Business News
Gannett Co., Inc. Reports Third Quarter Results
Tuesday 20. October 2009 - Earnings per Diluted Share of $0.31; Non-GAAP Earnings per Diluted Share of $0.44; Operating Cash Flow was $255.5 million
Gannett Co., Inc. (NYSE: GCI) reported today that 2009 third quarter earnings per diluted share were $0.31 compared to earnings per share of $0.69 for the third quarter of 2008. Results for both quarters included the special items noted below. Earnings per diluted share for the third quarter of 2009, excluding special items, were $0.44. On a comparable basis, earnings per diluted share for the third quarter of 2008 were $0.76.
Results for the third quarter of 2009 include $44.7 million of pre-tax non-cash charges associated primarily with facility consolidations and asset impairments ($28.9 million after-tax or $0.12 per share) and $2.3 million in pre-tax costs covering workforce restructuring ($1.4 million after-tax or $0.01 per share). Results for the third quarter of 2008 included $23.0 million in pre-tax workforce restructuring expenses ($14.4 million after-tax or $0.07 per share).
The Non-GAAP Financial Information section which follows provides details of these special items and their effects on the Statements of Income.
“We finished the quarter on a stronger note with better than anticipated results due primarily to better trends in advertising and greater efficiencies across all of our business segments. Our results for the quarter exceeded the high end of previously announced estimate ranges for revenue, operating cash flow, and earnings per share. Although recessions in the U.S. and UK continued to temper ad demand and revenue growth during the quarter, we are encouraged by the revenue trends. Third quarter year-over-year comparisons of publishing advertising revenue were a few percentage points better than year-over-year comparisons for the second quarter and September was our best comparison month of the year. Weve seen improvements in our Broadcasting segment as well. Excluding Olympic and political ad spending, core revenue comparisons were better in the third quarter than the second quarter. Operating profits in our digital segment, on a pro forma basis, were substantially higher this quarter relative to the third quarter last year,” said Craig Dubow, Gannett chairman, president and chief executive officer.
“Our operating expenses were significantly lower in the quarter reflecting substantially lower newsprint expense as well as our continued success in lowering costs across all of our businesses. We continued to opportunistically manage our capital structure in the quarter and reduce our overall debt. Our bond financing was very well received in the capital markets as we successfully raised $500 million in two $250 million tranches with maturities in 2014 and 2017. In addition, we paid down $197 million in debt in the quarter and the year-to-date debt reduction totaled $504 million despite the challenging economic environment. We now have almost 25 percent of our debt maturing in the fourth quarter of 2014 or beyond,” Dubow continued.
The weak economies in the U.S. and UK continued to pressure advertising demand. Total reported operating revenues for the company were $1.3 billion in the third quarter compared to $1.6 billion in the third quarter of 2008. Digital segment revenues were 84.2 percent higher driven by the consolidation of CareerBuilder for the full quarter in 2009. On a pro forma basis, total revenue comparisons year-over-year in the third quarter, while down, improved relative to year-over-year comparisons for the first quarter and the second quarter. The exit of a commercial printing business announced last quarter resulted in the absence of about $21 million of revenues for our Publishing segment compared to the third quarter last year.
Reported operating expenses were 14.4 percent lower in the quarter and totaled $1.2 billion. The significantly lower expense level reflects efficiency efforts that resulted in workforce restructuring and facility consolidations in the current period and prior periods, in addition to sharply lower newsprint expense. The decline in expense was partially offset by the consolidation of CareerBuilder for the full quarter this year. On a pro forma basis, operating expenses, excluding special items in both quarters, were 20.2 percent lower.
Operating cash flow (defined as operating income plus depreciation, amortization and non-cash asset impairment and other charges) was $255.5 million for the quarter. Net income was $73.8 million.
Average diluted shares outstanding in the third quarter totaled 238,815,000.
PUBLISHING
Operating revenues generated by the Publishing segment were $1.0 billion for the quarter, a 23.5 percent decline from the third quarter in 2008 and reflect the challenging advertising environment. Publishing segment operating cash flow was approximately $173.0 million.
Advertising revenues totaled $699.6 million, a 28.4 percent decline compared to the third quarter of 2008. Retail was 22.4 percent lower, national was down 25.0 percent, and classified declined 36.9 percent. Advertising revenues in the U.S. were down 26.0 percent while at Newsquest, our operations in the UK, ad revenues declined 28.7 percent, in pounds. The exchange rate for the British pound declined 13.5 percent to 1.64 in the third quarter of 2009 from 1.90 in the same quarter last year. Overall, advertising revenue year-over-year comparisons for the third quarter were better than second quarter year-over-year results in both the U.S. and the UK.
Ad revenue percentage changes for the retail, national and classified categories for the publishing segment (on a constant currency basis) including domestic publishing and Newsquest (in pounds) were as follows:
Total
Publishing
U.S. Publishing Newsquest Segment
(including USA TODAY) (in pounds) (constant currency)
Retail (21.5%) (19.0%) (21.3%)
National (25.2%) (10.4%) (24.3%)
Classified (33.8%) (34.7%) (34.1%)
(26.0%) (28.7%) (26.4%)
Classified revenues were down 36.9 percent reflecting declines of 33.8 percent in the U.S. and 34.7 percent, in pounds, at Newsquest. Automotive, employment and real estate declined 35.0 percent, 55.5 percent and 36.8 percent, respectively. The percentage changes in the classified categories in total (on a constant currency basis) for domestic publishing and Newsquest for the third quarter of 2009 compared to the third quarter in 2008 were as follows:
Total
Publishing
U.S. Newsquest Segment
Publishing (in pounds) (constant currency)
Automotive (31.8%) (37.4%) (32.9%)
Employment (55.4%) (48.8%) (53.0%)
Real Estate (35.3%) (30.6%) (34.0%)
Legal 9.3% — 9.3%
Other (21.3%) (17.4%) (20.0%)
(33.8%) (34.7%) (34.1%)
Year-over-year classified comparisons in the third quarter were the best thus far this year. The year-over-year comparisons in U.S. Community Publishing were better than second quarter comparisons by almost 5 percentage points while the comparisons at Newsquest, in pounds, were approximately 10 percentage points better than second quarter comparisons.
The soft economy continued to negatively impact national advertising company-wide. Ad demand at USA TODAY was particularly affected by the slowdown in the travel industry. The travel, automotive and entertainment categories were all down significantly in the quarter. Paid advertising pages totaled 493 compared with 713 in the third quarter last year.
Reported publishing expenses were $939.7 million, a 20.3 percent decline due primarily to cost control and efficiency efforts including facility consolidations and workforce restructuring in this and prior periods as well as significantly lower newsprint expenses. Operating expenses excluding special charges from both quarters would have been down 21.9 percent. Newsprint expense was 43.4 percent lower in the quarter. Newsprint prices continued to fall during the third quarter. We expect more favorable price comparisons in the fourth quarter.
BROADCASTING
Broadcasting revenues (which include Captivate) were $151.5 million in the quarter compared to $197.0 million in 2008s third quarter which included approximately $50 million in ad demand related to the Olympics and the elections. A three-fold increase in retransmission revenues to $14.3 million and solid revenue growth from Captivate this quarter partially offset the absence of Olympic and election ad spending and continued weakness in the automobile category.
Television revenues were down 24.7 percent to $145.2 million. Based on current trends, we would expect the percentage decline in television revenues to be in the low twenties for the fourth quarter of 2009 compared to the fourth quarter of 2008. This is due primarily to the absence of approximately $58.1 million of political ad revenue achieved in the fourth quarter of 2008.
Operating expenses for the broadcasting segment totaled $108.4 million in the third quarter of 2009 compared to $113.0 million a year ago. The 4.1 percent decline was due primarily to efforts to control costs and create efficiencies. Operating expenses excluding special items in both quarters were 8.9 percent lower. Operating cash flow was $58.5 million in the quarter.
DIGITAL
The digital segment includes results for CareerBuilder, PointRoll, ShopLocal, Planet Discover, Schedule Star and Ripple6. Results for CareerBuilder and ShopLocal were initially consolidated in the third quarter of 2008 when the company acquired ShopLocal and controlling interest in CareerBuilder. Ripple6 was acquired in November 2008. Results for PointRoll, Planet Discover and Schedule Star, which had been previously included in the publishing segment, have been reclassified to the digital segment for prior periods.
Digital operating revenues totaled $143.0 million in the quarter compared with $77.6 million in 2008, reflecting primarily the consolidation of CareerBuilder for the full quarter in 2009. Operating expenses were $118.3 million. Operating cash flow was $33.3 million reflecting significantly better results for most of our digital properties.
On a pro forma basis, operating revenues were 20.4 percent lower reflecting the impact of weaker employment ad demand on CareerBuilders results. Operating expenses declined 28.4 percent and savings exceeded the revenue shortfall. Operating income, as a result, was 70.7 percent higher and totaled $24.6 million while operating cash flow increased $10.3 million or 45.0 percent.
NON-OPERATING ITEMS
The companys 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/new technology businesses including Classified Ventures. Equity earnings also included the companys equity share of results for CareerBuilder for the first two months of the third quarter of 2008, before the company acquired controlling interest and began consolidating its results.
The $6.1 million decline in equity income in unconsolidated investees for the third quarter of 2009 reflects a non-cash impairment charge of $5.4 million for an investment and lower operating results from our newspaper partnerships. These factors were partially offset, however, by improved results from other digital investee companies, particularly Classified Ventures.
The $5.8 million earnings improvement from other non-operating items was due primarily to higher investment income and currency gains related to UK operations.
Interest expense was $38.1 million compared to $46.8 million for the third quarter last year reflecting lower debt balances and lower average interest rates. On October 2, 2009, the company completed the private placement of unsecured senior notes totaling $500 million in two tranches: $250 million with a coupon of 8.75 percent due 2014 and $250 million with a coupon of 9.375 percent due 2017.
The companys effective tax rate was 30.2 percent for the third quarter of 2009 compared with 26.3 percent, for the third quarter of 2008. The lower tax rate for 2008 reflected favorable U.S. state tax settlements.
In the first quarter of 2009, Gannett adopted Statement of Financial Accounting Standards No. 160 (FAS 160), “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (as subsequently codified in Accounting Standards Codification Topic 810). FAS 160 affected primarily the companys reporting of the 49.2 percent noncontrolling interest in CareerBuilder. Previously the company presented this minority interest in “Other non-operating items” in the Condensed Consolidated Statements of Income. Under FAS 160, “Net income” in the Condensed Consolidated Statements of Income reflects 100 percent of CareerBuilder results, as the company holds the controlling interest. “Net income” is subsequently adjusted to remove the noncontrolling (minority) interest to arrive at “Net income attributable to Gannett Co., Inc.” While this presentation is different than previously required by GAAP, the final net income results attributable to the company are the same under FAS 160 as they would have been under the previous reporting method.
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 September, Gannetts consolidated domestic Internet audience share was 26.0 million unique visitors reaching 13.4 percent of the Internet audience, according to Nielsen//NetRatings. Newsquest is also an Internet leader in the UK where its network of Web sites attracted over 73 million monthly page impressions from approximately 7.3 million unique users. CareerBuilders unique visitors in September totaled 17.9 million.
All references in this release to “pro forma” or “comparable” results and “operating cash flow” are to non-GAAP financial measures. Management believes that use of these measures allow investors and management to measure, analyze and compare the companys results in a more meaningful and consistent manner. A reconciliation of the non-GAAP operating cash flow amounts to the companys consolidated statements of income is attached.