Zacks_Analysts' Blog : Earnings Preview: Gannett - Analyst Blog

Gannett Company Inc. (GCI), the publisher of the nation's largest-selling daily newspaper USA Today, is scheduled to report its second-quarter 2011 financial results on July 18, 2011. The current Zacks Consensus Estimate for the quarter is 57 cents a share. For the quarter under review, revenue is $1,329 million, according to the Zacks Consensus Estimate.

First-Quarter 2011, a Synopsis

Gannett posted lower-than-expected first-quarter 2011 results, reflecting soft publishing advertising demand, and absence of advertising related to Olympics and Super Bowl as well as political spending. However, these were offset, to some extent, by effective cost management.

The quarterly earnings of 41 cents a share missed the Zacks Consensus Estimate by a penny and fell 16.3% from last year's 49 cents. On a reported basis, including one-time items, earnings came in at 37 cents a share, down 24.5% from 49 cents delivered in the year-ago quarter.

Gannett's total revenue dropped 3.7% to $1,251.3 million from the prior-year quarter due to a fall in revenue across Publishing and Broadcasting segments, partially offset by gain at Digital segment. However, total revenue came ahead of the Zacks Consensus Estimate of $1,247 million.

Second-Quarter 2011 Zacks Consensus

Analysts considered by Zacks, expect Gannett to post second-quarter 2011 earnings of 57 cents a share. The current Zacks Consensus Estimate reflects a decline of 6.6% from the prior-year quarter earnings. The current Zacks Consensus Estimate for the quarter ranges between 54 cents and 60 cents.

Zacks Agreement & Magnitude

Out of the 8 analysts following the stock, one analyst lowered the estimate in the last 7 and 30 days, resulting in a downward movement of the Zacks Consensus Estimate by a penny to 57 cents a share for second-quarter 2011.

Positive Earnings Surprise History

With respect to earnings surprises, Gannett has topped as well as missed the Zacks Consensus Estimate over the last four quarters in the range of -2.4% to 17.3%. The average remained at 5.9%. This suggests that Gannett has beaten the Zacks Consensus Estimate by an average of 5.9% in the last four quarters.

Our View

The publishing industry has long been grappling with sinking advertising revenue and the recent global economic meltdown has worsened the situation. This downturn followed a longer-term secular decline as more readers choose to get news online for free, making the print-advertising model increasingly redundant. Moreover, the ad rates of print are typically more expensive than the web.

In an effort to offset declining revenue and shrinking market share, publishers are slashing costs, and Gannett remains no exception.

Gannett is diversifying its business by adding new revenue streams to make it less susceptible to economic conditions. The company is also streamlining its cost structure, strengthening its balance sheet and rebalancing its portfolio. The company is witnessing higher digital revenues.

However, the company’s high dependence on advertising revenue, which is driven by the health of the economy, remains a potential threat.

We have a long-term ‘Neutral’ rating on the stock, given a sluggish economic recovery and a soft advertising spending environment. Moreover, Gannett, which competes with The New York Times Company (NYT), holds a Zacks #4 Rank that translates into a short-term ‘Sell’ recommendation.