Gannett Co. (NYSE:GCI) has done a good job turning the lemons of the newspaper industry into lemonade. Even so, the publisher of USA TODAY should follow the lead of Journal Register Co. and find a buyer to take it private. The company, which publishes more than 80 dailies, is worth the risk.
Besides being the largest newspaper publisher, Gannett is the best managed. It also trades at a discount to smaller rival New York Times Co. (NYSE:NYT), which also would be better off outside the grasp of Wall Street. The Sulzberger family that controls the Times, however, repeatedly has said the company is not for sale. Gannett’s shares also are more attractive, trading at a price-to-earnings ratio of 6.49, less than half of the 14 ratio for the Times, which has tumbled more than 58% in five years.
For someone looking for a cheap stock with decent upside potential in a beaten-up industry, Gannett is worth a shot. Earlier this week, the company decided to double its dividend to take some of the sting out of the fact its shares have plunged almost 75% in the past five years. The company also authorized the repurchase of as much as $100 million worth of shares, resuming a share purchase program that began in 2006. On the earnings conference call, CEO Craig Dubow said, “We are committed to creating value for our shareholders and the actions announced today reflect that commitment.”
The fundamentals for Gannett and other newspaper publishers, however, still are lousy for reasons that are well-known, including the migration of readers and advertisers online. Although the industry is transforming itself for the online world, the change is coming at a glacial rate. Gannett’s quarterly results were mediocre. Investors braced themselves for this after June’s announcement of 700 layoffs in the community newspaper unit.
Net income at the McLean, Va.-based company fell to $151.5 million, or 62 cents per share, from $195.5 million, or 81 cents per share, at the same time last year. Revenue fell 2.2% to $1.33 billion. On an adjusted basis, results were 58 cents, a penny better than expectations. Revenue came in a hair under Wall Street consensus of $1.34 billion.
There were a few bright spots. Digital operating revenue surged 12.6% thanks to its investment in CareerBuilder. The $173.4 million figure is dwarfed by the $977.2 million brought in the quarter by Gannett’s publishing arm, whose business declined 6.2%. About 21% of Gannett’s total revenue came from the digital operations, a fact management emphasized on the call. Debt was slashed by $167 million to $2 billion. Total operating cash flow dipped slightly to $298.1 million.
Wall Street continues to have strong faith in Gannett. Its average target price is $17, well above the $13.70 where it trades now.
The Times, by the way, also beat Wall Street forecasts when it posted quarterly results today. Earnings from continuing operations fell to 14 cents from 18 cents. Revenue fell 2.2% to $576.7 million. Analysts were expecting profit of 9 cents on revenue of $578 million.
Wall Street is less enamored of the Times. Analysts on average expect the shares to reach $9.50. It last traded at $9.14.
Jonathan Berr has no positions in the securities listed.
