Gannett Company, Inc.
) posted better-than-expected third-quarter 2012 results. The
quarterly earnings of 56 cents a share beat the Zacks Consensus
Estimate by a couple of cents, and rose 27.3% from last year's 44
cents, reflecting a surge in television advertising attributed to
Olympics and political spending, and subscription based model.
Behind the Headline
After witnessing a decline of 2.1% in the second quarter,
Gannett's total revenue climbed 3.4% year-over-year to $1,309.3
million during the quarter under review due to increase in revenues
across Broadcasting and Digital segments, partially mitigated by
fall in Publishing segment. Total revenue also came ahead of the
Zacks Consensus Estimate of $1,293 million.
Gannett indicated that total
revenue, including Captivate, surged 36% to $237 million buoyed by
robust television advertising demand and retransmission revenue.
Television revenue soared 38.1% to $233 million primarily driven by
increased political and Summer Olympic Games related ad demand.
Retransmission revenue increased 11.5% to $22.3 million during
the quarter. Broadcasting operating income grew 73.1% to $118.7
Management now expects television revenue to rise in the very
high-twenties percentage in the fourth quarter of 2012 compared
with the prior-year quarter.
segment revenue rose 4.7% to $182 million due to robust revenue
growth at CareerBuilder. Digital operating income came in at $39.9
million, up 16.2% from the year-ago quarter.
Company-wide total digital revenue augmented 22.8% to $334.6
million, driven by increased digital advertising and marketing
solutions as well as sustained rollout of the all-access content
subscription model, and includes a 64.6% growth registered in
publishing digital revenue and an increase of 6.4% experienced in
television station digital revenue.
The economy, which is still not completely awakened from the
state of hibernation, has been taking its toll on the publishing
companies, and Gannett is no exception. Total
revenue tumbled 3% to $890.2 million during the third quarter but
fared better than the decline of 5.8% witnessed in the previous
Publishing Advertising revenue fell but at a decelerating rate
of 6.6% to $552.7 million from the year-ago quarter, following
declines of 8.1% and 8.4% in the second and first quarters of 2012,
respectively. Publishing segment operating income slipped 26.3% to
Publishing Circulation revenue portrayed a substantial
improvement, increasing 5.6% to $276.7 million on the back of
subscription based model, following a marginal decline of 0.6%
recorded in the previous quarter.
Tepid recovery in the economy along with weakness in advertising
demand in the U.S. and U.K. impacted the results. Advertising
revenue dipped 7% in July, 6.8% in August and 5.9% in September.
The downturn in the publishing industry came at the wake of
declining print readership as more readers choose to get free
online news, thereby making the print-advertising model
Classified advertising at domestic publishing operations dropped
3.4% during the quarter under review. Within classified, softness
did persist in employment (down 4.4%) and real estate (10.2%)
categories but automotive registered growth (up 1.3%). Total
retail, national and classified advertising revenue categories
declined 7%, 8.1% and 5.1%, respectively.
Advertising, which remains a significant source of revenue for
the company, depends upon the global financial health. Gannett is
taking initiatives to diversify its business model, shielding
itself against any economic onslaught by adding new revenue
streams. The company is also adapting to the changing face of the
multi-platform media universe, which currently includes Internet,
mobile, social media networks and outdoor video advertising in its
In an effort to offset the declining revenue and shrinking
market share, publishers are scrambling to slash costs. Gannett has
been realigning its cost structure and streamlining its operations
to increase efficiencies.
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
News International, the subsidiary of
) started charging readers for the online content of
The Times of London
Sunday Times of London
from June 2010.
New York Times Company
), another diversified media conglomerate, launched a pay-and-read
model on March 28, 2011.
Gannett initiated a subscription based model, commenced Digital
Marketing Services in top markets, and refurbished its iconic brand
USA TODAY to generate new advertising and marketing revenue
Other Financial Aspects
Gannett lowered its interest expense by 12.5% year-over-year due
to lower average debt balances. Long-term debt at the end of the
quarter was $1.63 billion. The company generated net cash flow from
operating activities of $182.2 million and free cash flow of $161.8
million in the quarter. Cash at the end of the quarter totaled
$237.4 million. Capital expenditures incurred during the quarter
were $24.7 million.
The company, during the reported quarter, repurchased
approximately 2.4 million shares aggregating $35.5 million.
Year-to-date, Gannett has bought back 8.2 million shares of worth
$116.5 million. During the first quarter, management increased its
annual dividend by 150% to 80 cents a share and announced a new
$300 million share buyback program to be completely exhausted in
the next two years.
Gannett remains committed to streamline its cost structure,
strengthen its balance sheet and rebalance its portfolio. However,
we remain apprehensive about risks that the company faces due to
its high dependence on advertising revenues.
Currently, we prefer to remain on the sidelines and maintain our
long-term Neutral recommendation on the stock. However, the company
holds a Zacks #2 Rank that translates into a short-term Buy rating,
and well defines the company's effort to navigate through
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