Community Publisher GateHouse Media Reports Q1 Loss -- But Actual Gain in Print Classified Revenue

GateHouse Media in the past couple of years has not generally been the place to look for good news about the newspaper industry. After a blockbuster initial public offering, it was de-listed from the Big Board, had access to its credit facility cut because of its high debt and was forced to abandon its strategy of offering a large dividend and growing by acquisition.

But there are real bright spots in the Q1 earnings report GateHouse filed after markets closed Tuesday.

GateHouse Media ended the first quarter with a narrower net loss, and ad revenue that fell just 2% from the year-ago period.

Most remarkably, the publisher of 87 dailies also reported a singular development among publicly traded newspaper companies -- an increase in print classified ad revenue.

GateHouse said print classified grew 0.9% on a same-store basis, and it noted that classified was up 3.6% in March. Overall ad revenue grew 0.8% in the last month of the quarter, GateHouse said.

Total revenue for the quarter was down 3.9% to $133.2 million, with the decline primarily driven by circulation -- which dipped 3.7% -- and commercial printing, which plunged 24.4%.

GateHouse reported a net loss of $17.5 million, or 30 cents per diluted share, compared to a net loss in the first quarter of 2009 of $31.9 million, or 55 cents a share.

"We are encouraged by the signs of economic recovery and the improvement in our revenue performance during the first quarter," CEO Michael E. Reed said in a statement. "Our first quarter same-store revenue decline of 3.8% was our fourth consecutive quarter of improving revenue trends. Particularly encouraging was our print classified advertising, which increased slightly from the prior year and demonstrated improvement each month of the quarter. Also encouraging was that each month within the quarter got stronger with March showing overall advertising revenue growth versus March 2009."

GateHouse -- which has been something of a poster boy about the danger of taking on big debt to finance newspaper acquisitions -- improved its liquidity position in the quarter. It said its cash and cash equivalents was $21.8 million at the end of Q1, well up from the $9.2 million at last year's period.

As required by its credit facility, GateHouse last month made a principal payment of $2.5 million to long-term debt that stands at $1.19 billion. It must make another payment of $6.5 million later this year, and then will have no payments due until a balloon in 2013, when $1.19 billion comes due.

GateHouse said it is currently in compliance with all covenants under the facility.

CEO Reed sounded one note of caution in his statement Tuesday about expense trends for the rest of the year.

"We will begin to cycle through the cost reduction efforts of 2009 by this summer and newsprint prices will be up year over year for the remainder of this year," he said. "With that in mind, we will continue to explore further cost reduction initiatives. We are focused on working toward the right long-term cost structure for the Company while continuing to deliver quality products and make investments in future growth opportunities."