Advertising revenue falls at New York Times

The New York Times Company said yesterday that its second-quarter operating profit fell because of weakness in newspaper advertising but that net income doubled because of a gain from the sale of its television stations. The company also announced plans to cut operating costs by $230 million over the next two years. Read original article.

The company said that income from continuing operations fell 59 percent, to $22.1 million, or 15 cents a share, compared with $53.9 million, or 37 cents a share, in the period a year earlier. Revenue fell 3.7 percent, to $788.9 million.

Like the rest of the industry, The Times is struggling as ad dollars shift from newspapers to the Internet. Advertising fell at all of the company’s publishing units, with a 5.3 percent decline at The New York Times Media Group, which includes the flagship paper and The International Herald Tribune. The advertising decline was 7.6 percent at the New England Media Group, which includes The Boston Globe and The Worcester Telegram & Gazette, and 11.6 percent at its regional newspapers.

“Classified advertising has been much more difficult than we expected going into the year,” said James M. Follo, the chief financial officer of the Times Company. Mr. Follo cited weak demand for help wanted and real estate ads in particular, with the latter segment affected by a broader downturn in the national real estate market. On the other hand, ad spending in the financial services, cosmetics and packaged goods categories was more robust, Mr. Follo said.

Revenue from online operations, which includes nytimes.com and About.com, jumped 23.4 percent, to $80.9 million, and the company is on track to generate at least 10 percent of overall revenue from the Internet this year.

Over all, net income at the Times Company rose to $118.4 million, or 82 cents a share, from $59.6 million, or 41 cents a share, largely as a result of a $94.3 million after-tax gain from the sale of nine network-affiliated television stations. A significant portion of the sale proceeds were used to reduce the company’s debt, which fell to $965 million from $1.4 billion at the end of the first quarter of 2007.

The company said that its earnings from continuing operations would have been 34 cents a share but for three special items — a profit from the sale of WQEW-AM radio station in New York, a loss on the sale of its printing plant in Edison, N.J., and accelerated depreciation charges from the scheduled closing of the Edison plant.

Operating profit at About.com, meanwhile, rose 16.4 percent, to $8.5 million, helped by ConsumerSearch.com, which the company acquired in May.

“Activist investors criticized the About acquisition in 2005 but it’s worked out,” said Frederick Searby, an analyst with JPMorgan Securities. “Internet is beginning to move the needle slightly.”

Janet L. Robinson, the chief executive of the Times Company, said, “While our second-quarter results reflected the weakness in the print advertising market stemming from both secular and cyclical forces in our business, we continued to move aggressively on new product development, cost reduction and the rebalancing of our portfolio.” She said that $130 million of the cost reduction would come in 2008, with the balance coming the next year. The cost reductions exclude the effects of inflation and one-time charges.

Mr. Follo did not provide a detailed breakdown of where the savings would come from. But a portion will come from the consolidation of New York area printing operations at the paper’s College Point plant in Queens, as well as the reduction next month in the width of The Times, The Boston Globe and regional papers, which should save $13 million annually.

Other costs cuts will come from the administrative, production, technology, distribution and circulation functions. Mr. Follo said, “Our cost initiatives will be carefully managed so that they do not adversely affect the quality of our journalism, the smooth functioning of our operations or our ability to achieve our long-term goals.”

Wall Street was pleased by the cost-cutting initiative.

“The savings being talked about are much higher than even the most optimistic estimates,” said Paul Ginocchio, an analyst with Deutsche Bank. “The only negative is what it potentially says about the outlook for revenues over the next two years. If you’re working that hard on the cost side, does it mean the outlook for revenue isn’t good?”

Mr. Searby of JPMorgan said: “The big news is the cost cuts over the next two years. They’re finally biting the bullet and adjusting to the reality of an accelerating, secular decline in print.”

In a conference call with analysts after the earnings announcement, Ms. Robinson said Internet advertising growth at The Times Media Group slowed in July. But she added The Boston Globe’s ad outlook will most likely improve during the second half of the year as new shopping malls open in Natick and Foxboro, Mass. Other bright spots include advertising by competing banks as well as new branding efforts by telecommunications companies like Verizon and AT&T.

Over the last year, Ms. Robinson said, the Times Company sold about $700 million in assets. Those sales, combined with strong cash flow, “gave us the confidence to raise the dividend 31 percent.”

Shares of the Times Company rose 1.7 percent, or 39 cents, to $23.61.

The earnings report comes as other media giants struggle to adapt to the new landscape. Last week, the board of Dow Jones, publisher of The Wall Street Journal, recommended the company accept a buyout bid from Rupert Murdoch’s News Corporation. The Bancroft family, which owns a controlling stake in Dow Jones, is evaluating Mr. Murdoch’s $5 billion offer and a final decision is expected within days.