Gannett Company, Inc. (GCI), the publisher of one of the nation’s largest-selling daily newspaper USA Today, recently posted second-quarter 2011 results.
The quarterly earnings of 58 cents a share were a penny ahead of the Zacks Consensus Estimate but fell 4.9% from last year’s 61 cents, reflecting a slump in publishing advertising demand and fall in circulation revenue. However, these were somewhat offset by effective cost management. Operating expenses, excluding one-time items, dropped 1.3% from the prior-year quarter.
On a reported basis, including one-time items, earnings came in at 62 cents a share, down 23.5% from 81 cents delivered in the year-ago quarter.
Gannett’s total revenue dropped 2.2% to $1,334.9 million from the prior-year quarter due to a fall in revenue across its Publishing segment, partially offset by gains in the Broadcasting and Digital segments. Total revenue came ahead of the Zacks Consensus Estimate of $1,329 million.
After dropping 7.3% in the first quarter of 2011, publishing advertising revenue fell by 6.5% to $646.9 million from the year-ago quarter, reflecting a sequential improvement. The tough economic environment along with softness in advertising demand impacted the results. Publishing circulation revenue dipped 1.7% to $265.4 million. Classified advertising dropped 8.5% at domestic publishing operations, reflecting weakness in automotive and real estate categories. Employment classified was marginally down. Publishing segment operating income slipped 14.7% to $153.8 million.
Gannett, the publisher of 82 U.S. daily newspapers, said that total broadcasting revenue increased slightly by 0.2% to $184.4 million. Television revenue came in at $177.7 million compared with $177.5 in the prior-year quarter. Retransmission revenue climbed 23.7% to $19.4 million during the quarter. Broadcasting operating income rose 2.6% to $80.4 million.
Management now expects television revenue to fall in the mid-single digits for the third-quarter of 2011.
Digital segment revenue rose 12.6% to $173.4 million due to robust revenue growth at CarrerBuilder. Digital operating income came in at $36.2 million, up 31.6% from the year-ago quarter.
Company-wide total digital revenue jumped 12.6% to $276.2 million.
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 in 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 $167 million, and generated an operating cash flow of $298.1 million (down 8.8%) and free cash flow of $180 million in the quarter. Cash at the end of the quarter totaled $165 million.
Today, the company also announced a 100% hike in its quarterly dividend to 8 cents a share from 4 cents. The increased dividend will be paid on October 3, 2011 to stakeholders of record as on September 9, 2011.
Gannett also plans to resume its $1 billion share repurchase program approved on July 25, 2006. The company still has approximately $809 million remaining at its disposal, and expects to buyback up to $100 million of shares over the period of 12 months.
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.
