Gannett Company, Inc. (GCI), the publisher of the nation’s one of the largest-selling daily newspaper USA Today, recently posted fourth-quarter 2011 results. The quarterly earnings of 72 cents a share beat the Zacks Consensus Estimate of 69 cents, but dropped 13.3% from last year’s 83 cents, reflecting a slump in publishing and political advertising demand as well as a marginal fall in circulation revenue.
However, effective cost management provided some cushion to the bottom-line. Operating expenses, excluding one-time items, dropped 1.5% from the prior-year quarter.
On a reported basis, including one-time items, earnings came in at 49 cents a share, down 31.9% from 72 cents delivered in the year-ago quarter.
Behind the Headline
Gannett’s total revenue dropped 5.1% to $1,387.8 million from the prior-year quarter due to fall in revenue across Publishing and Broadcasting segments, partially offset by gains at the Digital segment. Total revenue also fell short of the Zacks Consensus Estimate of $1,394 million.
The current economic upheaval is taking a toll on publishing companies and Gannett is no exception. After dropping 8.5% in the third quarter of 2011, publishing advertising revenue fell 7.1% to $670.7 million from the year-ago quarter. Tough economic environment along with softness in advertising demand in the U.S. and U.K. impacted the results. Advertisers are shying away from making any upfront commitments in a cloudy economy.
Publishing circulation revenue dipped 1.8% to $268.1 million. Classified advertising dropped 8.4% at domestic publishing operations, reflecting weakness in automotive and real estate categories. Publishing segment operating income slipped 15.2% to $176.4 million.
Gannett said that total broadcasting revenue declined 14.2% to $199.8 million. Television revenue dipped 12.7% to $192.4 million. However, when excluding cyclical political advertising demand, television revenue climbed 11.3%, attributable to increase in auto advertising. Retransmission revenue jumped 30.3% to $21.4 million during the quarter. Broadcasting operating income plummeted 22.3% to $90.4 million.
Management now expects total television revenue to rise in the high-single digit percentage in the first quarter of 2012 when compared with the prior-year quarter.
Digital segment revenue rose 9.4% to $181.5 million due to robust revenue growth at CareerBuilder. Digital operating income came in at $38.7 million, up 2.5% from the year-ago quarter.
Company-wide total digital revenue rose 6.5% to $290.3 million, including a 6.9% growth registered in publishing digital revenue and an increase of 19.3% experienced in television station digital revenue.
Advertising, which remains a significant source of revenue for the company, depends upon the global financial health. Gannett is taking initiatives to diversify its business model and shielding itself against any economic onslaught by adding new revenue streams. The company is also adapting to the changing face of the multi-platform media universe, which currently includes Internet, mobile, social media networks and outdoor video advertising in its portfolio.
In an effort to offset the declining revenue and shrinking market share, publishers are scrambling to slash costs. Gannett has been realigning its cost structure and streamlining its operations to increase efficiencies.
To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content. Despite hiccups in the economy, it still promises revenue generation.
News International, the subsidiary of News Corporation (NWSA) started charging readers for the online content of The Times of London and Sunday Times of London from June 2010. The New York Times Company (NYT), another diversified media conglomerate, launched a pay-and-read model on March 28, 2011.
Financial Aspects
Gannett, the publisher of 82 U.S. daily newspapers, lowered its long-term debt by $158 million to $1.76 billion, and generated an operating cash flow of $274 million (down 30.8%) and free cash flow of $203.3 million in the quarter. Cash at the end of the quarter totaled $167 million.
Gannett’s Board of Directors on July 18, 2011, authorized the recommencement of $1 billion share repurchase program approved on July 25, 2006. Under the program, the company bought back 2.3 million shares for $25 million during the quarter, and still has approximately $756 million remaining at its disposal.
Currently, we maintain our long-term Neutral rating on Gannett. However, the company holds Zacks #2 Rank that translates into short-term Buy recommendation.
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