CORRECT: Gannett profit pinched by ad weakness(Removes incorrect reference to the affiliation of certain television stations.)
By David B. Wilkerson, MarketWatch
Last Update: 10:03 AM ET Jul 13, 2006 CHICAGO (MarketWatch) -- Gannett Co. said Wednesday that its second-quarter profit fell 8%, hurt by a shaky advertising environment, higher newsprint costs, an unfavorable exchange rate and stock-based compensation expense.
McLean, Va.-based Gannett said net income fell to $310.5 million, or $1.31 a share, from $338.6 million, or $1.37 a share, in the same quarter last year. On a continuing operations basis, it earned $1.31 a share compared to $1.34 per share a year earlier.
In the most recent second quarter, Gannett said it recorded stock-based compensation expense of 3 cents a share. Chart of GCI
Revenue rose to $2.03 billion from $1.91 billion. Analysts polled by Thomson First Call were expecting a profit of $1.31 a share on revenue of $2.02 billion.
"Our performance in the quarter was in line with expectations and continues to reflect the unevenness of the advertising environment in the various markets we serve," Chairman and Chief Executive Craig Dubow said in a statement. Newspaper operating revenue rose 6.4% to 1.82 billion. Advertising revenue also rose 6.4%.
USA Today ad revenue inched up 0.7%, as paid ad pages fell to 1,107 from 1,191 a year earlier.
Positive domestic results were partially offset by continued soft advertising demand in its UK operations, but Gannett is seeing "some signs of stabilization in that market."
"Clearly fundamentals remain tepid and volatile," said Lauren Rich Fine, analyst at Merrill Lynch, in a note to clients. "But [Gannett] continues to make small, strategically sound acquisitions that should help future growth, despite minimal near term financial contributions."
Most recently, Gannett agreed to acquire a second Atlanta TV station, WATL-TV, from Tribune Co. for $180 million. Also last month, it closed its buy of a second station in Denver.
Domestic community newspapers generated advertising gains during the quarter, particularly in the local help wanted and real estate categories, while efforts in digital, and niche publications contributed to show growth, Dubow said.
Real estate advertising, a positive for most newspaper publishers for several quarters as more readers use online listings to buy and sell homes, was up nearly 11% across the company. At the U.S. community newspapers, real estate ad revenue rose 17%.
Classified help-wanted advertising, another area in which newspaper publishers have seen strong growth in the last two years or so, was down 5% in the quarter, with just a 1% increase in the U.S.
Chief Financial Officer Gracia Martore told analysts during the company's earnings call that job-related advertising is stronger in the South and the far West than it is in other parts of the U.S. Areas where the local economy is heavily dependent on automotive or other manufacturing jobs are seeing some weakness, she said.
Martore also said Gannett will probably decide by the end of the quarter whether it will acquire a larger stake in CareerBuilder, the online job destination it owns in a joint venture with Tribune and McClatchy Co.. McClatchy picked up a third of CareerBuilder when it acquired Knight Ridder, but Gannett and Tribune hold the right to buy out Knight Ridder's portion now that it has been sold.
At Gannett's television stations, broadcast revenue rose 3.8% to $205.4 million.
Broadcasting segment revenue was boosted by political advertisements demand and online revenue growth, but higher newsprint and interest costs, stock compensation expense and an unfavorable exchange rate tempered results.
Martore said Gannett expects advertising at its television stations to be up by a low-single digit percentage in the third quarter compared to the same three months last year.
Of Gannett's 22 TV stations, 12 of them are affiliated with NBC, and those stations have been affected to some degree by the network's ratings weakness, Dubow said on the call. However, he added, other stations have had strong local news ratings, offsetting some of this weakness.
Total newspaper operating expenses rose 9.8%, as newsprint expense rose 5.2% on a proforma basis, Gannett said.
Gannett shares fell $1.29, or 2.3%, to close at $55.62.