Monday, July 22, 2013

Urgent: Gannett reports Q2 financial results; earnings meet forecast, but revenue misses

[Updated at 9:29 a.m. ET.]

Corporate just released the company's second-quarter earnings statement. Some key numbers:
  • Newspaper and other print advertising: $562.5 million, down 5.3%
  • Newspaper circulation: $279.7 million, up 6%
  • Broadcasting: $212 million, up 3.2%
  • Digital Segment: $186.5 million, up 2.9%
  • All other: $62.1 million, down 0.1%
  • Total revenue: $1.30 billion, down 0.3%
Earnings per share were 58 cents.

Wall Street was expecting revenue to rise 1.8%, to $1.33 billion from $1.31 billion in the year-ago quarter. Earnings were expected to rise to 58 cents a share from 56 cents, according to a survey of six analysts by Thomson Financial.

Measured against those forecasts, Corporate whiffed on revenue by about $30 million -- not good -- but earnings matched.

Newspaper advertising revenue's decline is accelerating. The quarter's 5.3% drop reduced overall revenue by $31.8 million, and exceeded Q1's 4.5% decline. Also, Digital Segment revenue growth continues to narrow. It was up only 2.9% vs. 3.9% in Q1. This spreadsheet shows changes in revenue by major division from Q1 2011 through today's report.

Better news: At USA Today, which launched a big digital redesign late in the third quarter, second-quarter digital revenue was up 24.1%. That's an improvement from Q1, when digital was up just 9.1%. (The trend in USAT's digital revenue growth.)

In pre-market trading, GCI's stock is down 2.1% to $25.80.

Text of statement
Gannett reported non-GAAP earnings per diluted share of $0.58 for the second quarter compared to the second quarter a year ago, an increase of 4 percent. Results were driven by higher circulation revenue reflecting the impact of the all access content subscription model as well as revenue increases in the Broadcasting and Digital segments.

During the quarter, the company also entered into a definitive merger agreement with Belo Corp. (Belo) under which Gannett will acquire all outstanding shares of Belo for $13.75 per share in cash, or approximately $1.5 billion, plus the assumption of $715 million in existing debt for an enterprise value of approximately $2.2 billion. The transaction has been unanimously approved by the boards of directors of both companies. It is expected to close by the end of 2013, subject to antitrust approval, Federal Communications Commission (FCC) approval, approval by holders of two-thirds of the voting power of Belo shares, and customary closing conditions. Belo's directors and executive officers, who collectively own approximately 42 percent of the voting power of Belo's outstanding shares, have entered into voting and support agreements to vote their shares in favor of the transaction with Gannett.

Gracia Martore, president and chief executive officer, said, "We are very pleased to report solid revenue growth in our Broadcasting and Digital segments as well as our fourth consecutive quarter of year-over-year circulation revenue growth overall in our Publishing segment. Earnings per share were higher in the quarter as our strategic initiatives, particularly our content subscription model and digital offerings, continued to gain momentum and positively impact our results."

Martore added, "Our long-term strategic plan - with a focus on both investment and execution - continues to position us for success well into the future. Gannett's pending acquisition of Belo, and finding new ways to get content and offerings to the right user at the right time, are steps in our long-term strategy. We are accelerating our transformation into the 'New Gannett' every day."

Operating revenues for the company totaled $1.30 billion in the second quarter, relatively unchanged from the second quarter last year. A significant increase in circulation revenue and higher revenue in the Broadcasting and Digital segments was offset by a decline in advertising revenue, a net reduction of almost $10 million in political revenues and an unfavorable exchange rate.

Net income attributable to Gannett in the second quarter was $113.6 million. Net income attributable to Gannett on a non-GAAP basis (which excludes the special items) was over 2 percent higher than the second quarter last year and totaled $135.1 million.

Special items in the second quarter of 2013 totaled $35.7 million ($21.5 million after tax or $0.10 per share) and include workforce restructuring charges and transformation costs. Results for the second quarter of 2012 included $20.3 million of special items ($0.05 per share) impacting operating income.

Earnings per diluted share, on a GAAP (generally accepted accounting principles) basis were $0.48 for the second quarter. Second quarter earnings per diluted share excluding special items were $0.58 compared to $0.56 for the same quarter in 2012, almost 4 percent higher.

Operating income totaled $202.9 million in the quarter. On a non-GAAP basis, operating income was $229.1 million compared to $236.8 million in the second quarter a year ago. Operating cash flow in the quarter (a non-GAAP term defined as operating income plus special items, depreciation and amortization) totaled $276.9 million.

Operating expenses including special charges were $1.10 billion in the quarter less than 1 percent higher than the second quarter in 2012. Expense increases in the Digital segment associated with revenue growth as well as higher strategic initiative investments were partially offset by the impact of cost control and efficiency efforts. On a non-GAAP basis, operating expenses, which exclude special items and include the impact of the investments in strategic initiatives, were $1.07 billion, relatively unchanged from the second quarter last year. Corporate expenses on a non-GAAP basis were $2.3 million higher in the quarter reflecting an increase in stock compensation expense as well as a small asset sale gain in the second quarter last year.

In addition to the agreement to acquire Belo, the company announced that it will continue its existing dividend payment program and extended its share buyback program replacing its existing remaining authorization with a new $300 million authorization expected to be used over the next two years. During the second quarter, the company purchased approximately 0.4 million shares for $8.6 million. The relatively low volume of share repurchases was due to the blackout period associated with the Belo announcement. Shares repurchased year-to-date totaled 2.1 million for $41.4 million.

Publishing segment revenues in the quarter totaled $904.2 million, a 1.7 percent decline from $920.3 million in the second quarter a year ago. On a constant currency basis, publishing segment revenues were 1.4 percent lower as a substantial increase in circulation revenue was more than offset by lower advertising revenue. Domestic publishing revenues were about flat in the second quarter compared to the second quarter last year.

The continued positive impact of the all access content subscription model resulted in a 6.0 percent increase in total circulation revenue compared to the second quarter last year. Circulation revenue growth at local domestic publishing operations was up 11.4 percent, the fifth consecutive quarter of circulation revenue growth.

Second quarter advertising revenues totaled $562.5 million, a decline of 5.3 percent compared to $594.3 million in 2012's second quarter. The relatively slow pace of the economic recoveries in the U.S. and UK as well as secular challenges continue to impact advertising demand. National advertising comparisons improved relative to the first quarter. Domestic publishing advertising year-over-year comparisons were in line with the first quarter, as national advertising comparisons improved significantly and all the major classified advertising category comparisons were better than the first quarter. A summary of the year-over-year percent change for the company's advertising categories can be found on Table 5.

Publishing segment digital revenues were 49.8 percent higher in the quarter. The all access content subscription model and digital advertising and marketing solutions all contributed to the growth. Digital revenues at all of our publishing operations were up in the quarter. Local domestic publishing operations were 56.9 percent higher, USA TODAY and its associated businesses increased 24.1 percent and Newsquest's digital revenues were up 8.1 percent, in pounds.

Publishing segment operating expenses, which include a net increase of $11.4 million in special items as well as $10.0 million in strategic initiative investment, were $819.0 million in the quarter, relatively unchanged from $816.1 million in the second quarter a year ago. Non-GAAP Publishing segment operating expenses declined 1.1 percent to $792.8 million compared to $801.3 million in the second quarter of 2012 despite the absence of $5.3 million in furlough savings that impacted prior quarter results.

Publishing segment operating income totaled $85.2 million including special items and strategic initiative investments. Publishing segment operating income on a non-GAAP basis was $111.4 million in the quarter while operating cash flow totaled $138.3 million.

Broadcasting revenues (which include Captivate) were 3.2 percent higher in the quarter and totaled $212.0 million. The increase reflects significant growth in retransmission revenue and an increase in core advertising revenue mitigated, in part, by lower political revenues.

Television revenues were $204.8 compared to $197.7 million in the second quarter last year, an increase of 3.6 percent. Retransmission revenues were 62.3 percent higher while core advertising revenues were up 1.5 percent. The percentage increase in television revenues would have been 9.1 percent excluding the net reduction of $9.9 million of political spending year-over-year, in line with guidance provided in April.

Based on current trends and reflecting the significant political and Summer Olympic revenues achieved in the third quarter last year, we expect the percentage decrease in total television revenues for the third quarter of 2013 to be in the mid-teens compared to the third quarter of 2012. Television revenues in the third quarter of 2012 benefited from approximately $75 million in political advertising and spending related to the Summer Olympics. Excluding the incremental impact of political and Olympic spending, total television revenues in the third quarter this year compared to the third quarter last year are expected to be up in the mid-teens.

Broadcasting segment operating expenses were $113.9 million in the quarter, up 2.8 percent compared to $110.8 million in the second quarter last year. The increase reflects higher costs associated with strategic initiatives. Operating income was 3.7 percent higher in the quarter and totaled $98.1 million while operating cash flow was up 3.3 percent to $105.1 million.

Operating revenues in the Digital segment were $186.5 million compared to $181.3 million in the second quarter a year ago, an increase of 2.9 percent reflecting primarily solid revenue growth at CareerBuilder. Digital segment operating expenses were 4.4 percent higher and totaled $151.2 million due to an increase in CareerBuilder expenses in part reflecting new acquisitions. Operating income totaled $35.3 million while operating cash flow was $44.7 million.

Digital revenues company-wide, including the Digital segment and all digital revenues generated by the other business segments totaled $374.3 million compared to $311.6 million in the second quarter a year ago. The 20.1 percent increase reflects the positive impact of the all access content subscription model as well as digital advertising and digital marketing services revenue growth.

At the end of the quarter, Gannett had about 120 domestic web sites affiliated with its local publishing and television markets and USA TODAY. In June, Gannett's consolidated domestic Internet audience share increased approximately 17 percent to 61.2 million unique visitors reaching 27.3 percent of the Internet audience, according to comScore Media Metrix. is one of the most popular news sites on the Web and the USA TODAY app is a top news app with approximately 19 million downloads including those across iPad, iPhone, Android, Windows and Kindle Fire. USA TODAY's mobile and video traffic continue to grow. Mobile visitors in June were 135 percent higher than June last year while video plays were up 335 percent. Newsquest is also an Internet leader in the UK where its network of web sites attracted 100.7 million monthly page impressions from approximately 12.5 million unique users in June 2013. CareerBuilder's unique visitors in June averaged 19.4 million.

The company's equity earnings include its share of operating results from unconsolidated investees including the California Newspapers Partnership, Texas-New Mexico Newspapers Partnership, Tucson newspaper partnership and other online/digital businesses including Classified Ventures.

Equity income in unconsolidated investees totaled $9.4 million in the quarter compared to $8.7 million in the second quarter in 2012. The 8.8 percent increase reflects improved results at Classified Ventures and the newspaper partnerships.

Interest expense totaled $36.2 million in the quarter, relatively unchanged from the second quarter last year.

Net cash flow from operating activities was $187.7 million while free cash flow (a non-GAAP measure) totaled $172.8 million in the quarter. The balance of long-term debt was $1.36 billion and total cash was $161.5 million at the end of the quarter.


  1. Actually they missed on earnings by a penny. Analyst had raised their expectations to .59 cents. Gannett earned .58 cents a share. and of course they are trying to create a rosy picture. Gartore knows all the right account moves to make it look better than it actually is.

  2. Excluding a one time gain the company made .48 cents a share compared to .51 cents last year.


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