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Media News

Moody's revises US newspaper outlook to stable

NEW YORK, April 16 (Reuters) - Moody’s Investors Service revised its outlook on the U.S. newspaper sector to stable from negative on Friday and said an improving advertising revenue environment will help stabilize overall revenue in 2011.

The rating agency is expecting ad revenue to decline by 5 percent to 10 percent in 2010, but to be closer to flat by year end and range from down 3 percent to up 2 percent in 2011.

“Newspapers will benefit from the recovery in national advertising as well as broad-based improvement in advertising across most categories that is expected to accompany a decline in the unemployment rate and recovery in consumer spending,” analyst John Puchalla said in a note.

Industry earnings are beginning to stabilize following cost cuts, leading to year-on-year growth in EBITDA -- earnings before interest, taxes, depreciation and amortization -- for most issuers, it said.

Some of the cost cuts, such as furloughs and pay cuts, are likely to be reversed as the revenue environment improves.

However, “the majority of cost reductions are nevertheless permanent and should create favorable operating leverage with even a modest gain in revenue,” said the analyst.

Still, the stable outlook reflects a cyclical recovery in advertising, and papers are likely to continue to lose market share to other media.

The outlook may be revised back to negative once the cyclical uptick in advertising fades, he said.

The improved outlook is also unlikely to lead to positive rating actions unless companies push ahead with deleveraging efforts.

“Moody’s continues to believe the industry cannot tolerate much leverage given the longer-term secular pressures and high sensitivity to economic cycles,” said the note.

Companies have better access to capital markets following deleveraging that has eased liquidity pressure.

“But Moody’s believes the industry remains particularly vulnerable to negative shifts in investor sentiment that could impede or raise the cost of funding maturities over the next 2-4 years,” said Puchalla. (Reporting by Ciara Linnane; editing by Jeffrey Benkoe)

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