Gannett Company, Inc. (GCI), the publisher of the nation’s one of the largest-selling daily newspaper USA Today, posted lower-than-expected first-quarter 2011 results, reflecting soft publishing advertising demand, and absence of advertising related to Olympics and Super Bowl as well as political spending. However, these were offset, to some extent, by effective cost management. Operating expenses, excluding one-time items, dropped 2.2% from the prior-year quarter.
The quarterly earnings of 41 cents a share missed the Zacks Consensus Estimate by a penny and fell 16.3% from last year’s 49 cents. On a reported basis, including one-time items, earnings came in at 37 cents a share, down 24.5% from 49 cents delivered in the year-ago quarter.
Gannett’s total revenue dropped 3.7% to $1,251.3 million from the prior-year quarter due to fall in revenue across Publishing and Broadcasting segments, partially offset by gain at Digital segment. However, total revenue came ahead of the Zacks Consensus Estimate of $1,247 million.
After dropping 5.9% in the fourth quarter of 2010, publishing advertising revenue fell further by 7.3% to $601.7 million from the year-ago quarter. Publishing circulation revenue dipped 3.9% to $268.2 million. Automotive and employment classified performed well in domestic publishing operations, but softness persists in the real estate category. Publishing segment operating income plummeted 20.2% to $131.2 million.
Gannett, the publisher of 82 U.S. daily newspapers, said that total broadcasting revenue slipped 2.2% to $163.9 million due to the absence of Olympics, Super Bowl and political advertising, which benefited the prior-year quarter. Television revenue dropped 1.9% to $158.3 million. Retransmission revenue jumped 25.7% to $19.5 million during the quarter. Broadcasting operating income dipped 7.4% to $63.5 million.
Management now expects television advertising revenue to remain flat for second-quarter 2011.
Digital segment revenue rose 12.1% to $157.6 million, reflecting robust employment advertising demand at CarrerBuilder. Digital operating income came in at $16.1 million compared with $3.4 million in the year-ago quarter.
The significant potential risk is the company’s high dependence on advertising revenue, which is driven by the health of the economy. To mitigate this, Gannett is adding diverse revenue streams to hedge against economic cycles. The company is also adapting to the changing face of the multiplatform media universe, which currently includes Internet, mobile, social media networks and outdoor video advertising in its fold.
To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content. 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. The publisher of The New York Times, the International Herald Tribune, The Boston Globe and 15 other dailies said that it has adopted the Financial Times’ metered system, whereby after browsing a certain number of free articles, readers will be asked to subscribe to enjoy access to its full articles on phones, tablet computers and the Internet.
Gannett lowered its long-term debt by $164 million and generated operating cash flow of $236.2 million (down 13.3%) and free cash flow of $216.4 million in the quarter.
Currently, we have a long-term ‘Neutral’ rating on Gannett. Moreover, the Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, correlates with our long-term view.
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