Gannett Earnings: Shares Plummet on Lower Newspaper Revenue
Oct 15th 2010 10:00PM
Updated Oct 16th 2010 11:58AM
An unrelenting decline in Gannett's (GCI) newspaper business overshadowed a third-quarter upturn in its broadcasting revenue that was driven by heavy political advertising at its television stations.
Friday's bad news from Gannett's print operations trumped the good news in television because the company gets almost three-fourths of its revenue from publishing.
The July-September period marked the 15th consecutive quarter that Gannett's publishing segment has produced less revenue than the prior year, and the company's executives aren't making any predictions when the slide might end.
The newspapers' revenue declined 5% in the third quarter, continuing of trend of smaller decreases this year. Part of that, however, stems from how bad things were last year. In Gannett's publishing operations, last year's quarterly revenue declined 15% to 27% compared with 2008. That lowers the hurdle that the company had to clear this year to return to growth.
With no end to the erosion in sight, some Gannett shareholders bailed out. The company's stock plummeted $1.24, or 8.8%, to close Friday at $12.85. The shares tanked even as Gannett executives hailed the company's progress, underscoring the dramatically different perceptions of investors and the executives running a company that owns USA Today and 80 other dailies.
The sell-off also occurred despite a 37% increase in Gannett's third-quarter net income, which topped analyst estimates.
Bad News for Other Newspaper Publishers
The reaction doesn't bode well for other major newspaper publishers that don't own television stations to help overcome advertisers' shift away from print.
The New York Times Co. and McClatchy, owner of The Miami Herald and The Sacramento Bee, are scheduled to report their third-quarter results next week. McClatchy shares fell 29 cents, or 7.5%, to $3.56, while the Times Co.'s stock shed 21 cents, or 2.5%, to $8.28.
Gannett's third-quarter net income climbed to $101.4 million, or 42 cents per share, in the three months ended Sept. 26. That's up from $73.8 million, or 31 cents per share, a year earlier.
Excluding unusual items, earnings totaled 52 cents per share, while analysts expected 50 cents a share, according to a Thomson Reuters survey.
Revenue missed Wall Street forecasts, staying roughly flat from the same quarter a year ago at $1.31 billion. Analysts expected $1.33 billion.
Internet Companies Take More Ad Share
Gannett's lackluster revenue was a reminder of the challenges facing newspapers as much-younger - and now much-larger - Internet companies lure more advertising to the Web. Google's (GOOG) advertising prowess helped the Internet search leader increase its third-quarter revenue by 23% from last year to $7.3 billion. Put another way, 12-year-old Google pulled in more revenue in the past three months than Gannett has in the past 15.
Newspapers dragged down Gannett in its most recent quarter as publishing revenue fell 5% to $969 million.
Besides a decline in advertising, the newspapers also sold fewer copies. Weekday circulation fell 4.6%. In what could foreshadow better times, two traditional strongholds in newspapers - automotive and employment ads - rose at Gannett's U.S. publications in the third quarter. But real-estate advertising, another key revenue source, plunged by 16% at Gannett's U.S. newspapers.
Gannett's 23 television stations shined in the third quarter, increasing the broadcasting division's revenue by 22% from last year to $185 million. Management expects broadcasting to enjoy an even better fourth quarter. Revenue is expected to increase 24% to 29%.
But the lift from TV may be temporary because much of the gains are coming from ads bought during political campaigns that end next month.
Gannet's Web and Mobile Efforts Pay Off
Gannett's efforts to bring in more money from websites and mobile devices also paid off as its third-quarter digital revenue climbed 10% from last year to $158 million. But the digital division accounts for just 12% of the McLean, Va.-based company's total revenue.
As part of its turnaround efforts, Gannett has been experimenting with charging people to read online editions of its newspapers in Greenville, S.C., St. George, Utah and Tallahassee, Fla. So far, Gannett CEO Craig Dubow said the company is finding that hundreds of people are willing to pay for local news online and that the Web subscribers are spending far more time on the site, a trend that could help attract more advertising.
"This is a powerful and gratifying message," Dubow said. "Our readers have told us they are willing to pay for the quality of our local reporting rather than just accept what the others offer for free."