U.S. newspapers continue to receive better financial news.

Moody's Investor Services on Friday announced industry earnings are improving, prompting the firm to change its outlook for the U.S. newspaper industry from "negative" to "stable." Moody's said the change reflects expectations that advertising revenue will recover over the next 12 to 18 months, but still expects ad sales to decline 5 to 10 percent this year. Ad revenue should be closer to flat at the end of the year and around a 3 to 2 percent decline in 2011, according to the announcement.

"Newspapers will benefit from the recovery in national advertising as well as broad based improvement in advertising across most categories that is expected to accompany a decline in the unemployment rate and recovery in consumer spending," the report states.

The investment firm also stated it expects furloughs, incentive compensation and other temporary cost-cutting measures will be reversed as revenues improve. The majority of costs that have already been cut, though, will likely remain permanent.

Last week, JP Morgan said U.S. newspaper likely did better than expected during the first quarter of 2010.

Gannett Co. also announced last week that cost-cutting measures and improved ad sales boosted first-quarter earnings, according to The Associated Press.

Moody's cautioned the stable outlook could return to "negative" once ad revenue has returned to normal and "long-term pressure" from advertisers shifts more dollars to other media and online.

The report states newspaper have also done well to reduce debt and gain access to capital, but believes "the industry remains particularly vulnerable to negative shifts in investor sentiment," which could hinder a financial rebound.