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Gannett Beats on Earnings, Revs Lag

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Gannett Company, Inc. (GCI - Free Report) posted stronger-than-anticipated first-quarter 2013 results, benefiting largely from its all access content subscription model coupled with sturdy performance of its Broadcasting and Digital segments. The adjusted quarterly earnings came in at 37 cents a share that surpassed the Zacks Consensus Estimate of 34 cents, and rose 8.8% year over year.

Including one-time items, earnings came in at 44 cents a share compared with 34 cents in the prior-year quarter.

Total revenue came in at $1,237.7 million, up 1.6% year over year but missed the Zacks Consensus Estimate of $1,242 million.

Behind the Headline

Gannett stated that total Broadcasting revenues, including Captivate, increased 8.7% to $191.6 million, buoyed by robust growth in retransmission revenues and increased core advertising revenues.

Television revenues increased 8.5% to $185.5 million. Earlier, management stated that television revenues for first-quarter 2013 will be negatively impacted by the absence of political revenues and the shift of the Super Bowl to CBS Corporation (CBS - Free Report) from NBC.

However, a significant increase of 58.7% in retransmission revenues more than offset lower advertising revenues. Broadcasting operating income grew 15.2% to $87.3 million.

Management now expects television revenues to increase in the mid-single digits for the second-quarter of 2013.

Digital revenues rose 3.9% to $174.9 million due to robust revenue growth at CareerBuilder. Digital segments operating income came in at $23.6 million, up 45.1% year over year.

Company-wide total digital revenues augmented 28.6% to $350.3 million, driven by revenue gains at digital advertising and marketing solutions as well as sustained rollout of the all-access content subscription model.

Total Publishing revenues declined marginally to $871.2 million. Publishing Advertising revenues fell 4.5% to $526.5 million. Publishing Circulation revenues portrayed a substantial improvement, increasing 8.6% to $286 million on the back of a subscription based model. Local domestic circulation revenues jumped 14.5%. Total Publishing segment's adjusted operating income slipped 17.1% to $70.3 million.

Classified advertising at domestic publishing operations decreased 5.4% during the quarter under review. Within classified, softness persisted in every category with employment (down 8.8%), real estate (down 4.5%) automotive (down 3%) and legal (down 9%). Total retail and national advertising revenue categories declined 3.4% and 5.2%, respectively.

Advertising, which remains a significant source of revenue for the company, depends upon the global financial health. 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 revenues 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 revenues and seek new revenue avenues, the publishing companies contemplated charging readers for online content. Despite glitches in the economy, it still promises revenue generation.

News International, the subsidiary of News Corporation (NWSA - Free Report) started charging readers for the online content of The Times of London and Sunday Times of London from Jun 2010. The New York Times Company (NYT - Free Report) , another diversified media conglomerate, launched a pay-and-read model on Mar 28, 2011.

Gannett 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.

Other Financial Aspects

Gannett lowered its interest expense during the quarter to $35.4 million, down 10.5% year over year, reflecting lower average debt balances. Long-term debt at the end of the quarter was $1.4 billion.

The company generated net cash flow from operating activities of $36.3 million and free cash flow of $38.6 million in the quarter. Cash at the end of the quarter totaled $142.8 million. The company during the reported quarter repurchased approximately 1.6 million shares aggregating $32.8 million.

Currently, shares of Gannett hold a Zacks Rank #4 (Sell).

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