Earnings Preview: Cost-cutting Boosts Gannett's Q3

By: Gannett Co., the largest U.S. newspaper publisher, is scheduled to report its third-quarter results before the stock market opens Monday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: This might be one of the few times that a roughly 20 percent decrease in revenue doesn't alarm investors.

The reason: Gannett was still able to make more money than analysts expected because the McLean, Va.-based company has cut its payroll and other expenses so dramatically during the past couple years of financial misery.

That's helped Gannett's stock surge more than 30 percent since the publisher of USA Today and more than 80 other daily newspapers released an early snapshot of its third-quarter results late last month.

Gannett projected a profit well above analyst estimates even though its revenue fell even further than the 18 percent decline suffered during the first half of the year.

A seasonal shift in television advertising accounted for part of the third-quarter erosion. Last year, the presidential election and Summer Olympics fueled an additional $50 million in advertising on Gannett's 23 television stations.
Gannett's bigger headache remains its newspapers, where advertising sales plummeted 33 percent during the first half of the year.

Without providing specifics, Gannett has said the drop in its newspaper advertising during the third quarter wasn't as bad as earlier this year. The complete breakdown of the quarter ending Sept. 27 will provide more details.
Gannett has been trying to recoup some revenue by raising its newspaper prices. USA Today, for instance, has been charging a $1 per copy since December, up from 75 cents previously.

But the strategy hasn't made a huge difference, partly because USA Today isn't selling as many copies at the higher price. The newspaper's average circulation fell by 17 percent to 1.88 million during the six months ending in September. The lost readership allowed The Wall Street Journal, with weekday circulation of 2.02 million, to supplant USA Today as the largest U.S. newspaper.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters predict the company will earn 41 cents per share on revenue of $1.33 billion -- above Gannett's own recent estimate of $1.31 billion or $1.32 billion. The earnings estimate excludes one-time items.

ANALYST TAKE: Benchmark Co.'s Edward Atorino doesn't think the recent run-up in Gannett's stock is justified, given the daunting challenges still facing newspaper publishers as they try to figure out how to make more money online while trying to protect what's left of their decaying print franchises.

WHAT'S AHEAD: With the economy on the mend, Gannett's management and other newspaper executives are hoping advertisers are ready to start marketing more of their wares in print publications.

STOCK PERFORMANCE: Gannett shares more than doubled to end its third quarter at $9.38. The stock recently has been hovering around $13.50.


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