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Gannett (GCI) Misses Q4 Earnings & Revenues, Shares Tank

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Gannett Co., Inc. (GCI - Free Report) , a diversified publishing conglomerate, reported fourth-quarter 2015 results, wherein earnings of 53 cents a share missed the Zacks Consensus Estimate of 55 cents and also declined 36.9% from the year-ago quarter owing a decline in the top line. On a reported basis, quarterly earnings came in at 17 cents a share, significantly below 58 cents recorded in the prior-year quarter. Following the results, this Zacks Rank #4 (Sell) company’s shares declined 7.2% yesterday.

Gannett, which retained the name of its parent company, was formed after the Broadcasting and Digital units were spun off to form a separate entity known as TEGNA Inc. This is not the first time that any media company has spun off its publishing unit. Earlier, Tribune Company had separated its newspaper business into a publicly traded company, Tribune Publishing Company. News Corporation (NWSA - Free Report) and Time Warner Inc. have also separated their broadcasting and digital properties from their print business.

Gannett reported total revenue of $739.3 million in the fourth quarter, down 9.7% from the prior-year quarter, and also below the Zacks Consensus Estimate of $757 million. The company witnessed a 12.9% decline in advertising revenues of $419.5 million and 7.9% fall in circulation revenues of $257.7 million.

Classified advertising revenues at domestic publishing operations decreased 23.3% in the quarter under review. Retail and national advertising categories at domestic publishing operations reported a decline of 9.6% and 11.5%, respectively.

The company reported digital revenues of $165.3 million. Digital-only subscriptions surged 39%, while the company attained approximately 100 million unique domestic digital visitors.

Adjusted EBITDA declined 18.1% to $126.3 million, while EBITDA margin contracted 170 basis points to 17.1%. The decline in EBITDA can be attributed to reduced print advertising revenues, lower contribution on account of changes to the Cars.com affiliate agreement in Oct 2014 and the CareerBuilder affiliate agreement in Aug 2015, as well as adverse foreign exchange rate fluctuations, partially offset by improved digital revenues and effective cost management.

Strategic Initiatives

Gannett is realigning its cost structure and streamlining its operations to increase efficiencies and safeguard its earnings and cash flows from dwindling print advertising revenues. It also intends to focus on improving its digital business. The company is also mulling over strategic acquisition opportunities.

With an aim to strengthen its position in the newspaper industry, Gannett recently entered into a deal to acquire Journal Media Group, Inc., the owner of the Milwaukee Journal Sentinel and other newspapers, for approximately $280 million. The transaction – to be concluded in the first quarter of 2016 – should prove accretive to the company’s earnings by approximately 10–15 cents a share in the first full year and 20–25 cents in the second. Gannett’s annual revenue should also get a boost of approximately $450 million.

The acquisition of Journal Media Group will bring in 15 dailies and 18 weeklies in 14 local markets under Gannett’s portfolio and increase the daily and Sunday circulation by approximately 675,000 and 950,000, respectively. With the deal, Gannett will have a foothold in 106 local markets in the U.S. and total digital domestic traffic of over 100 million per month.

Other Financial Aspects

Gannett’s board of directors recently declared a quarterly dividend of 16 cents a share. During the quarter, net cash flow from operating activities was $78.2 million, while free cash flow aggregated $55.2 million. Capital expenditures incurred during the quarter totaled $23 million.

2016 Outlook

Without the effect of the impending JMG acquisition, the company expects capital expenditure in the range of $50--$60 million and Depreciation and amortization of nearly $110 million. However, taking the JMG buyout into consideration, the company expects revenue to improve from 2015 primarily owing to growth in digital. The company apprehends a 5%--7% fall in adverting revenues whereas circulation revenues are likely to decline 2% to 4%.

A Key Pick

A better-ranked stock worth considering in the same space is Meredith Corporation (MDP - Free Report) with a Zacks Rank #2 (Buy).

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