Perfect storm: A bad forecast in GCI's war room

[Gannett stock, since the last earnings report; bigger view, here]

Craig Dubow likely plotted several economic scenarios when he and his team were hatching their now failing strategic plan, once he became GCI's sixth CEO, in July 2005. But I wonder if he and chief number cruncher Gracia Martore had any idea that a looming real estate bust that began last summer would become one of the final nails in Gannett's coffin.

They had plenty to worry about: Gannett had tremendous exposure in Arizona, California, Nevada and Florida -- states where the real estate boom was in full swing, and where history pointed to boom-and-bust cycles. The Arizona Republic, for one, is Gannett's second-biggest paper after USA Today; a real estate slowdown in Phoenix would hurt sales mightily. That should have been no surprise to now-retired newspaper division chief Sue Clark-Johnson and her successor, Bob Dickey. They both served time in Phoenix before getting airlifted to Corporate in McLean, Va.

Meanwhile, the British Newsquest division -- once a reliable financial buffer to U.S. domestic sales -- was about to be consumed by real estate-related problems of its own, leading to last month's stunning $3 billion write-down in Gannett's value.

A financial tsunami, in full fury
Now, the bust is roiling the U.S. economy, draining 62,000 more jobs last month alone, the Labor Department said yesterday, while employers battle a consumer spending slowdown. As shoppers spend less on home furnishings and other goods, Gannett's revenue gets pinched further -- and much faster -- than I imagine Dubow and Martore projected.

Dubow now has 12 days before his team reports second-quarter earnings to increasingly restive shareholders, on July 16. He's rebuffed investor calls to break up Gannett -- separating the newspapers from faster-growing digital operations, insisting that his strategic plan is working.

Wall Street isn't buying that line any more. Gannett's stock has plunged nearly 23% since April 21, when the company reported first-quarter earnings. The S&P-500 Index, a broader measure of the overall stock market, fell less than 9% during the same period. The message is clear: Wall Street wants a transformation, all right -- just not the one Dubow's been peddling.

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