Business News

Gannett Co., Inc. Reports Second Quarter Results

Monday 19. July 2010 - Reported Earnings per Diluted Share of $0.81; Non-GAAP Earnings per Diluted Share from Continuing Operations; and Excluding Special Items of $0.61; Non-GAAP Adjusted Net Income Increases 36 percent to $146 million

Gannett Co., Inc. (NYSE: GCI) reported today that 2010 second quarter earnings per diluted share were $0.81 including a net gain from discontinued operations of $0.08 per share. Diluted earnings per share from continuing operations, on a GAAP (generally accepted accounting principles) basis for the second quarter of 2010 were $0.73 compared to $0.30 for the second quarter of 2009. Results for both quarters included special items as noted below. Earnings per share from continuing operations and excluding special items for the second quarter were $0.61 versus $0.46 in the same quarter last year.

Results for the second quarter of 2010 include a $28.7 million ($0.12 per share) net tax benefit due primarily to the expiration of the statutes of limitations and the release of certain reserves related to the sale of a business in a prior year.

Results for the second quarter of 2009 included: a $42.7 million pre-tax gain related to the company’s debt exchange ($26.1 million after-tax or $0.11 per share); $16.3 million in pre-tax costs related to workforce restructuring ($10.2 million after-tax or $0.04 per share); $47.4 million of pre-tax non-cash charges related primarily to asset impairments in the company’s publishing segment ($29.6 million after-tax or $0.13 per share); and a $28.0 million non-cash charge for asset write-downs ($24.2 million after-tax or $0.10 per share).

During the quarter, the company completed the sale of The Honolulu Advertiser and its related assets as well as a small directory publishing operation in Michigan. Results for the second quarter and year-to-date periods exclude the net gain and operating results from these former properties which have been reclassified to discontinued operations.

Details of these special items and their effect on results are included on the Statements of Income, Business Segment Information and Non-GAAP Financial Information schedules which follow.

“We continued to make progress on our goals to provide engaging, relevant content any way the consumer wants while also expanding our reach and offering better solutions for our advertisers,” said Craig A. Dubow, chairman and chief executive officer. “Our strong results this quarter reflect very positive revenue trends for our Broadcast and Digital segments and moderating revenue declines in Publishing as we continued to close the revenue gap in the quarter. Stronger core advertising demand and increased political spending drove revenue growth in Broadcasting while positive revenue results at CareerBuilder and PointRoll contributed to revenue growth in the Digital segment. In our Publishing segment, this quarter was the best comparison quarter for advertising revenues since mid-2007. We benefited from continuing efficiency efforts company-wide as well as lower newsprint expense. As a result, we generated substantially higher profitability and operating cash flow in all of our business segments.”

CONTINUING OPERATIONS

Net income attributable to Gannett, adjusted for special items, totaled $146.5 million in the second quarter compared to $107.9 million in the second quarter of 2009, a 35.7 percent increase. Operating cash flow (defined as operating income plus depreciation, amortization and facility consolidation and asset impairment charges) was $327.0 million compared to $250.9 million in the second quarter a year ago.

Reported operating revenues in the second quarter were $1.37 billion compared to $1.39 billion in the second quarter last year, a decline of 1.6 percent or $22.2 million. The company exited a UK-based commercial printing business in the second quarter of 2009 that generated revenue of $12.5 million in that quarter. The exchange rate also had an impact on year-over-year comparisons. On a pro forma basis, adjusted for currency, total operating revenue in the second quarter was just 0.4 percent lower than the second quarter last year. The year-over-year pro-forma, constant currency revenue comparisons improved almost 4 percentage points relative to the first quarter of this year.

Reported operating expenses totaled $1.1 billion compared to $1.2 billion in the second quarter a year ago. Excluding special items in both quarters, operating expenses declined $89.1 million or 7.5 percent. The decline reflects cost control and efficiency efforts company-wide as well as lower newsprint expense partially offset by substantially lower furlough savings in the second quarter this year.

Average diluted shares outstanding in the second quarter of 2010 totaled 241,505,000.

PUBLISHING

Publishing segment operating income excluding special items increased $31.0 million or 20.8 percent to $180.3 million compared to the second quarter last year. Publishing segment operating cash flow totaled $214.6 million, an increase of 23.3 percent from the comparable amount in 2009’s second quarter. The increase reflects the impact of efficiency efforts in this and previous quarters, lower newsprint expense, as well as lower revenue declines relative to the second quarter last year, partially offset by the relative absence of furlough savings of approximately $20 million.

Publishing segment operating revenues in the second quarter were $1.0 billion compared to $1.1 billion in the second quarter last year, a decline of 6.0 percent. On a pro forma, constant currency basis publishing segment operating revenues would have been 4.4 percent lower. On the same basis, publishing revenue comparisons were almost 3 percentage points better than the first quarter of this year.

Reported advertising revenues in the second quarter were $692.2 million, a decline of 5.7 percent compared to the second quarter last year. On a constant currency basis, advertising revenues were 4.8 percent lower. Advertising revenues were 4.6 percent lower in the U.S. and 6.4 percent lower, in pounds, at Newsquest. The decline in total advertising on a constant currency basis was about 4 percentage points better than first quarter year-over-year comparisons. On the same basis, retail and classified advertising were 3.5 percentage points and 5.9 percentage points better, respectively, than the first quarter comparisons. Total advertising revenues in June declined 3.6 percent, excluding the impact of currency and it was the best comparison month since early 2007.

Ad revenue percentage changes on a constant currency basis for the retail, national and classified categories for the publishing segment as well as domestic publishing and Newsquest for the quarter were as follows:


Second Quarter 2010 Year-over-Year Comparisons

Total Publishing
U.S. Publishing Newsquest Segment
(including USA TODAY)
(in pounds)
(constant currency)
Retail (6.3%) (4.4%) (6.1%)
National (2.1%) (11.0%) (2.7%)
Classified
(3.0%)
(6.8%)
(4.0%)
(4.6%) (6.4%) (4.8%)

Classified revenues declined 5.0 percent in the quarter as classified advertising in the U.S. was 3.0 percent lower and at Newsquest it was down 6.8 percent, in pounds. Automotive was 2.5 percent higher, and employment and real estate were down 2.5 percent and 10.5 percent, respectively. Adjusting for the impact of currency, automotive would have been up 3.1 percent while employment and real estate would have declined 1.0 percent and 9.7 percent, respectively. Second quarter year-over-year comparisons were better for all three categories relative to the first quarter of 2010: by 5.1 percentage points for automotive; by 9.5 percentage points for employment; and by 5.0 percentage points for real estate. The year-over-year classified revenue comparisons in both U.S. Community Publishing and Newsquest were almost 6 percentage points better than first quarter comparisons.

On a constant currency basis, the percentage changes in the classified categories in total publishing, domestic publishing and Newsquest for the second quarter of 2010 were as follows:


Second Quarter 2010 Year-over-Year Comparisons

Total Publishing
U.S. Newsquest Segment
Publishing
(in pounds)
(constant currency)
Automotive 5.1% (6.6%) 3.1%
Employment 5.5% (11.2%) (1.0%)
Real Estate (15.5%) 4.9% (9.7%)
Legal 0.0% — 0.0%
Other
(7.3%)
(10.3%)
(8.3%)
(3.0%) (6.8%) (4.0%)

National advertising declined 2.9 percent in the quarter. A double-digit increase in national advertising in U.S. Community Publishing was offset by lower results at USA TODAY which continued to be impacted by softness in the travel-related categories. The automotive, retail and packaged goods categories improved during the quarter at USA TODAY while the entertainment, travel, telecommunications and pharmaceutical categories lagged last year. Paid advertising pages totaled 580 compared with 602 in last year’s second quarter.

Reported operating expenses in the second quarter declined 15.7 percent and totaled $846.7 million. Operating expenses, excluding special items, were down 10.2 percent. The expense reduction reflects the impact of continuing efficiency efforts and substantially lower newsprint costs offset, in part, by lower furlough savings compared with the second quarter last year. Newsprint expense in the second quarter on a pro forma basis was 31.0 percent lower as consumption and usage prices both declined in the quarter. Newsprint expense savings are expected again for the third quarter of 2010, but at a reduced level from that realized in the first half of the year due to rising prices.

BROADCASTING

Operating income for Broadcasting was $78.4 million, an increase of 56.0 percent compared to the second quarter last year. The increase, excluding special items, was $26.1 million or 49.8 percent and reflects substantially higher revenue growth offset by a modest increase in operating expenses of 5.0 percent. Operating cash flow increased 44.5 percent compared to the same quarter a year ago and totaled $86.5 million. Broadcasting revenues (which include Captivate) increased 20.3 percent and totaled $184.0 million compared to $153.0 million last year. The revenue increase reflects stronger core revenues, substantially higher advertising related to political and issue spending and solid revenue growth at Captivate. Operating expenses for the broadcasting segment, excluding special items, totaled $105.6 million in the quarter compared to $100.6 million in the second quarter last year. The increase reflects higher advertising sales costs and the absence of furlough savings of approximately $3 million in the second quarter last year offset, in part, by the impact of efficiency and cost control efforts.

Television revenues were $177.5 million compared to $148.4 million in the second quarter last year reflecting a 60 percent plus increase in the automotive category, double digit increases in retail and packaged goods as well as a $9.9 million increase in politically related advertising. Based on current trends, we expect the percentage increase in television advertising revenues to be in the mid-twenties for the third quarter of 2010 compared to the third quarter of 2009. However, it is early in the quarter to gauge results, particularly for political spending which will be placed primarily late in the quarter.

DIGITAL

The digital segment includes results for CareerBuilder, PointRoll, ShopLocal, Planet Discover, Schedule Star and Ripple6.

Digital operating revenues increased 8.3 percent to $154.1 million in the quarter compared to $142.4 million in the second quarter last year. The increase reflects mid-single digit revenue growth at CareerBuilder; the first quarter of revenue growth at CareerBuilder since 2008’s fourth quarter. Double digit revenue growth at PointRoll and ShopLocal also contributed to the increase. Digital operating expenses were $126.6 million in the quarter, an increase of 2.1 percent while CareerBuilder’s operating expenses were flat in the quarter. As a result, segment operating income increased 49.4 percent while operating cash flow was up 30.1 percent.

Company-wide digital revenues, which include the Digital Segment and all digital revenues generated by the other business segments, were $252.2 million, 9.7 percent higher in the second quarter compared to the second quarter in 2009 and were almost 19 percent of total operating revenues.

NON-OPERATING ITEMS

The company’s equity earnings include its share of operating results from unconsolidated investees including the California Newspapers Partnership, Texas-New Mexico Newspapers Partnership, Tucson newspaper partnership and other online/digital businesses including Classified Ventures.

The $4.7 million increase in equity income in unconsolidated investees reflects stronger results for certain newspaper partnerships and certain digital investments, particularly Classified Ventures.

Interest expense was $42.2 million compared to $44.0 million in the second quarter a year ago. The 4.1 percent decline reflects the impact of significantly lower average debt balances partially offset by a higher average interest rate. Debt was reduced by more than $170 million during the quarter.

The $19.5 million decrease in other non-operating items reflects primarily the impact in the second quarter 2009 of several special items. Excluding those one-time items, other non-operating income would have been $1.9 million in the second quarter of 2009 compared to a $2.9 million loss in the second quarter of 2010. The decline reflects losses associated with certain financial investments.

The reported tax rate of 22.0 percent includes a net tax benefit due primarily to the expiration of the statutes of limitations and the release of certain reserves related to the sale of a business in prior years. Excluding the net benefit of these items, the tax rate for the quarter would have been 34.8 percent compared to 32.0 percent in the second quarter last year.

At the end of the quarter, Gannett had more than 100 domestic publishing Web sites, including USATODAY.com, one of the most popular newspaper sites on the Web. The company also had Web sites in all of its 19 television markets. In June, Gannett’s consolidated domestic Internet audience share was 45.0 million unique visitors reaching 20.9 percent of the Internet audience, according to Comscore Media Metrix. Newsquest is also an Internet leader in the UK where its network of Web sites attracted over 72 million monthly page impressions from approximately 8.0 million unique users. CareerBuilder’s unique visitors in June totaled 21.6 million.