Friday, October 03, 2008

Icebergs ahead, we sail into uncharted waters

[Titanic? Even the band has quit playing at McLean, Va.]

Gannett enters the year's final quarter, facing more threats on more fronts than ever before in its 102-year history. With earnings threatened anew in the banking crisis, and its shares down sharply again today, what options lay ahead for the nation's top newspaper publisher -- beyond more immediate layoffs?

The economy is in danger of falling into a deep recession. Gannett's costs for credit, fuel, newsprint and other essentials are rising. Total operating revenues have fallen every month this year from last year -- down 9.5% in August, the most recent data show (chart, inset). August's results would have been worse but for a one-time surge in Olympics TV advertising.

The hemorrhaging is greatest in the newspaper division: Publishing ad revenue dived nearly 17% from August 2007, the biggest monthly decline all year -- bigger, even, than the 14% plunge in the quarter right after 9/11. And that was before Wall Street melted down in a wave of selling fueled by the banking crisis -- sending Gannett's stock down 31% since the end of the second quarter. Shares plunged 6.8% today alone, closing at $15.18.

To be sure, Gannett hasn't been sitting still. The company gained majority control of huge jobs site CareerBuilder. But other digital initiatives like HighSchoolSports.net aren't doing so well. And a round of 1,000 newspaper job cuts in August and a big management reorganization last month failed to impress investors. What's more, those reductions accounted for less than 3% of the 46,000-employee workforce. Other publishers have slashed far deeper: Miami Herald owner McClatchy Co. has exacted two 10% cuts since June alone. In Washington, the Spokesman-Review this week said it would cut its newsroom staff 25%, spurring the editor's resignation in protest.

Gannett can't continue losing revenue at a double-digit clip without answering to Wall Street -- perhaps at the next (still-unscheduled) third-quarter earnings release within the next four weeks. With labor among the few big costs Corporate can control, and layoffs one of the few remaining tools at its disposal, the fourth quarter is already looking grim. As a Gannett Blog reader wondered yesterday: "Where're we going with all this?"

Answer: Into uncharted waters, without so much as a band to play on: GCI has canceled this year's annual Corporate-USA Today holiday party at McLean, Va., in favor of a $25,000 donation to the employee disaster assistance fund, readers here say. (Can anyone confirm -- and add details?)

Revenue, earnings outlook
Wall Street already has diminished expectations for the third quarter, and for all of 2008. Analysts forecast third-quarter revenue of $1.63 billion, down 10.3% from 2007, and earnings of 78 cents a share, down a whopping 23% from $1.01 in 2007. For all of 2008, revenue is forecast to be $6.81 billion, down 8.5% from 2007. Earnings are expected to average $3.58 a share, down 21% from 2007.

In a fresh comment, below, Anonymous@10:23 a.m. says: "All of this has to make one wonder how Gannett can sustain a dividend payment that, as of Oct. 2, constitutes a 9.5% yield. And when that dividend is cut, watch out for more drops in the stock price."

Earlier: Why you should consider taking a buyout

Please post your replies in the comments section, below. To e-mail confidentially, write gannettblog[at]gmail[dot-com]; see Tipsters Anonymous Policy in the green sidebar, upper right.

10 comments:

  1. The holiday party at corporate was cancelled becuase so many griped about it. Last year we did the same and many didn't attend as a silent vote of no confidence in GCI leadership. My last year at corporate, when all the local papers were cutting employees around Thanksgiving we were all suppose to turn our backs and have a good old time at a corporate holiday party? Really? Serious?
    I worked in the field for many years. Never once did we have 2 dimes to rub together to have any semblence of the kind of holiday partys corporate would put on. Our parties were pot luck. Reminded me of the Sunday church dinners when I was a kid. Everyone brought their own "covered dish". IT was fun but we all paid for it ourselves. At corporate on the other hand with professional decorations, fresh flowers, entertainment, drinks, hordevours, entrees. Totally out of touch to what really went on in the local markets. Last years party was just the same. Hey it's ok, Muncie had no money to buy pens and paper but go ahead and have the party.
    They don't care about you guys! Just send all the money to McLean please. How many examples do you need? Run for your lives!!!

    ReplyDelete
  2. People have a tendency to look at income statements first, and it's been well reported that Gannett suffered a 9.3 percent decline in revenue and a $2.1 million net loss in the first half of 2008. But the balance sheet gives you a deeper view of financial health. Although a glance at the company's mid-year 10-Q shows an increase in liquidity (current assets vs. current liabilities), you see a worrisome 5.5 percent increase in long-term debt since the end of 2007. Taking on more debt when the economy is slowing down is not a good move for a company in a dying industry and with a poor track record in innovation. The increase in borrowing raised Gannett's debt-to-equity ratio -- a key indicator of whether a company is overleveraged or not -- to 0.65 from 0.45 in just six months. A company with strong cash flow should be lowering its debt ratio, not raising it, in a slumping economy. Finally, notice that the value of Gannett's assets fell 16 percent in the past six months. That was caused by a $2.4 billion writedown of assets in Gannett's publishing division. In other words, they're worth $2.4 billion less than what Gannett said they were worth on Dec. 31. All of this has to make one wonder how Gannett can sustain a dividend payment that, as of Oct. 2, constitutes a 9.5 percent yield. And when that dividend is cut, watch out for more drops in the stock price.

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  3. In this climate of deleveraging across-the-board, GCI's board of directors would be smart to scrap the dividend and use the money instead to pay off debt. That, unfortunately, would hurt retirees like Al Neuharth, who depend on the dividend to sustain their style of retirement living.

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  4. Al did two things almost immediately upon retiring:
    1. Sell his personal pile of stock, saying his financial planners didn't want him to have all of his money in one basket.
    2. Use his control over the then Gannett Foundation to hijack bazillions from the company, threatening to sell its shares on the open market. While every stockholder may have benefitted from that, the two Curleys and other Moes and Larrys were scared witless.
    They paid up.
    Al does not depend on the dividend.

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  5. I would guess a broadcast spinoff is inevitable at this point to at least save the profitable portion and let newspaper sink or swim. Not much option at this point.

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  6. Thank goodness the corporate/USAT holiday party was cancelled! Maybe the company will start looking for things like that to cut, rather than jobs or benefits.

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  7. Below is a copy and paste from the HQ Intranet Home page. Other than this, no other info have been released:

    Holiday Party Update

    Gannett will donate $25,000 to the Employee Disaster Relief Fund instead of sponsoring a Gannett/USA TODAY holiday party at McLean headquarters this year. The donation will be used to help employees whose homes are damaged by natural disasters such as floods, hurricanes or tornadoes. The fund, which relies on private donations, has been depleted by the number of weather emergencies in Gannett communities this past year.

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  8. I hate to be a cynical SOB ... but how do we KNOW the %25K for the holiday party will really go to the Employee Disaster Relief Fund? Who's to say they won't just keep it?

    I had similar questions a few years ago: They took a "survey" of employees to see if we wanted to have the holiday party or give the money to Katrina victims. Yeah, what kind of jerk is going to choose the party?

    I did not vote, out of protest for how dumb it all was - not like I generally went to the holiday party anyway.

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  9. The holiday party has been gaudy for years. It was all for show. By donating the money, Gannett gets to look like good guys (helping people vs. having a party). The ulterior motive, I suspect, is that they'll get a tax write-off. Now, I'm not sure how much they typically spent on the parties, but it seems to me they're not really "cutting" an expense; they're simply reallocating funds. You still may not be able to afford pens and pencils at your local paper, but at least some very needy employees will get assistance.

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  10. Question: Why does USAT need a holiday party in the first place?

    Neither of the two Gannett worksites I've been at have had 'em. We experienced no psychological trauma from a lack of hearing some dumb suit's tipsy toast.

    ReplyDelete

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