Three reasons to expect first-quarter furloughs

1. History and 'comps'
Gannett has ordered one-week unpaid furloughs every first quarter since 2009, mostly for U.S. newspaper employees. Yet, each one has created a dilemma known among investment professionals as bad "comps" -- short for comparables. Here's what that means.

Wall Street expects companies to crank out higher profits every quarter. As GCI's revenue has nosedived, the only way to bolster profits has been through cost-cutting. In this year's first quarter, for example, Corporate saved $10 million furloughing workers.

But absent another round of furloughs in next year's first quarter, Corporate must gin up $10 million in extra revenue just to stay even with this year's first quarter. That doesn't seem likely, however.

2. Wither revenue?
GCI's overall revenue has fallen, year over year, in each of the past three quarters because advertising sales in the biggest division -- U.S. newspapers -- keep tumbling. In the most recent quarterly report, published last week, total revenue fell 3.5% from a year ago, to $1.27 billion. Print advertising was worse: It plunged 8.5%, the biggest quarterly decline in nearly two years.

That's especially worrisome because print ads accounted for nearly half the quarter's total revenue -- nearly the same as a year ago.

Corporate has tried to make up for those losses by investing in new businesses -- for example, the DealChicken daily deals site that is now in nearly 50 U.S. markets.

But any gains from those initiatives will take many months to produce tangible results. Meanwhile, other once-promising investments have withered: GCI just shut down its Moms Like Me network amid heightened competition for the female consumers it targeted. And, I've been told, the PointRoll advertising services subsidiary has lost its footing.

3. Investor impatience
Ultimately, Wall Street cares about one thing: the company's stock price. And Gannett's has been heading south nearly all year long.

Friday, it closed at $11.16 a share -- way off the most recent high, $18.93, reached last February. To be sure, other newspaper publishers' stocks have plunged, too.

But investors don't have to bet on newspapers. Indeed, some are pulling out. Earlier this month, GCI's single-biggest investor -- JP Morgan Chase -- disclosed in a regulatory filing that it had slashed its stake in the company. As of Sept. 30, Morgan owned nine million shares, or 3.7% of all GCI's stock. That was down from 22 million only three months before, when it held 9% of all.

Furloughs alone may not reduce payroll costs enough, depending on what happens with ad sales during the current quarter. That's because GCI simply has fewer employees to furlough, so the savings aren't as great.

This year's $10 million in furlough savings was less than the $12 million in Q1 2010 -- and only half the $20 million in Q1 2009. No wonder. GCI had 41,500 employees at the start of 2009 vs. 32,600 at the start of this year.

If revenue falls even more in the current quarter, GCI might take more drastic steps, such as layoffs. Wall Street wouldn't mind.

During last week's quarterly conference call with media stock analysts, the first question put to CEO Gracia Martore was about plans for more cost cutting. She tried steering the conversation in another direction. "What we are much more focused on is creating revenue opportunities to grow the top line,'' she told one analyst, Craig Huber.

Still, Martore left little doubt about the alternative. "We will continue," she said, "to do the good job that Gannett has always done in being fiscally disciplined."

Earlier: Corporate's January memo ordering the last round of furloughs.