2% during the same period last year.
“A softness in advertising volume continues to adversely affect revenues and operating profits at our advertising-revenue-based businesses,” said Times Mirror Chairman Robert F. Erburu in a statement. “Major investments in strategic programs to strengthen our diversified publishing activities, primarily in newspapers, magazines and books, are adversely affecting our short-term results, while ensuring the long-term growth and profitability of Times Mirror.”
Many major media companies, including Times Mirror, have been caught in an industrywide slump during the past year. New York Times Co., for example, on Thursday also blamed a decline in advertising and rising costs for an 18.1% drop in third-quarter profit.
J. Kendrick Noble Jr., a media analyst at Paine Webber, said the industry downturn has been worse and longer than expected. “Ad lineage has been weak throughout the country,” he said, and “at the same time we’ve had large newsprint price increases during the past year.”
But analysts said they expect the industry to begin a slow recovery in the current quarter based on an anticipated modest increase in consumer spending, which in turn would spur demand for retail ads, and a rise in financial advertising, which nose-dived after last year’s stock market crash. “It looks like there will be a modest increase in fourth-quarter advertising,” said Noble. Next year, demand for ads is expected to continue to increase and newsprint costs to stabilize, he said.
“This is sort of the low water mark,” said John Reidy, an industry analyst at Drexel Burnham Lambert. “It can’t get any worse.”
At Times Mirror, the company’s hardest hit divisions included its newspaper and television divisions:
- Third-quarter operating profit at the newspaper group fell 26.6% to $62.5 million and revenue declined 3.4% to $470.7 million.
- The broadcast television unit reported a 40.1% drop in operating profit to $6.9 million. Times Mirror blamed a weak Texas economy that hurt company-owned stations there and intense competition in the St. Louis market.
- Operating profit at the book and magazine division--which includes Field & Stream and Popular Science--remained virtually flat at $37.4 million.
- Cable television, the only division to show a significant increase, saw operating profit shoot up 21.7% to $10.2 million. The increase was attributed to the growth of subscribers to cable systems in Southern California and Phoenix.
For the first nine months of the year, Times Mirror net income rose 11% to $235.1 million on revenue of $2.4 billion. However, income before one-time gains and income taxes fell 14.2% to $325.3 million.