GCI boosts dividend 150%, but tempers Q1 outlook; cautious investing: two-year timeline for new sites

Corporate announced this morning that Gannett would raise the annual dividend to 80 cents per share from 32 cents, and will repurchase another $300 million of stock on top of the current $100 million buyback announced last summer.

The news, coming on the company's first Investor Day for Wall Street stock analysts, included a slew of other initiatives that pumped GCI's stock up as much as 6% in morning trading.

Martore: 'playing offense'

But investor reaction appeared muted by other unexpected news: $32 million of investments in new initiatives and higher pension costs during the current quarter would reduce expected earnings per share to a range of 28 cents to 32 cents. Wall Street analysts had been forecasting EPS of 37 cents to 41 cents, according to a news release.

GCI shares were recently at $15.72, up 74 cents, or 5%, after trading as high as $16.26, according to Google Finance.

Good news -- and bad
The increased dividend starting April 2 and share buyback were good news to investors hungry for a bigger share of profits. The annual payout stood at $1.60 per share three years ago before Corporate slashed it 90% on Feb. 25, 2009, amid fears GCI was headed for bankruptcy in the near-collapse of the industry's advertising model.

But that big increase comes at the expense of a more aggressive investment in research and development and new business acquisitions that could make GCI, the No. 1 newspaper publisher, more competitive against rivals in the technology space. The company's future lies squarely in that industry.

Also of competitive concern, Corporate revealed that a planned relaunch of the company's news websites, mobile and tablet products, starting with USA Today, would take an additional 12 to 24 months -- a relative lifetime in the Internet age. Then-CEO Craig Dubow first disclosed plans for the relaunch more than six months ago.

Indeed, Corporate's statement sees annual revenue growth of only 2% to 4% -- and not until 2015. That would be after nearly uninterrupted quarterly revenue declines since the Great Recession began in 2008. Last year, for example, total revenue fell every quarter from the year before, with the biggest decline -- 5.1% -- in the fourth quarter. (See this spreadsheet.)

Some of that additional revenue will come from the fast-growing USA Today Sports Media Group, which ties together the newspaper's sports content with that of the smaller U.S. community newspapers, plus broadcasting and other entities. The group is now forecast to have $300 million in annual revenue.

Today's dividend increase comes only seven months after it was doubled to 32 cents a year, in July. That was the same month Corporate announced plans to buy back up to $100 million of GCI shares over the next 12 months -- a move that would save money on dividend payouts, and showed management thought shares were trading at a bargain price.

Familiar cost-cutting
As it shares more with investors at the expense of R&D, Corporate noted that it will continue to reduce overhead. Today's statement, following company practice, scrupulously avoided using the terms layoff or furlough -- chief cost-cutting tools over the past three years. Instead, GCI said:

"Cost management and other asset optimization initiatives with total annual incremental savings expected to reach $100 million to $150 million by 2015. As part of those initiatives, Gannett Publishing Services (GPS) is expected to contribute approximately $40 million to the bottom line in 2012, with an increasing impact thereafter."

In the statement, Corporate said of its cautious business acquisition strategy: "The company will continue to evaluate opportunistic bolt-on acquisitions similar to Fantasy Sports Ventures . . . but has no current plans to pursue sizeable acquisitions."

Newer companies like Zynga, Groupon, Twitter and the more established Facebook and Google typically invest huge amounts of capital in operations before they begin sharing profits with investors.

Even Apple, now the most valuable U.S. company, and a major player in publishing, doesn't pay a dividend -- despite sitting on a cash horde of $100 billion million nearly four decades after its launch.

2012 an 'inflection point'
Gracia Martore, named CEO in October, sounded a strongly positive note in her published remarks this morning. "Gannett is once again playing offense, poised for growth and value creation," she said.

"2012 is an inflection point for Gannett. We have always been committed to responsible capital stewardship and in the past three years, despite the impact of a global recession, this financial discipline allowed us to repay over $2 billion of debt while generating $2.4 billion in free cash flow. It is because of the aggressive actions we took to fortify our balance sheet that we now have the flexibility to focus on growth while returning increased capital to shareholders."

She continued: "Our new capital allocation program, which puts Gannett on a pace to return more than $1.3 billion to shareholders by 2015, is a reflection not only of our current strength, but also of our belief in Gannett's prospects and potential in years to come."