Weak ad market hampers Fairfax

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For a company that depends on advertising for much of its revenues, the current state of the ad market must be depressing.

As Fairfax Media Limited (FXJ.AX) chief, Greg Hywood stated at the company’s annual results briefing last year, the Australian advertising market continues to drag on Fairfax’s performance. At the time he also said that he expected no recovery until 2015, and results reported today appear to be evidence of that.

Most divisions saw revenues fall, with Metropolitan Media down 12%, Printing Operations down 11.9%, and Regional Media down 7.3%. The main bright spot was Broadcasting, which saw a 4.6% rise in revenues, but this is a fairly small part of the overall business.

Thanks to the sale of Fairfax’s stake in Trade Me Group (TME.AX), and the sale of its US agricultural publishing business, net profit surged to $386.3 million, with earnings per share coming in at 16.4 cents. Debt has been reduced by $717 million, and Fairfax now carries just $197 million in net debt.

Excluding asset sales and other significant one-off items, net profit fell 38.8% to $83 million.

Fairfax continues to transform the company through cutting costs, reducing debt and investing in its digital media assets, but the weak real estate and national advertising market continue to hamper the group’s turnaround. Already this year, revenues were 9-10% lower than the previous corresponding period.

In a sign that it’s not just a problem for Fairfax, troubled newspaper publisher, APN News and Media (APN.AX) has reported that weak advertising markets would slash its profit for 2012 by more than a third. Today the company reported a $455 million loss, although underlying net profit, which excludes various writedowns on its publishing assets came in at $54 million.

Fairfax stated that a sustained improvement in consumer sentiment is needed to see an uplift in a number of its key advertising categories, and has noted positive economic commentary recently. That may suggest consumer sentiment may be rising, and a turnaround not too far around the corner.

Foolish takeaway

Shareholders may agitate for Fairfax to do more to reduce its reliance on newspapers, and speed up its transformation into a predominantly digital business. A turnaround in consumer sentiment would definitely help too.

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