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Shares in the international media and marketing solutions company Gannett (GCI) fell almost 8% today after the company reported disappointing first quarter results.

First Quarter Results
The publisher of USA Today reported a 25% decline in first quarter GAAP profits to $68 million, or $0.28 per share. Excluding one time items, earnings per share came in at $0.34 beating analysts consensus who expected the company to report earnings of $0.31

Revenues fell 2.6% to $1.22 billion on sluggish advertising demand which led to a significant revenue decline at Gannett's main publishing division. Cost control and efficiency measures were offset by a $20 million investment in strategic initiatives and higher pension expenses. The company expects favorable returns on these investments for the remainder of this year and the following years. Although advertising demand improved in February and March it could not offset the severe decline in revenue in January.

According to CEO Martore, "We are pleased with the progress we are making on the strategic initiatives underway across the company that will position Gannett for success in the digital age. The company remains focused on its iconic brands and financial strength while returning $1.3 billion to investors by 2015."

Next I will quickly run through the performance of each individual business division.

Publishing

The main publishing division reported a 6.0% decline in revenues to $874 million. Soft advertising revenue which fell 8.4% to $551 million was the main driver behind the decline in revenues. The company focuses on digital solutions which saw a 12.5% increase in revenues. Operating expenses remained unchanged despite $18 million in strategic investment initiatives and higher charges. Operating income came in at $62 million (excluding strategic initiative investments).

Broadcasting

Revenues for the broadcasting division were up 7.5% to $176 million on stronger advertising demand especially associated with strong Super Bowl revenues. Operating income rose 14% to $73 million on tight cost control.

Digital

Revenues in the digital division were up 7% to $168 million on strong demand at CareerBuilder. Strong growth in CareerBuilder led to higher operating costs as associated technology support costs were on the rise. Operating income was $16 million for the period.

Valuation

Gannett ended its fiscal year of 2011 with a cash position of around $170 million and operates with $1.76 billion in debt for a net debt position of roughly $1.6 billion. After today's decline the market values the publishing company at a mere $3.2 billion dollar. At this valuation Gannett trades at 0.6 times annual revenues and a mere 7 times 2011's annual earnings.

Furthermore the company has engaged in a shareholder friendly strategy. Its annual dividend has been increased by 150% to $0.80 per share and a new $300 million share repurchase program has been announced to be executed in the coming two years. In the first quarter the company repurchased some 2.4 million shares for about $35 million.

Investment thesis

Gannett has tried to transform itself from a old fashioned paper publishing company towards an online portal with strong iconic brands. However the transformation goes slow as the company still heavily relies on traditional publishing revenues which have been under pressure as readers have moved online and the weak economy put pressure on traditional advertising budgets.

Consequently revenues have been declining year on year and the company was forced to take a massive $6.6 billion loss in 2008. After years of focusing on new revenue streams the digital and broadcasting division merely represents a quarter of total revenue. As a result of all this shares have fallen some 82% over the last decade.

The company has not been able to turn things around and the first quarter results indicate once more that there is no long term viability for the company as the transformation is going too slow and the new businesses are too marginal to revive the former publishing conglomerate.

I see no triggers for long term outperformance.

Source: Gannett - First Quarter Reconfirms The Long-Term Demise