Newspaper 1Q Earnings Reports Start Poorly With Gannett Drop, As Chain Reveals It’s Not Involved in KR Bid

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By: E&P Staff

Kicking off a highly anticipated period of first-quarter earnings reports, Gannett Co. set a poor pace for the industry, reporting a 9.4% earnings drop on higher costs and an advertising decline at its flagship USA Today.

Chairman Douglas McCorkindale told analysts and shareholders on a call this morning that Gannett is not involved in the McClatchy auction of 12 Knight Ridder papers. He would not comment on Gannett’s interest in buying Knight Ridder’s portion of CareerBuilder. Gannett, Tribune, and Knight Ridder jointly own the online recruitment site. Gannett and Tribune have first right of refusal over Knight Ridder’s share.

When asked why Gannett did not bid on Knight Ridder in March, McCorkindale explained Knight Ridder has properties that overlapped with at least six to eight of Gannett’s markets and that there were “no easy solutions? in resolving the conflicts.

Meanwhile, Media General Inc., also reporting Wednesday, reported a lower net income excluding a one-time charge that swung the publisher into a loss in the year-ago quarter.

Gannett said earnings fell to $235.3 million, or 99 cents a share, from $265.7 million. or $1.05 a share, in the same period of 2005.

Reuters reported the earnings result exactly met the analysts average of Reuters Estimates, which had been downgraded from $1.02 last month after a warning from Gannett.

This was the first quarter Gannett reported stock compensation expense, which it said amounted to $11.2 million, or 3 cents per share.

Total revenue was up 6.5% to $1.88 billion.

Gannett said the revenue increase as primarily due to the full consolidation of its purchase of the Detroit Free Press, which it acquired in a cash-and-swap deal with Knight Ridder.

On a same-property basis, Gannett said total operating revenues would have been 0.5% lower.

Gannett said its operating expenses soared 10.8%, which it said was principally due to the consolidation of Detroit newspaper operations, as well as stock-based compensation.

Gannett’s newspapers had operating revenues of $1.70 billion for the quarter, a 6.0% increase from the first quarter of 2005. The quarter includes papers acquired in the Knight Ridder deal. Without those papers, Gannett said, advertising revenues would have declined 1.8%

Newspaper operating expenses were up 11.2%, reflecting the cost of consolidating Detroit newspaper operations and the higher price of newsprint.

At USA Today, advertising revenues declined 4.2 percent in the first quarter, Gannett said. Paid advertising pages totaled 1,020 compared with 1,101 in the same quarter of 2005.

President and CEO Craig A. Dubow said U.S. newspaper results were good, with advertising gains at community papers, especially in classified help-wanted and real estate advertising. Auto classified remained soft, he said.

“These results were offset, however, by our Newsquest properties in the U.K. which experienced significantly lower ad demand due, in part, to the consumer slowdown in the U.K. economy,” he said.

Media General Inc., said net income for the quarter ended March 26 was $6.7 million, or 28 cents per share, compared with a loss of $316.2 million, or $13.25 per share, during the same period last year. That loss was the result of a $325 million charge related to the value of certain intangible assets, the company said.

Excluding that charge, Media General showed a year-ago quarterly profit of $9.3 million, or 39 cents per share.

Media General said total revenue rose 4% to $226.4 million.

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