Sunday, July 21, 2013

Questions for Martore after tomorrow's Q2 report

CEO Gracia Martore is hosting another employee "Town Hall" meeting tomorrow after Corporate releases second-quarter financial results -- an occasion for workers to ask her about any current plans to resume deep cuts in newspaper division spending. What I'd want to know:
  • Is Corporate now reviewing fresh cost-cutting proposals from the U.S. newspaper division, including furloughs in the current quarter?
  • Have publishers submitted updated RIF lists, with names of employees targeted for possible layoff?
Unfortunately, I suspect the answer to those questions is: yes. But I doubt she'd be that candid; chief executives everywhere rarely are. Instead, Martore would note that, as always, Gannett will continue to have very strong expense controls in place. If that wording sounds familiar, it should; that's what she told Wall Street stock analysts the last time the subject came up.

Martore holds her cards close. Consider this: During the first-quarter analyst conference phone call in late April, she was asked whether the company was interested in buying more TV stations.

"More scale and a bigger footprint matters in the broadcast arena," Martore replied, according to a transcript of the call. "We have very, very good scale now, but improving on that scale could only be a positive going forward. But as always, we would be incredibly disciplined in what we would look at and what multiple we would pay."

That was April 23.

What she didn't say
In fact, we now know, Corporate was already deep into negotiations to buy TV company Belo. Fully five months before, GCI had signed a confidentially agreement to advance those talks, according to a regulatory filing disclosed this month. Then, just four days later, April 27, GCI made a written all-cash offer of $1.5 billion, plus assumption of debt. The deal was finally made public on June 13.

There will be many more Belo questions tomorrow morning, when Martore convenes another conference call with analysts at 10 a.m. ET. (The call will be webcast; details here.) For the second quarter, Wall Street is expecting GCI to report a 1.8% increase in revenues, to $1.33 billion from $1.31 billion in the year-ago quarter. Earnings are expected to rise to 58 cents a share from 56 cents, according to a survey of six analysts by Thomson Financial.

As always, Wall Street will be drilling deeper in at least two areas: revenue from circulation and newspaper advertising. Circulation will provide another boost compared to the year-ago quarter, when the company was still rolling out average 25% rate hikes with the introduction of paywalls across the U.S. Community Publishing division. In the first quarter, it rose 8.6% -- the third consecutive quarter of gains.

Advertising -- still the single-biggest source of overall revenue -- has continued to fall. In Q1, it fell 4.5%, more than twice the rate of decline in the preceding quarter. Even with that decline, however, print ads accounted for 43% of the quarter's $1.2 billion in overall revenue.

This brings me back to the Town Hall questions about whittling expenses. As noted before, I've been told by a reader in a position to know that ad sales in the second quarter were more disappointing than expected.

Hitting a revenue wall
If that trend has continued into the current quarter, which began three weeks ago, analysts may revise their forecasts downward. Already, they are expecting Q3 revenue overall to decline 2% to $1.28 billion. Earnings, too, are forecast to decline sharply, to 46 cents a share from 56 cents.

The current quarter was long expected to be tough. Unlike last year, GCI doesn't have Olympics and political spending to bolster the broadcast division. And all the newspaper subscription rate hikes have been fully realized. That leaves the Digital Segment of companies, including CareerBuilder and PointRoll.

But that portfolio's growth also has been weakening. In Q1 it rose 3.9%, slightly better than the preceding quarter. Generally, though, digital growth has been narrowing for the past two years; in Q1 of 2011, for example, it rose 12.1%. It's worth noting that this trend isn't unusual. It's rare for such rates to continue on a tear as a revenue base grows larger.

Check this spreadsheet for quarter-by-quarter changes in revenue by segment, extending back to the first quarter of 2011.

Tomorrow's financial report will be released about an hour before stock markets open at 9:30 a.m. ET. GCI's stock closed Friday at $26.36, after trading at a 52-week high of $26.88 earlier in the day.

Earlier: Why another round of furloughs may be near.


  1. Print advertising is still a major part of revenue. Why had it been in decline? Look at WSC. It takes sales people away from meeting with customers so they can fill out reports. How does that serve customers or shareholders? Let's have some critical thinking about laying people off instead of fixing the root problems.

  2. Good analysis. What always surprises me is what pussies the Wall Street analysts are when it comes to pressing management beyond the corporatespeak answers they get. They also missed the boat as Gannett slid, then failed to see the upswing when things turned.

    Say what you will about Martore, but she's a genius compared to Doltish Dubow. If only she could find talented people to run the news operations.

    1. 2:18 who are three news executives inside or outside if Gannett you'd like to see in charge of Gannett news operations?

    2. I see no one inside Gannett who is capable or respected.


Jim says: "Proceed with caution; this is a free-for-all comment zone. I try to correct or clarify incorrect information. But I can't catch everything. Please keep your posts focused on Gannett and media-related subjects. Note that I occasionally review comments in advance, to reject inappropriate ones. And I ignore hostile posters, and recommend you do, too."

Note: Only a member of this blog may post a comment.