Gannett's EPS Up, Revs Below Par - Analyst Blog

Gannett Company, Inc. (GCI), the publisher of the nation's largest-selling daily newspaper USA Today, posted better-than-expected fourth-quarter 2010 results, buoyed by effective cost-cutting measures and improved advertising demand. Operating expenses, excluding one-time items, dropped 3.4% from the prior year.

The quarterly earnings of 83 cents a share came ahead of the Zacks Consensus Estimate of 81 cents and soared 18.6% from last year's 70 cents. On a reported basis, including one-time items, earnings came in at 72 cents a share, 28.6% higher than the year-ago figure of 56 cents.

Gannett's total revenue grew marginally by 0.4% to $1,461.6 million from the prior-year quarter, aided by strengthening economies and advertising gain across the Broadcasting and Digital segments.

Although revenue fell short of the Zacks Consensus Estimate of $1,473 million, it portrayed an improvement over previous reported quarters. Revenue remained flat in the third quarter but had registered a decline of 1.6% and 4.1% in the second and first quarters, respectively.

After dropping 5.1% in the third quarter, publishing advertising revenue fell further by 5.9% to $722.3 million from the year-ago quarter. However, sequentially it increased by a sharp 11.7%.

Automotive and employment classified performed well in domestic publishing operations, partially offset by real estate category. Publishing circulation revenue dipped 4.1% to $273 million. Publishing segment operating income fell 2.3% to $208.1 million.

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 27.1% to $232.8 million. Television revenue jumped 26.2% to $220.2 million, reflecting an increase in political spending of $52.4 million, and a rise in core advertising.

Retransmission revenue jumped 15.9% to $16.4 million during the quarter. Management now expects television advertising revenue to climb in the low single digits for first-quarter 2011. Broadcasting operating income soared 46.9% to $116.3 million.

Digital revenue rose 5.2% to $165.8 million, reflecting robust employment advertising demand at CarrerBuilder. Digital operating income climbed 45.3% to $37.8 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 from June 2010.

The New York Times Company (NYT), another diversified media conglomerate, is transmuting its business model by adding diverse revenue streams, which include a pay-and-read model for NYTimes.com. It also plans to launch a paid subscription website, BostonGlobe.com in 2011.

The NYTimes.com subscription based model is slated for launch in the first quarter of 2011. It also specified that subscribers to the New York Times' print version will be able to access online content or articles without shelling out additional charges.

Gannett lowered its debt by more than $67 million and generated an operating cash flow of $395.8 million (up 11%) 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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