BELO, DJ GIVE FIRST LOOK AT 2005: IT'S NOT GONNA BE PRETTY Dallas publisher's stock downgraded to 'neutral'; drops 9% in 13 days.

Candor at an investors conference on Wednesday caused a Wall Street analyst on Thursday to downgrade his recommendation for Belo Corp. stock, sending the company's share price plunging four percent for the day and nine percent over the previous 13 days of trading.

Shares in the Dallas-based multimedia company closed at $23.79 on Thursday, down from $24.75 on Wednesday and $26.21 on Dec. 28 (shares closed up a dime on Friday, ending at $23.89).

"We expect 2005 to be a challenging year for most newspaper and local television companies, and for Belo as well," said Dennis Williamson, Belo's senior vice president and chief financial officer, at the Smith Barney Citigroup Global Entertainment, Media and Telecommunications Conference in Phoenix.

Williamson went on to say the company expects expenses to increase four to five percent this year. The on-going ad credits the company is giving advertisers at its Dallas Morning News in the wake of the paper's circulation scandal will hurt revenue through the first quarter of the year to the tune of $5 million to $7 million, he said.

Further, he said that pre-print revenue would be down between $7 million and $9 million for the entire year.

The following day Edward Atorino of Fulcrum Global Partners wrote a research note to clients in which he cut his recommendation for Belo shares from "buy" to "neutral."

"Revenue and cost effects of the recent circulation decline at the Dallas Morning News are likely to curtail Belo's earnings growth in early 2005 more than we previously estimated," Atorino wrote. "Also television ad growth remains sluggish."

Williamson said at the investors' conference that the company delivered about $8 million in advertising credits in the last four months of the year to businesses that had been shortchanged because earlier rates had been based on inflated circulation figures.

The company believes that 80 percent of those credits would have come through as revenue had the ad rebate not been in place. Williamson said that the credit program expires for "most advertisers" by the end of March.

Further, Williamson said that the recommendations of the company's Circulation Review Team at all its papers would cost between $7 million and $8 million, but that circulation revenue should also go up between $5 million and $8 million.

Belo wasn't the only company grinning through gritted teeth at the Smith Barney conference: a slide in the presentation of Dow Jones & Co. Inc. had the headline, "Well-positioned for an improving economy."

Rich Zannino, executive vice president and chief operating officer of Dow Jones, talked extensively about expense reduction ("While we've cut costs, we've not cut corners.") and about the company's push to attract more color advertising and more consumer advertising in its flagship Wall Street Journal.

Speaking of the paper's new Weekend Journal (scheduled to debut on Sept. 10) and the Personal Journal section of the daily, Zannino said color and the new sections would grow consumer advertising.

"This will both grow as well as diversify our ad revenue, reducing our reliance on financial and technology advertising," Zannino said. The company thinks there will be a "big revenue upside" to consumer advertising because of its low penetration in that market.

Plus, Zannino said, "Consumer ads are much less volatile than B2B [business-to-business] advertising."

Zannino said Dow Jones estimates the market for weekend print advertising at about $3.5 billion, with about $2.3 billion of the coming from consumer ads. He didn't say what portion of that pie the new Weekend Journal hoped to capture.

Turning his gaze to electronic publishing, Zannino painted the company's efforts in vivid colors. The company had the second-highest operating margin among peer electronic publishing companies in the third quarter, he said, at 22.3 percent. McGraw Hill, Yahoo, Thomson, Reed Elsevier and Reuters all had lower margins.

He also addressed the company's plan to acquire MarketWatch.com, showing slides that proved what a great deal the deal will be.

"MarketWatch will triple the reach of our on-line publishing assets," Zannino said. "With MarketWatch and the Online Journal, Dow Jones will become the largest on-line publisher of proprietary business and financial news and information."

He said that both MarketWatch and the Online Journal have increased ad revenue by more than 30 percent in the last two years, 10 percent more than the growth of the overall on-line ad market.

Much as in electronic publishing, Zannino showed a slide of third-quarter 2004 operating margins that suggested that the company's community newspaper division, Ottaway Newspapers Inc., was the second-highest at 27.1 percent (preceded only by Gannett Co. Inc.).

Zannino's slide listed margins for the third quarter at The E.W. Scripps Co. at 26.7 percent, at The McClatchy Co. as 23 percent, at Journal Register Co. as 22.9 percent, at Media General Inc. as 22.6 percent and at Lee Enterprises Inc. at 20.5 percent.

Bringing up the rear were Belo at 19 percent and The New York Times Co. at 16.7 percent.

The Jack Myers Report's Advertising Confidence Index Survey, released last month, suggests that overall newspaper ad revenue growth in 2005 to be about 4.1 percent, up from 3.5 percent last year. Myers expects similar growth in outdoor, magazines and broadcast networks. Leading the pack is on-line, at 30 percent, with the No. Two -- local and regional cable TV -- coming in far behind at 9.8 percent. No wonder Analyst Atorino got grumpy.