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Man bites dog? No, but Gannett profit up

by Andrew Vanacore
| April 18, 2010 9:00 PM

NEW YORK - Gannett Co. offered more evidence Friday that 2010 will not be quite as painful for newspapers as 2009, when the recession compounded the industry's problems.

Cost cutting and a less severe drop in advertising revenue boosted first-quarter results for the company, which owns USA Today and more than 80 other daily newspapers along with TV stations. Gannett's net income jumped 51 percent despite a 4 percent decline in revenue.

Gannett did not issue formal earnings guidance for the current quarter or the rest of the year, and CEO Craig Dubow declined to give specifics on how ad revenue is shaping up in April. But he told analysts on a conference call that the year was "off to a great start." He added: "The momentum that we had at the end of the year continued through the first quarter."

Gannett was the first major publisher to report earnings for the January-March period and could offer a preview of what will come next week from McClatchy Co., Lee Enterprises Inc. and The New York Times Co.

Already Moody's Investors Service sees better indications for the business. The debt-rating agency raised its outlook on the newspaper industry to "stable" from "negative," saying that a recovery in ad spending will ease revenue declines. The rating change could make it less expensive for newspapers to borrow money.

After surging to a new 52-week high of $19.68 in early trading, Gannett shares retreated to $18.42 Friday afternoon, up 1.5 percent for the day. Lee shares jumped 6.4 percent and McClatchy rose 5.1 percent.

As expected, Gannett reported its smallest drop in ad revenue in more than a year. Its publishing division posted a decline of about 8 percent from the same period a year earlier. That was better than the decline of 18 percent in the final quarter of 2009.

But the newspaper business is still far from healthy. The year-ago comparisons are being made against a period in 2009 when almost every media company was hemorrhaging ad revenue as the recession forced businesses to cut their marketing budgets.

By contrast, Gannett's broadcast stations started to rebound in the first quarter with help from advertising tied to the Winter Olympics. Revenue at its 23 TV stations rose 15 percent. And they should benefit this year from ad spending by political campaigns in almost every market where the company operates.

Gannett's overall revenue fell 4 percent in the first quarter from the same period of 2009 to $1.32 billion. That matched analysts' forecasts, according to Thomson Reuters.

The broadcast unit's gains helped Gannett post a net income of $117.2 million, or 49 cents per share, compared with $77.4 million, or 34 cents per share, a year earlier.

Taking out a $2.2 million tax charge related to the recent U.S. health care overhaul, the company said it would have earned 50 cents per share. Analysts, who typically exclude such one-time items, expected 41 cents per share.

Gannett has remained profitable largely by slashing expenses. Last year it cut 1,400 jobs, or about 3 percent of its work force. It will need to see revenue grow again to avoid further cutbacks.

The company reported savings of $13 million in the first quarter from employee furloughs. It won't have such savings in the second quarter. And although newsprint costs fell 41 percent because prices dropped and Gannett newspapers printed fewer pages, the company says an improving economy is likely to lift prices eventually.

Gannett managed to pay down $260 million in debt in the first quarter, which also could bring down the company's interest expense. The company's outstanding debt now stands at roughly $2.8 billion.

Looking further ahead, Gannett was upbeat on its prospects for growing revenue on the digital side of its business. It announced that 175,000 people have downloaded USA Today's free application on Apple's iPad. The hotel chain Courtyard by Marriott is sponsoring the application through July 4 and Gannett said it will ask readers for subscription fees after that. The price has yet to be disclosed.

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