Gannett Certifies the Newspaper Downturn

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Important Details: Newspaper giant Gannett announced Wednesday sub par quarterly earnings. Adjusting reporting to exclude papers gained in an exchange with Knight Ridder in 2005, the numbers reinforced the woes of the industry as a whole and signaled new weakness.

• Overall, third-quarter earnings were off 4.8 percent year-over-year.
• All categories of newspaper print revenue were off, national off 3.4%, retail was up 1%, and most alarmingly classifieds off 2.3% for the quarter. 
• Overall revenue for same-properties (excluding a 2005 exchange with Knight Ridder) was off .7% in September, with newspaper advertising down 3.2% for the month.

Gannett cited "a very challenging advertising environment” and held out few hopes of an immediate turnaround in its newspaper business, which accounts for more than half of its revenue. Its significant investments in companies like the Captivate Network, PointRoll and Planet Discover have not yet paid large dividends. Its classifieds oriented properties — CareerBuilder and Classified Ventures have helped, but not enough to turn around flagging print fortunes.

Gannett is the #1 newspaper company, while it ranks #2 in the UK with its Newsquest holdings. Its other main revenue producer resides in its broadcast TV stable of 23 stations (two bought this year, one out of the Tribune sell-off). That unit produced better results, with an 11.1% increase, adjusted for same properties. The increase was largely attributed to political advertising. Results for its online properties or its UK properties were not separately reported.

In Outsell’s Opinion: Gannett has long been known as a well-managed (if not journalistically prominent) newspaper company, able to squeeze out above-average margins from its 87 dailies (and 101 less-than-dailies) in the U.S. When the bellwether of the newspaper industry clangs with its earnings announcement, the market pays special attention. Over the past year, it’s received less attention as first the #2 company, Knight Ridder found itself rushed into a sale and now #3 Tribune finds itself heading in the same direction. In fact, with Tribune’s recent public woes, industry watchers have been increasingly asking, “What About Gannett?”

Gannett’s results parallel the industry’s, with this twist. Things do seem to be getting worse. The combination of big box (especially Macy’s this year) consolidation, declining print circulation, and defection of readers to lower-monetizing online all contribute.

Outsell sees the Gannett results as further ratification of the depth of the industry’s downturn. Considered a top-flight financial manager this company is suffering the same problems of its brethren given the secular pressures on newspaper revenue lines. Most significant at this reading is the downturn in real estate classified. While still up year-over-year, it has lost its mojo with the weakening housing market – and with that softening its ability to prop up classifieds specifically and revenue overall. The greatest immediate threat to the industry is the addition of an economic slowdown to the structural challenges posed by the pay-for-performance ad revolution and movement of readers from print to online. We may be in the early stages of that piling on.

For Gannett, we hear little from investors demanding more from the company, as its share price shares the woes of the rest of the industry. That may be because investors have learned, out of the Knight Ridder debacle, that there’s not a lot of investor gain to be won by forcing newspaper properties to market, whole or in pieces. Given uncertain future growth prospects, expect to see great cautiousness about adding newspapers to any portfolio.