Gannett Earnings Preview

Oct.14.11 | About: Gannett Co., (GCI)

Gannett Company, Inc. (NYSE:GCI), the publisher of the one of the largest-selling daily newspapers - USA Today - in the nation, is scheduled to report its third-quarter 2011 financial results before the bell on Monday, October 17, 2011. The current Zacks Consensus Estimate for the quarter is 45 cents a share. The Zacks Consensus estimates revenue at $1,271 million for the second quarter.

Second-Quarter 2011, a Synopsis

On July 18, 2011, Gannett delivered second-quarter 2011 results. The quarterly earnings of 58 cents a share came a penny ahead of the Zacks Consensus Estimate but fell 4.9% from last year's 61 cents, reflecting a slump in publishing advertising demand and fall in circulation revenue. However, these were to some extent offset by effective cost management.

Gannett's total revenue dropped 2.2% to $1,334.9 million from the prior-year quarter due to a fall in revenue across the Publishing segment, partially offset by gain at Broadcasting and Digital segments. Total revenue came ahead of the Zacks Consensus Estimate of $1,329 million.

(Refer the article: Gannett’s Profit Dips, Ups Dividend)

Third-Quarter 2011 Consensus

The analysts surveyed by Zacks, expect Gannett to post third-quarter 2011 earnings of 45 cents a share. The current Zacks Consensus Estimate compares with 52 cents a share earned in the year-ago quarter. The estimates in the current Zacks Consensus for the quarter range from a low of 43 cents to a high of 47 cents.

Zacks Agreement & Magnitude

Of the 7 analysts following the stock, two analysts revised their estimates downward in the last 30 days, resulting in a penny decrease in the Zacks Consensus Estimate to 45 cents. In the last 7 days, none of the analysts revised their estimates thereby keeping the Zacks Consensus Estimate unchanged.

Mixed Earnings Surprise History

With respect to earnings surprises, Gannett has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 2.4% to positive 6.1%. The average remained at positive 2.0%. This suggests that Gannett has beaten the Zacks Consensus Estimate by an average of 2.0% in the trailing four quarters.

Our Take

The current economic turmoil is taking its toll on publishing companies, and Gannett is no exception. However, the companies are exploring new revenue generating avenues.

Advertising, which remains a significant source of revenue for the company, in turn depends upon the global financial health. We observe that Gannett’s publishing advertising revenue fell 6.5% during the second quarter of 2011, following a 7.3% drop in the first quarter. Tough macroeconomic conditions along with softness in advertising demand impacted the results.

Advertisers are shying away from making any upfront commitments, in an environment where the fear of another possible recession looms.

Gannettis taking initiatives to diversify its business model and shielding itself against any economic onslaught by adding new revenue streams. The company is also adapting to the changing face of the multiplatform media universe, which currently includes Internet, mobile, social media networks and outdoor video advertising in its fold.

To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content. Despite hiccups in the economy, it still promises revenue generation. News International, the subsidiary of News Corporation (NASDAQ:NWSA) started charging readers for online content of The Times of London and Sunday Times of London from June 2010.

In March, The New York Times Company (NYSE:NYT) launched a pricing system similar to that of the Financial Times' metered system, whereby after browsing a certain number of free articles, readers will be asked to subscribe to enjoy full access to its articles on phones, tablet computers and the Internet.

Given the pros and cons, we prefer to maintain our long-term “Neutral” rating on Gannett. However, going by the current pulse of the economy and waning advertising revenue, we prefer to have a short-term ‘Sell’ recommendation on the stock, which is well defined by our Zacks #4 Rank.