Updates: Seven West, PMP, Newcrest Downgrade, Coles Sales Up

Media stocks will to come under renewed downward pressure today after surprise earnings downgrades from Seven West Media and PMP late Tuesday.

The Seven West downgrade came after the market has closed ahead of the Anzac Day holiday because it was held in Perth and the time delay meant the statement could not be made before the 4 pm end of the day.

Other media groups including Fairfax Media, APN, Ten Network, STW and Southern Cross Media will all come under pressure today from investors nervous that the sector is about to experience another fall in earnings in addition to the weakness already seen.

But watch if the selling pressure extends to digital media groups, such as Carsales.com, Realestate.com or Seek which have supplanted the likes of Fairfax and APN in sectors such as classified, real estate and car advertising.

Seven West Media is the most profitable of the listed media groups, so its surprise downgrade is a warning to the rest of the sector and the market overall that the economy is weak in patches.

Seven West, which controls the Seven Network, Pacific Magazines and West Australian newspapers, slashed 2011-12 earnings guidance by around $45 million or 16% because a forecast improvement in the advertising market is now not expected to occur.

Seven West said it now expected earnings before interest and tax (EBIT) at between $460 million and $470 million for its full year to June 25.

That compares with the $550 million reported for the 2010-11 financial year.

That was struck on a 4% rise in revenues for the year to $1.96 billion. On present indications, Seven West Media will struggle to match last year's figure because of the slowdown.

"Throughout the current financial year (2012) the wider advertising market has traded below the prior year," Seven West said in a statement to the Australian Securities Exchange, issued after the close of trading.

"The group anticipated an improvement in those conditions in the final quarter of the current financial year.

"Based on conditions now becoming evident in all segments (TV, newspapers and magazines), the previous expectations of the market strengthening in the final quarter are unlikely to be met," the company said in the statement.

As recently as February at its interim results presentation, Seven West said its media business had continued to gain advertising market share in a difficult economic environment and was well placed for the next 12 months.

Seven West said EBIT was at the high end of company guidance issued in November 2011 and ahead of market consensus at $309.7 million, on revenues of $1.0 billion.

The downgrade means the company will earn around $150 to $160 million in earnings before interest and tax in the six months to June 25.

Seven West Media shares eased 2c lower on Tuesday ahead of the release of the update.

Publisher and printer PMP says it now expects full year earnings before interest, tax and significant items to be between $30 million and $33 million.

That's down from the full year EBIT (earnings before interest and tax) forecast of $43-47 million in February.

The news saw PMP shares plunge more than 16% or 5c to 25c at the close on Tuesday.

At the time, it warned of tough conditions in the second half of its financial year and on Tuesday said in its update, "Since PMP's last market guidance in February, market conditions have continued to deteriorate.

"Trading results for March were circa 20 per cent below forecast and at the same time the fourth quarter forecast now indicates lower than expected volumes due to further deterioration in demand from the retail and publishing markets.

"It is evident this is a combination of structural issues, economic drivers and deferral of advertising spend into the first quarter of fiscal 2013."

PMP said it had also expanded the scope of its cost-cutting program to help get its business back on track, saying it was now aiming at more than $40 million in annualised savings.

And it has recruited a new chief operating officer from its board, who will oversee the changes.

Non-executive director Peter George has resigned from PMP's board and been appointed the company's chief operating officer to help transform the Australian print business, the company said in Tuesday's statement.

He has been a non-executive director since 2002, so the board must be desperate to find someone to do a tough job.

Meanwhile the update from Wesfarmers about the performance of its retail chains was as expected.

Coles' sales were up almost 5% on a headline basis in the third quarter, well ahead of Woolworths 2.9% rise for its supermarkets and liquor business.

Coles' sales were $7.8 billion in the third quarter, up 4.9% from $7.5 billion in the previous corresponding period.

Coles' food and liquor sales rose 4.1% in the third quarter while convenience store sales were up 7.9%.

"Coles recorded pleasing sales growth given the record level of price deflation driven by high abundant fresh produce supply and Coles' continued investment in value," Wesfarmers managing director Richard Goyder said in a statement on Tuesday.

Coles' same-store sales of food and liquor sales rose 2.7% in the March quarter from a year earlier. That was down from the 3.7% rate seen in the second quarter, but well above the flat same store sales growth reported by larger rival Woolworths in its supermarkets business.

Like Woolies, Coles reported price deflation across a range of products, led by the 25% drop in fruit and vegetable prices (as we saw with the March quarter CPI).

"Underlying volume growth remained strong, consistent with prior periods, demonstrating the continued strength of the turnaround," at Coles, Wesfarmers said.

But sales at the Target chain fell 4.4% to $692 million, from $724 million in the prior third quarter.

"Target's sales during the quarter continued to be negatively affected by tough trading conditions, particularly in entertainment categories," Wesfarmers said in a statement on Tuesday.

Target's sales growth was also negatively affected by a comparatively lower level of clearance activity.

Target saw same-store sales slump 6.1% in the quarter.

However, the company's KMart saw a 1.2% rise in headline sales to $813 million, up from $803 million in the prior period.

Kmart had a solid 1.6% rise in same store sales in the latest three months.

That continued the solid first half performance from the chain which is now the best performed group in the department store sector of retailing, with positive growth for the past nine months.

Total home improvement and office supplies, which includes Bunnings hardware, was $2.1 billion, up 4% from $2.1 billion in the prior third quarter.

Bunnings sales rose 4.7% on a headline basis, but were up 2.6% on a same store basis.

And shares in Newcrest Mining will come under further pressure this morning after its surprise cut in its forecasts for gold and copper production for 2012 after carrying out a major review of its operations.

The shares lost $1 to close at $26.60 on Tuesday, a three year low for the stock.

Newcrest said gold production for the 2012 financial year would be reduced to 2.25-2.35 million ounces from 2.43-2.55 million ounces.

That's after originally forecasting 2011-12 production up 2.925 million ounces.

It also lowered its forecast for copper production to 70,000-75,000 tonnes from 75,000-80,000 tonnes.

Newcrest said it was facing a variety of higher costs ranging from labour to energy, a fall in productivity and the impacts of the strong Australian dollar.

However, Newcrest said, its production from existing assets was expected to grow over the next five years at a compound average rate of between 5% and 10%.

''These industry and operating conditions have been present for a while, but it is now apparent that the impacts have become more significant over the past 12 months and particularly in the last quarter,'' Newcrest said in a statement. ''The resulting short-term production performance has been unacceptable to the board and management.

''In response, Newcrest has significantly intensified its focus on operating excellence, and cost and capital control, and has re-assessed short-term guidance.'"

High rainfall at a mine in NSW was part of the problem, but plant breakdowns at Lihir continue to be a big disappointment for investors.