Gannett Company, Inc. (GCI), the publisher of the nation’s largest-selling daily newspaper USA Today, recently posted better-than-expected third-quarter 2010 results, buoyed by effective cost-cutting measures, lower newsprint expense and improved advertising demand. Operating expenses, excluding one-time items, dropped 3.1%.
The quarterly earnings of 52 cents per share surpassed the Zacks Consensus Estimate of 49 cents and soared 21.0% from last year’s 43 cents. On a reported basis, including one-time items, earnings came in at 42 cents per share, 35.5% higher than the year-ago result of 31 cents.
Gannett surpassed expectations, however there has been a continued decline in the publishing, advertising and publishing circulation revenue. Gannett’s shares also opened at $14.00. which was 9 cents below the previous closing price of $14.09. Moreover, after the markets opened there has been further downward movement, with the share price decling approximately 7.03%.
Gannett’s total revenue were flat year-over-year at $1,312.3 million in the quarter after registering a decline of 4.1% and 1.6% in the top-line for the first and second quarters, respectively of 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% and 5.7% in the first and second quarters of 2010, respectively, publishing advertising revenue dropped 5.1% to $646.7 million in the third quarter. Publishing circulation revenue also dipped 5.0% to $264.6 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 22.3% to $185.2 million. Television revenue jumped 23.4% to $179.6 million, reflecting an increase of $16.3 in election and issue related spending and automotive advertising and $36.3 million in political advertising. Management now expects television advertising revenue to climb in the mid to high-twenties for fourth-quarter 2010.
Digital revenue rose 10.3% to $157.6 million, driven by a mid-single digit revenue growth at CareerBuilder and a double digit revenue growth at PointRoll.
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. In September 2010, according to Comscore Media Metrix, the company’s domestic share of Internet audience was 22.9%.
Gannett lowered its debt by more than $210 million and generated an operating cash flow of $200 million (up 28.6%) in the quarter.
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