Gannett’s 2Q profit jumps as advertising slump eases, but investors want to see more progress

Gannett’s stock dives after 2Q results disappoint

Gannett Co., the largest U.S. newspaper publisher, moved closer to ending a 3 ½-year slump in print advertising during the second quarter. But it still isn’t feeling confident enough to predict when the biggest part of its business will begin to grow again.

The progress contained in earnings results released Friday evidently wasn’t enough to satisfy investors, especially given management’s hazy outlook. Gannett shares plunged more than 10 percent.

As the owner of USA Today and more than 80 other daily newspapers, Gannett serves as a publishing bellwether. The New York Times Co., Lee Enterprises Inc. and McClatchy Co. are among the other major newspaper publishers scheduled to report earnings during the next two weeks.

Gannett’s net income more than doubled in the three months ending June 27, largely because of cost cutting, tax benefits, an advertising revival at its 23 television stations and a gain from its recent sale of a Hawaii newspaper and a Michigan directory business.

Net income for the period totaled $195.5 million, or 81 cents per share, up from $70.5 million, or 30 cents per share, a year earlier. Excluding one-time items, Gannett would have made 61 cents per share. That was better than analysts’ forecast of 53 cents, according to a survey by Thomson Reuters.

But the earnings were overshadowed by a 2 percent decline in Gannett’s revenue to $1.37 billion from $1.39 billion a year ago. Although that marked Gannett’s smallest revenue decline in three years, analysts had been hoping the figure would at least match last year’s number.

The letdown centered on Gannett’s print ad revenue, which fell 6 percent to $692 million. It’s the fifth consecutive quarter that the drop has narrowed when compared with the same period a year earlier. Some investors were disappointed, though, because Gannett management had raised investor hopes last month by suggesting the erosion in second-quarter newspaper advertising might fall as little as 2 percent or 3 percent.

Gannett shares shed $1.61, or 10.7 percent, to close Friday at $13.50.

The sell-off didn’t mute the enthusiasm of Gannett’s executives. “We are absolutely heartened by the strong results of our divisions, and we are very well-positioned to continue to make significant progress,” Gracia Martore, Gannett’s chief operating officer, told analysts during a Friday conference call.

Martore indicated that the company probably would have matched analysts’ revenue estimates if not for two factors. With Gannett’s May 3 sale of The Honolulu Advertiser to Oahu Publications Inc., the company classified it as a discontinued operation and didn’t include the newspaper’s revenue in its second-quarter results. A weak British pound relative to the U.S. dollar translated into fewer dollars from Gannett’s publishing operations in England.

If not for the currency swing, Gannett’s newspaper ad revenue in June would have been down by just under 4 percent from last year, the smallest monthly erosion since early 2007.

While trumpeting Gannett’s turnaround efforts, neither Martore nor CEO Craig Dubow would say when the company expects its newspaper advertising woes to finally end. Martore said it’s difficult to gauge advertiser demand for the second half of the year because the U.S. economy remains “fragile.”

Like other newspaper publishers, Gannett needs newspaper advertising to bounce back to avoid further cutbacks. While television is bringing in more money again, print advertising accounted for about half of Gannett’s total revenue in the second quarter.

And even if print ads finally rebound, the revenue will be far below where it was before the misery started in 2007. For instance, Gannett’s newspaper ad revenue in the second quarter of 2006 totaled $1.38 billion — nearly double the amount from the latest quarter.

Gannett’s TV stations thrived in this year’s second quarter as a surge in automobile and political commercials helped increase the broadcast division’s revenue 20 percent to $184 million. The company’s digital operations also did well, with revenue there climbing 8 percent to $154 million.

As part of its effort to plumb the Internet for more revenue, Gannett said Friday that all its newspapers and seven of its TV stations will sell online ads to local businesses in a partnership with Yahoo Inc., which also has been trying snap out of a financial funk for several years. About 800 newspapers already have formed a similar alliance with Yahoo, whose website remains among the most popular in the world.

Gannett also will try to bring in more online revenue by charging people to read some stories on its previously free websites. The company started experimenting with online fees July 1 at three newspapers: The Spectrum in St. George, Utah; The Greenville News in South Carolina; and the Tallahassee Democrat in Florida.

The Florida and South Carolina newspapers are erecting toll booths for college football stories about Florida State University and Clemson University, while the Utah website will impose fees for topics about religion and outdoor activities, Martore said.

AP Business Writer Andrew Vanacore in New York contributed to this report.