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Earnings Preview: Gannett

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Gannett Company, Inc. (GCI - Free Report) , the publisher of one of the country's largest-selling daily newspapers, USA Today, and an S&P 500 company, is scheduled to report its first-quarter 2012 financial results before the market opens on Monday, April 16, 2012.

The current Zacks Consensus Estimate for the quarter is 31 cents a share, which reflects a decline of 24.4% from the prior-year quarter’s earnings. The estimates in the current Zacks Consensus range between a low of 29 cents and a high of 33 cents a share. The Zacks Consensus estimates revenue at $1,240 million for the first quarter.

Recap of Fourth-Quarter 2011

On January 30, 2012, Gannett delivered fourth-quarter 2011 results. The quarterly earnings of 72 cents a share beat the Zacks Consensus Estimate of 69 cents, but dropped 13.3% from last year's 83 cents, reflecting a slump in publishing and political advertising demand as well as a marginal fall in circulation revenue. However, effective cost management provided some cushion to the bottom-line.

Gannett's total revenue dropped 5.1% to $1,387.8 million from the prior-year quarter due to fall in revenue across Publishing and Broadcasting segments, partially offset by gain at Digital segment. Total revenue also fell short of the Zacks Consensus Estimate of $1,394 million.          

(Refer the article: Gannett Beats, Profit Dips)

Zacks Agreement & Magnitude

Of the nine analysts following the stock, only one analyst has revised the estimate downwards in the last 30 days, thereby pulling down the Zacks Consensus Estimate by a couple cents. In the last 7 days, none of the analysts revisited their estimates, thereby keeping the Zacks Consensus Estimate constant at 31 cents.

Mixed Earnings Surprise History

With respect to earnings surprises, Gannett has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 2.4% to positive 4.4%. The average remained at positive 0.4%. This suggests that Gannett has beaten the Zacks Consensus Estimate by an average of 0.4% in the trailing four quarters.

Price Stats

Since its last earnings release on January 30, 2011, Gannett’s market price has increased 7.8% to $15.07 as of April 12, 2012. During trading hours on April 12, the stock reached an intra-day low of $14.58 and an intra-day high of $15.09.

Currently, the stock price is within its 52-week low-high range of $8.28 (attained on September 22, 2011) and $16.26 (achieved on February 22, 2012). From January 30, 2012 to April 12, 2012, the stock dropped to a low of $13.93 on January 30, 2012 and rose to a high of $16.26 on February 22, 2012.

Our Take

The economy which is still not awaken completely from the state of hibernation, has been taking its toll on publishing companies, and Gannett is no exception. Advertising, which remains a significant source of revenue for the company, in turn depends upon the global financial health.

We observe that Gannett’s publishing advertising revenue fell 7.1% during the fourth quarter of 2011, following a decline of 8.5% in the third quarter. Tough macroeconomic conditions along with softness in advertising demand impacted the results. Advertisers are shying away from making any upfront commitments in a cloudy economy.

Another diversified media conglomerate, The New York Times Company (NYT - Free Report) , professed of a challenging economic environment, which we believe will continue to dampen advertising revenue.

However, the companies are contemplating on finding new revenue generating avenues

Gannett is taking initiatives to diversify its business model by adding new revenue streams in an effort to make it less susceptible to economic conditions. The company is also adapting to the changing face of the multiplatform media universe, which currently includes Internet, mobile, tablet, social media networks and outdoor video advertising.

In an effort to offset the 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, and in turn the operating performance.

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

Gannett is repositioning itself for improvement in print and digital media through a new subscription based model, whereby subscribers will be able to access the paid content through websites, mobile and tablet, and will have the preference of choosing the frequency of home delivery of print editions. On the other hand, the company will limit the number of free articles that a non-subscriber can access.

Gannett hinted that Internet users will be allowed to access 5 to 15 articles per month without shelling out a penny. The company said that once implemented the model will fetch $100 million.

Currently, we maintain our long-term Neutral recommendation on the stock. Moreover, Gannett holds Zacks #3 Rank that translates into short-term Hold rating.

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