CHICAGO, Jan. 16, 2013 /PRNewswire/ -- Today, Zacks Equity Research discusses the U.S. Machinery, including Gannett Co. Inc. (GCI), Lee Enterprises Inc., (LEE), The McClatchy Company (MNI) and The New York Times Company (NYT)

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Industry: Publishing

Link: http://www.zacks.com/commentary/25379/publishing-industry-stock-outlook-jan-2013

OPPORTUNITIES

Despite the tough times faced by the publishing industry, there are a number of defensive names in the group that can hold their ground. Companies are radically changing their business models to get in line with industry trends.

Gannett Co. Inc. (GCI) is diversifying its business by adding new revenue streams to make it less susceptible to economic uncertainties. The company is also streamlining its cost structure, strengthening its balance sheet and rebalancing its portfolio. Gannett remains well positioned to harness the opportunities of rapidly changing business model that includes digitalization in order to keep itself on the growth path. The company recently provided update of its growth initiatives and stated that its long-term objective is to attain annual revenue growth of 2% to 4%.

The company posted better-than-expected third-quarter 2012 results. The quarterly earnings of 56 cents a share beat the Zacks Consensus Estimate by a couple of cents, and rose 27.3% from last year's 44 cents. Gannett's total revenue climbed 3.4% year over year to $1,309.3 million during the quarter, and came ahead of the Zacks Consensus Estimate of $1,293 million.

Gannett currently holds Zacks Rank #3 that translates into short-term Hold rating. Other stocks in the publishing sector that look promising are Lee Enterprises Inc. (LEE), which holds a Zacks Rank #1 (Strong Buy) and The McClatchy Company (MNI), which holds a Zacks Rank #2 (Buy).

WEAKNESSES

The newspaper industry continues its struggle with plummeting advertising revenue amid the economic headwinds. Although murmurs about advertisers returning to the market are gaining ground as the economy recovers, the positive effects are yet to be realized.

The current economic upheaval is taking a toll on publishing companies, andThe New York Times Company (NYT) is no exception. Total advertising revenue slid 8.9% to $182.6 million in the third-quarter of 2012, reflecting declines of 4% in July and 11% in both August and September. Print advertising declined 10.9% during the quarter.

Both national and retail advertising dipped 9.5% during the quarter. Total classified advertising dropped 7.9%. The company's high dependence on advertising revenue, a derivative of the health of the economy, remains a potential threat. However, the company is repositioning itself for improvement in print and digital media through a new subscription based model. The New York Times Company currently holds Zacks Rank #3 (Hold).

Let's Conclude

The newspaper companies are transforming their business models to better position themselves in a multi-platform media universe. Although the U.S. economy is witnessing a sluggish improvement in the advertising environment, we believe 2013 will not likely mark the resurrection of the publishing industry.

With a strategic and steady newspaper budget, we could see fewer layoffs, increased focus on web and local content, improved subscription and concentration on profitable circulation.

Zacks Industry Rank

The Zacks Industry Rank, which derives its predictive power from the time-tested Zacks Rank, helps us identify the industries that are expected outperform others. The top 1/3rd of the Zacks Industry Rank qualify as industries with 'Good' prospects, the bottom 1/3rd have 'Bad' prospects, and middle 1/3rd as 'Neutral.' Most of the constituent 'industries' in the business services sector fall in the top 1/3rd of the list.

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