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Early Earnings OK on Paper, but the Street Is Responding Negatively

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A few media and communications have reported decent earnings, but Wall Street is in a bearish mood.

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Media and communications companies report mostly towards the end of each quarter's earnings season. As a result, I look for clues in the early reports. So far, we have heard from Omnicom (NYSE:OMC), Gannett (NYSE:GCI), Media General (NYSE:MEG), Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO), Virgin Media (NASDAQ:VMED), and Verizon Communications (NYSE:VZ).

I would classify the results and guidance commentary as decent. However, Wall Street has reacted negatively, but that is mostly due to poor results from companies outside of media and communications. I would also caution that the recent earnings related sell-off in the market reflects the economy in the spring and summer when macro data clearly showed a slowdown in growth.

More recent data has been firmer led by housing and autos. Housing and autos feed consumer discretionary expenditures, which is the driver of business fundamentals and ultimately stock prices for media and communications companies.

The bottom line is that is too early to call the quarter (especially since we have yet to hear from US entertainment conglomerates or cable companies) -- but for media and communications, things appear to be going better than for the many other economic sectors.

Omnicom is the only company to give a broad view on national advertising. Growth for domestic advertising came in a little light at 3.1% and management noted concern for the macroeconomic outlook. Guidance indicates no further deceleration in domestic growth, but I think Omnicom's results and commentary suggests risk is to the downside.

Better news came from Gannett and Media General, which saw very robust growth in local TV station advertising revenues. Olympics and political spending appeared very strong with the long-awaited pickup in advertising extending into October. Both companies indicated fourth-quarter ad growth would remain elevated. Local TV stations are also enjoying strong growth from the auto industry, another positive that is expected to continue. The read through of local TV growth is muted for the big entertainment conglomerates, but strength surrounding sports and autos is a good sign.
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Author and/or his company hold positions in several stocks mentioned.
Entermedia is a long/short equity hedge fund focused on media, communic= ations, and related technologies. Steve Birenberg is co-portfolio manager o= f Entermedia, owns a stake in the Funds' investment management compan= y, and has personal monies invested in the Funds. CBS and Discovery Communi= cations are widely held by Northlake Capital Management, LLC, including in = Steve Birenberg's personal accounts. Steve is sole proprietor of Nort= hlake, a long only registered investment advisor.

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