Gannett: Still Waiting for the Digital Payoff

by Jonathan Berr | January 31, 2012 10:53 am

A few years ago, investors considered Gannett (NYSE:GCI[1]) to be the best-run of any of the newspaper publishers. That luster is still visible in the company’s stock price — at least relative to its peers.

Shares of the country’s largest newspaper publisher have slumped nearly 7% over the past 52 weeks, but still outperform rivals such as New York Times Co. (NYSE:NYT[2]), which is off nearly 28%, or McClatchy (NYSE:MNI[3]), which has slumped more than 50%. While digital growth continues to be a bright spot for publishers, it’s still not large enough to offset the declines in the print business. Gannett is a case in point.

Net income at the Virginia-based company fell to $116.9 million, or 49 cents a share, in the fourth quarter from $174.1 million, or 72 cents a share, a year ago. Excluding one-time items, such as $14.7 million related to the disability retirement of former CEO Craig Dubow, profit was 72 cents. Revenue tumbled 5% to $1.39 billion. Without the one-time charges, analysts expected Gannett to earn 68 cents on revenue of $1.39 billion.

The results, nonetheless, failed to wow Wall Street. It’s easy to see why.

Revenue in publishing, Gannett’s largest business, fell 5.3% to $1.01 billion for the quarter. Broadcast revenue did worse, dropping 6.1% to $199.8 million[4]. The upbeat note, as it is for all newspaper publishers, is Gannett’s digital business, where revenue rose 6.5% to $290.3 million. Under CEO Gracia Martore, Gannett is “reshaping” its news operations to meet this new reality.

“To achieve this, our content as always is key,” she told investors yesterday during yesterday’s earnings conference call[5]. “We have relaunched 100 mobile websites across our local publishing and broadcasting markets that generate 40 million mobile page views per month. In the fourth quarter, we launched iPhone news apps in 15 TV markets that have been downloaded by 260,000 users and generate 1 million page views per month in those markets.”

Expectations are low for New York Times Co., which reports Feb. 2. Investors were spooked by the abrupt resignation of CEO Janet Robinson[6], who championed the publisher’s transformation into a digital business. In a speech she gave to a UBS conference in December, Robinson described 2011 as a “landmark year” because of the successful launch of The New York Times digital subscription package in March. As of the third quarter, the Times has 324,000 paid[7] subscribers to the paper’s digital edition, versus 281,000 at the end of the second quarter.

Like at Gannett, digital gains at New York Times are still too small to compensate for the fall-off in print. Earnings per share are expected to slip to 42 cents from 46 cents in the fourth quarter. Revenue, which has dropped for the past four quarters, is forecast to decline 2.3% to $646.4 million.

Newspaper publishers are correct that their future is in the digital world. Whether Wall Street will be patient enough for that to occur is the story line today.

As of this writing, Jonathan Berr doesn’t own shares of any companies mentioned here.

Endnotes:
  1. GCI: http://studio-5.financialcontent.com/investplace/quote?Symbol=GCI
  2. NYT: http://studio-5.financialcontent.com/investplace/quote?Symbol=NYT
  3. MNI: http://studio-5.financialcontent.com/investplace/quote?Symbol=MNI
  4. 6.1% to $199.8 million: http://phx.corporate-ir.net/phoenix.zhtml?c=84662&p=irol-newsArticle&ID=1653954&highlight=
  5. told investors yesterday during yesterday’s earnings conference call: http://seekingalpha.com/article/325742-gannett-s-ceo-discusses-q4-2011-results-earnings-call-transcript
  6. abrupt resignation of CEO Janet Robinson: http://investorplace.com/2011/12/the-case-against-arthur-sulzberger-at-the-new-york-times/
  7. Times has 324,000 paid: http://www.nytimes.com/2011/10/21/business/media/the-new-york-times-company-reports-a-profit.html

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