Gannett Shares Fall on Weak Oct. Results

By: (AP) Shares of Gannett Co., the nation's largest newspaper publisher, dipped Tuesday as Wall Street responded to the company's disappointing revenue results for October and speculation that it could acquire struggling newspaper giant Knight Ridder Inc.

Gannett shares have fallen 24% since the year began, and have recovered little from the 52-week low hit late last month of $61.84. On Tuesday, the McLean, Va., company's shares fell $1.38, or 2.2%, to $62.82 in afternoon trading on the New York Stock Exchange.

Gannett's continued slide comes a day after it reported a 2.7% drop in revenue for October, with newspaper publishing ad revenue edging up 0.6%, compared with a 1.9% gain in September. The slide also follows an announcement by Knight Ridder, the nation's No. 2 newspaper publisher, that it is considering selling itself, spurring speculation that Gannett would be best-positioned in the industry to make an offer.

Lehman Brothers, in a client note Tuesday, downgraded Gannett, publisher of USA Today, to "Underweight" from "Equal weight," saying "we see Gannett as the only potential strategic buyer of Knight Ridder if it were for sale and one of the few that could afford it."

Lehman analyst Craig A. Huber said such a deal would put downward pressure on Gannett's stock price, increase its earnings volatility and lower its long-term growth, among other things. Even if Gannett doesn't make an offer, Huber said he doesn't see any other likely buyers in the industry, while private equity groups "would have an extremely hard time structuring a deal." An attempt and failure by Knight Ridder to sell itself at a decent premium could bring down the newspaper sector overall, Huber said.

Knight Ridder, whose papers include the Philadelphia Inquirer and Miami Herald, said late Monday its board has decided to explore "strategic alternatives" for improving shareholder value, including a possible sale of the company. The company is working with its long-time financial adviser, Goldman Sachs & Co., on the issue.

Huber said other big newspaper companies aside from Gannett, such as Dow Jones & Co., publisher of the Wall Street Journal, Washington Post Co., New York Times Co. and Tribune Co., either couldn't afford to buy Knight Ridder, haven't shown interest in buying large-market newspapers or are struggling with their own performance issues.

MerrillLynch on Tuesday said Gannett will probably look at Knight Ridder, but a deal isn't a sure thing and wouldn't solve Gannett's long term issue of adapting to "an increasingly online world." The firm, however, lowered its fourth-quarter outlook for Gannett on the "disappointing" October results, cutting its earnings estimate by 5 cents to $1.41 per share.

Credit Suisse First Boston, however, which rates Gannett at "Outperform," said in a note Monday that if Gannett can sustain its current growth rates, "the downside to the stock could be limited versus the potential upside for when the cycle starts working again in its favor."

JPMorgan analyst Frederick Searby, who expected the company to report a much bigger gain in newspaper ad revenue of 3.5% on a pro forma basis, cut his 2006 profit estimate on Gannett by 9 cents to $5.34 per share, below the consensus estimate of $5.44.

"In our view, 2006 is going to be another challenging year for newspaper advertising," Searby said.