UPDATE 2-Daily Mail ad decline accelerates
* Q1 sales up underlying 2 percent to 495 mln stg
* Company says trading in line, outlook unchanged
* Shares fall 3.9 percent after strong run
LONDON, FEB 8(Reuters) - British newspaper group Daily Mail & General Trust said a decline in advertising revenues at its national titles accelerated to 9 percent in January from an underlying 2 percent in the quarter to Jan. 1, pushing its shares down by almost 4 percent on Wednesday after a strong rally so far this year.
The company said overall revenue for the quarter rose by 2 percent on an underlying basis to 495 million pounds ($786 million), broadly in line with expectations, thanks to a strong performance in its business-to-business divisions, which include risk management and trade shows.
DMGT said trading in its fiscal first quarter was in line with its expectations and its outlook for the year remained unchanged. It expects solid growth at its business-to-business operations, a slight improvement at its national titles and continuing declines in regional newspapers.
Its shares were down 3.9 percent to 444.3 pence by 0855 GMT, the worst performers in a flat European media index, following a market-beating 16 percent rally since the start of January.
Most analysts attributed the share price drop to the stock's recent strong run, while noting the weakness in January advertising.
London brokerage Peel Hunt cut its rating to "sell" from "hold" after its 409 pence price target was exceeded. "Once again, a solid B2B performance has compensated for a difficult consumer media environment, but we see little in the statement to prompt us to change our forecasts," wrote analyst Patrick Yau.
DMGT Chief Executive Martin Morgan said the company would continue to invest in its digital businesses while cutting costs elsewhere. The celebrity-focused MailOnline overtook the New York Times in December to become the world's most popular newspaper website, and attracted 99 million readers in January.
Morgan declined to give a detailed forecast for newspaper advertising, where the group's regional titles suffered a 10 percent drop in revenue in the first quarter that continued through January, as demand for classified recruitment, autos and retail ads slumped.
"The economic outlook is very hard to read," he told journalists on a conference call on Wednesday.
DMGT cut its overall headcount by 2 percent in the quarter as it continued to trim its newspaper staff, while hiring more people for the fast-growing MailOnline. MailOnline's revenues rose 70 percent year on year but the website is not expected to be profitable this year.
Rival newspaper group Trinity Mirror said last week it planned to axe almost a fifth of its editorial staff, as economic weakness in Britain continues to weigh on a sector that has long been struggling with the migration of its readers to the Internet.
Morgan said the DMGT's flagship mid-market Daily Mail and the Mail on Sunday had continued to gain market share, with the Daily Mail reaching an all-time high of almost 30 percent despite cover-price increases.
He said the gains were a continuation of a long-term trend and unlikely to be related to upheaval in Britain's newspaper market, which has been shaken by a phone-hacking scandal that caused the shutting down of the News of the World, part of Rupert Murdoch's News Corp media empire.