Harte-Hanks (HHS) Woes

Harte-Hanks (HHS) is an impressive niche player in the advertising industry with a dual focus on direct marketing and weekly shopper advertising publications. I have studied HHS closely since the sale of their newspapers to E.W. Scripps for nearly $800 million in 1997. It is difficult for a company to sell "on the sizzle," but HHS did. I wanted to see what their next act was.

Warren Buffett said that if you wanted to be considered a good businessman, get into a good business. The newspaper business has gone from an exalted franchise quality to a miserable business in a short period of time. (Mr. Buffett defines a franchise as having 1) needed products, 2) no close substitute, and 3) no price controls. ) Just how miserable HHS's weekly shopper business has become is depicted in the following graph created by Merrill Lynch:


Newspaper classifieds are experiencing a decline rate in excess of 20%. This decline is being blamed on the housing market and the economy. I don't buy it. In prior cycles, these revenues were considered countercyclical. Rather, I think this graph demonstrates the rapid deterioration of the economics in newsprint, pointing to the likelihood that these trends are long-term, not temporary.