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Gannett Beats, Earnings Drop

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Gannett Company, Inc. (GCI - Free Report) posted fourth-quarter 2013 earnings of 66 cents a share that came a penny ahead of the Zacks Consensus Estimate buoyed by sturdy performance of its Digital segment. However, earnings dropped 25.8% from 89 cents earned in the year-ago quarter as soft advertising demand remains a drag in the quarter.

Including one-time items, earnings came in at 39 cents a share, down 11.4% from the prior-year quarter.

The company reported total revenue of $1,368 million, down 9.9% from the prior-year quarter, and also fell short of the Zacks Consensus Estimate of $1,370 million. However, excluding the impact of extra week in the fourth quarter of 2012, operating revenue declined 6%.

Behind the Headline

Gannett stated that Digital segment revenue rose 4.4% to $195.6 million due to robust revenue growth at CareerBuilder. Digital segment operating income came in at $38.9 million, almost flat with the year-ago quarter.

Company-wide total digital revenue augmented 6.1% to $390.6 million, driven by revenue gains at digital advertising and marketing services as well as sustained rollout of the all-access content subscription model.

Broadcasting segment revenue, which did not benefited from political advertising as in the last year quarter, fell 20.6% to $228.2 million. Adjusted Broadcasting operating income plunged 29.7% to $111 million.

Excluding the impact of extra week in the fourth quarter of 2012, Broadcasting segment revenue declined 15.7%, partly offset by robust growth of 31.5% in retransmission revenue and an increase of 40.3% in television station digital revenue. However, excluding the political advertising of $85.8 million in the prior-year quarter, Broadcasting segment revenue would have surged 23.4%, while Television revenue would have jumped 23% year-over-year.

Management now expects first-quarter 2014 television revenue to increase about 100% considering the current trends and taking into account the acquisition of Belo stations. However, on a pro forma basis, television revenue is forecasted to jump in the high-teens. Additionally, Gannett projected retransmission revenue between $330 million and $340 million for 2014.

Total Publishing segment revenue declined 9.5% to $944.3 million. Publishing Advertising revenue fell 10.3% to $589.6 million, while Publishing Circulation revenue dropped 7.9% to $288.4 million. Total Publishing segment's adjusted operating income slipped 6.3% to $143.6 million.

However, excluding the impact of extra week in the fourth quarter of 2012, Publishing segment revenue tumbled 4.6%, while Publishing Advertising and Publishing Circulation revenues dipped 5.9% and 1.6%, respectively. Publishing segment digital revenue rose 10.8% attributable to digital advertising and marketing solutions.

Classified advertising at domestic publishing operations decreased 5.2% during the quarter under review. Within classified, softness persisted in most of the category with employment (down 10.1%), real estate (down 4.3%) and legal (down 21.3%). However, automotive was up 2.5%. Retail and national advertising revenue categories at domestic publishing operations declined 4.6% and 10.4%, respectively.

The current economic situation does not seem promising for publishing companies, which are bearing the brunt of waning advertising demand, and Gannett, a Zacks Rank #4 (Sell) stock, is no exception. Other publishing companies such as Journal Communications, Inc. and The E.W. Scripps Co. (SSP - Free Report) are also encountering similar headwinds.

Gannett is taking initiatives to diversify its business model, shielding itself against any economic onslaught by adding new revenue streams. The company is also adapting to the changing face of the multi-platform media universe, which currently includes Internet, mobile, social media networks and outdoor video advertising in its portfolio.

In an effort to restrict declining revenue and shrinking market share, publishers are scrambling to slash costs. Gannett has been realigning its cost structure and streamlining its operations to increase efficiencies.

To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content. Despite glitches in the economy, it still promises revenue generation.

The New York Times Co. (NYT - Free Report) launched a pay-and-read model on Mar 28, 2011. Gannett also initiated a subscription based model, commenced Digital Marketing Services in top markets, and refurbished its iconic brand, USA Today to generate new advertising and marketing revenue sources.

Further, Gannett in December 2013 completed the acquisition of television-station operator, Belo Corp. The deal will serve as a game changer for the company as it will solidify its foothold in the rapidly growing broadcast media business. Moreover, this deal is a perfect fit for the company as it will transform Gannett’s business model, which was largely focused on low margins newspapers to a high-margin multi-media business.

Other Financial Aspects

Gannett ended the quarter with total cash of $469 million and long-term debt of $3.7 billion.

The company generated net cash flow from operating activities of $162.5 million and free cash flow of $153.4 million in the quarter. The company, during the reported quarter, repurchased approximately 1.4 million shares aggregating $37.9 million. During 2013, the company had bought back 4.9 million shares for $116.6 million.

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