UPDATE: Gannett Has Upbeat 3Q View, Plans $400 Million Note Offering
30 September 2009 - 1:39AM
Dow Jones News
The nation's largest newspaper chain, Gannett Co. (GCI), said
Tuesday it expects to report third-quarter earnings results that
far exceed expectations on Wall Street, bolstering newfound
optimism that a recovery is underway for traditional media outlets
such as publishers and broadcasters.
Following the announcement, shares of Gannett rose 15% to $11.48
at the opening bell, extending a strong summer rally in the stock.
Shares of other major broadcasters and newspaper publishers also
rose, adding to hopes that the dire predictions pervading the
industry amid the rise of digital media are overblown.
Still, concerns remain over the USA Today publisher's ability to
sustain its rebound as an aggressive round of cost-cutting remains
the source of the company's bottom-line strength. It expects
revenue results for the quarter to be down about 19%, missing
analysts' estimates.
"Our continued efforts to achieve efficiencies and further
consolidations company-wide along with significantly lower
newsprint expense resulted in another substantial decline in our
operating expenses," said Gracia Martore, the company's chief
financial officer.
Martore is filling in for the company's chief executive, Craig
Dubow, who is on extended medical leave to recover from back
surgery at a difficult time for the company. Over the summer,
Gannett unveiled plans to cut 1,400 jobs from its work force of
41,500.
For the third quarter, Gannett now expects to report earnings
excluding restructuring charges in a range from $93 million to $100
million, or 39 cents to 42 cents a share. That marks a decline from
the 76 cents a share it posted for the same quarter last year,
excluding charges, but it far surpasses the mean estimate of
analysts surveyed by Thomson Reuters for earnings of 28 cents a
share.
John Miller, a portfolio manager with Ariel Investments LLC -
Gannett's largest shareholder - said the company's guidance is a
sign that both print and broadcast media are recovering from the
depths of the recession that had many observers wondering whether
some publishers could survive.
"This company was priced to go out of business," said Miller,
noting that the stock has more than tripled since Ariel doubled its
stake in the company in April. "We think there is more upside here
as advertisers return to the market."
Alongside Gannett's rally on Tuesday, shares of New York Times
Co. (NYT) rose 6.4% to $8.50; shares of McClatchy Co. (MNI) added
6% to $2.63; shares of E.W. Scripps Co. (SSP) gained 8.2% to $7.79;
shares of Media General Inc. (MEG) increased 12.6% to $8.89; and
shares of Lee Enterprises Inc. (LEE) were up 48.1% to $3.17.
While the media industry has been flooded with chatter about a
pick-up in advertising, a rebound has yet to materialize in the
financial results of major media companies, and Gannett's
third-quarter results will do little to change that. The company
said it expects to report quarterly revenue of $1.31 billion to
$1.32 billion, while analysts, on average, had expected revenue of
$1.38 billion.
"Everything that we're hearing and reading indicates that a lot
of advertisers are coming back into the marketplace," said Miller.
"It's just a matter of time before this advertising has a positive
impact on the revenue numbers."
Martore said publishing advertising declines continue to get
smaller, with the third-quarter's year-over-year decline expected
to improve from the one-third tumble seen in the first half of
2009. Specifics for the third quarter weren't provided, and the
newspaper industry continues to grapple with long-term declines as
its online revenue gains are outpaced by its offline declines.
Underscoring the challenges still facing Gannett, the company
said it expects third-quarter operating cash flows of between $241
million and $252 million, which will mark a 22% decline from last
year's $324 million. Last year's results showed a 29% drop-off from
the previous year.
The trend doesn't bode well for Gannett's ability to meet its
long-term obligations if newspapers continue to suffer long-term
declines, but its short-term credit concerns were alleviated by
Tuesday's report.
The company said it cut its total debt in the quarter by $200
million to $3.31 billion. It expects its senior leverage ratio
under its credit agreements to be between 3.04X to 3.07X at the end
of the quarter, well below its required ceiling of 3.5X - its
nearest term credit risk.
Gannett has no debt maturities on the horizon for nearly two
years after aggressively restructuring its debt following the
financial crisis. The process continued Tuesday as it also
announced plans to sell $400 million in five- and eight-year notes
as it joins the raft of companies raising fresh capital to pay off
other debt.
In July, Gannett swung to a second-quarter profit amid
aggressive cost cuts, but operating results continued to weaken
sharply.
"We do want to make sure that Gannett's not sacrificing quality
with these cost cuts, but, so far, we feel that's not the case,"
said Miller.
-By Nat Worden, Dow Jones Newswires; 212-416-2472;
nat.worden@dowjones.com
(Mike Barris and Kevin Kingsbury contributed to this
article.)