Gannett Company, Inc. (GCI), the publisher of the nation’s largest-selling daily newspaper USA Today, recently posted better-than-expected second-quarter 2010 results buoyed by effective cost-cutting measures, lower newsprint expense and improved advertising demand. Operating expenses, excluding one-time items, dropped 7.5%.
The quarterly earnings of 61 cents per share surpassed the Zacks Consensus Estimate of 52 cents and soared 32.6% from last year’s 46 cents. On a reported basis, including one-time items, earnings came in at 81 cents per share, more than double the year-ago result of 30 cents.
Gannett’s total revenue slid by 1.6% to $1,365.1 million in the quarter after registering a decline of 4.1% in the top-line for the first-quarter 2010, helped by strengthening economies and advertising gain.
The drop in publishing advertising revenue has been decelerating since fiscal 2009, and continues to shrink in fiscal 2010 as advertising demand firms. After plunging 7.9% in first-quarter 2010, publishing advertising revenue dropped 5.7% to $692.2 million in the second quarter, the smallest drop since mid-2007. Publishing circulation revenue also dipped 5.9% to $270.1 million.
With the improvement in the economic environment, murmurs about advertisers returning to the market are gaining ground. Gannett is expected to benefit from positive trends that are emerging in both print and digital advertising with advertisers spending gaining pace. Encouragingly, the broadcasting division is strong and benefits from significant political advertising.
Gannett, the publisher of 82 U.S. daily newspapers, said that total broadcasting revenue surged 20.3% to $184 million, in line with its forecast. Television revenue jumped 19.6% to $177.5 million, reflecting an increase of over 60% in automotive advertising, double-digit growth in retail and packaged goods, and $9.9 million increase in political advertising. Management now expects television advertising revenue to climb in the mid-twenties for third-quarter 2010.
Digital revenue rose 8.3% to $154.1 million, driven by a mid-single digit revenue growth at CareerBuilder, and a double digit revenue growth at PointRoll and ShopLocal.
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.
To curb shrinking advertising revenue and improve market shares battered by the economic downturn, publishing companies are now even considering charging readers for viewing online content.
News International, the subsidiary of News Corporation (NWSA) started charging readers for online content for The Times of London and Sunday Times of London from June 2010, whereas The New York Times Company (NYT) plans to introduce a ‘pay and read’ model for NYTimes.com in 2011.
Gannett lowered its debt by approximately $170 million, and generated an operating cash flow of $327 million (up 30.3%) in the quarter.
In a separate story, Gannett entered into a deal with Yahoo! Inc. (YHOO), whereby the former will merchandize the latter’s advertising inventory through its 81 local publishing institutions and 7 broadcasting websites.
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