GateHouse Profit Soars: Analysts Impressed

By: E&P Staff and The Associated Press

Newly public newspaper publisher GateHouse Media Inc. said Friday its fourth-quarter profit more than doubled due to improvements in advertising and circulation.

Net income soared to $7.8 million, or 23 cents per share, versus $3.3 million, or 15 cents per share, in the previous year.

Analysts forecast a profit of 10 cents per share, according to a Thomson Financial poll. Reports by security analysts on GateHouse, which just completed its first quarter as a publicly held corporation, cannot be published due to Security and Exchange Commission restrictions surrounding the expiration of a lock-up agreement.

Revenue for the quarter leaped 86 percent to $97.9 million from $52.6 million on sharply higher advertising and circulation results. Analysts expected quarterly revenue of $99 million.

Advertising revenue in the three-month period climbed to $75.3 million from $39 million, while circulation rose to $16.4 million from $8.5 million, GateHouse said.

For the year, the company reported a loss of $1.6 million, or 6 cents per share, on sales of $238.7 million. Revenue reached $314.8 million.

Analysts were expecting a loss of 32 cents per share on revenue of $337.2 million.

Goldman, Sachs Group analysts, led by Peter P. Appert, called the 16% increase in the dividend “a significant positive surprise” that came sooner than expected.

“The size of the increase is also impressive, signaling a high level of management confidence in the company’s ability to deliver cash-flow growth,” Appert wrote.

Wall Street has looked to the GateHouse business plan of delivering cash-flow increases and using the free cash-flow to pay out dividends significantly higher than most publicly traded newspaper companies.

“We continue to believe the GateHouse model of high dividend payout makes sense in context of the industry’s modest growth potential,” the note to investors said. “The company’s ability to significantly increase the dividend in its first full quarter as a public company greatly increases our confidence in the company’ ability to generate value for shareholders in this mature industry through consistent dividend yield and dividend increases.”

The dividend increase to $0.37 per quarter from $0.32 per quarter represents an annual per-share dividend increase to $1.48 from $1.28 annually.

Cash-flow measured by EBITDA (earnings before interest, taxes, deductions and amortization) came in $3 million lower for the quarter than Goldman, Sachs expected, chiefly because of an increase in stock-based compensation expense. “We note that due to our laser-focus on free-cash-flow growth and dividend increases for the GateHouse story, we are less concerned about non-cash expenses such as stock-based comp,” the note said.

Goldman, Sachs has said it expects GateHouse to increase the dividend to $1.54 by the end of 2008, and that with Friday’s announcement the chain is “75% of the way to our dividend target.”

In trading at 9:57 a.m. EST, GateHouse (NYSE: GHS) was at $20.25, up 77 cents, or 3.95%, from its open. GateHouse went public in late October with an initial price of $18 per share.

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