February 17, 2016

Gannett turned a small profit in the fourth quarter of 2015 with healthy digital revenue growth more than offset by weak results in print advertising and circulation.

Total revenue was down 9.7 percent compared to the same period in 2014, and net income was $20.4 million, a profit margin of 2.6 percent — low by Gannett standards. While accounting and tax considerations were responsible for some of the decline, the company projects advertising revenues will fall another 5 to 7 percent and circulation revenue 2 to 4 percent in 2016.

Gannett stock has fared much better than competitors like McClatchy and Tribune Publishing over the last six months, but shares were trading down 7.2 percent as the markets closed Wednesday.

CEO Robert Dickey said in a conference call with analysts that he sees no reason to alter the company’s overall strategy — investing in digital development — especially mobile, video and virtual reality — and acquiring less efficient businesses to capitalize on scale the company can offer with 92 regional properties and USA TODAY.

Companies are typically mum on merger and acquisition plans. But Dickey made a partial exception, telling the analysts, “I would be disappointed if there is not another acquisition to announce in the first half of the year.”

Gannett expects to complete a previously announced deal to buy Journal Media Group (including the former E.W. Scripps papers and the Milwaukee Journal-Sentinel) at the end of this quarter or early next. Gannett also bought 11 small dailies from Digital First Media in mid-2015.

Dickey said that he sees “some improvement in local advertising trends” so far in 2016. “Pre-prints are still challenging but (also show) some improvement. Digital performance is coming on faster than we had expected.”

Overall digital advertising revenues account for about a quarter of the total company-wide, and at USA TODAY digital gains now exceed print losses.

The company claims more than 100 million unique visitors a month. Digital-only paid subscriptions have risen to 125,000, but that still is only about a tenth as many as The New York Times has.

Print circulation volume is off about 8 percent both daily and Sunday.

Besides the general downward pressure on print advertising reported in earlier fourth-quarters earnings announcements by The New York Times Company and McClatchy, Gannett is taking a one-time hit in the classified employment category. When it was spun off last summer from Gannett’s local broadcast and digital divisions, the newly-formed TEGNA kept all of the CareerBuilder jobs site; hence Gannett now sells that type of ad on less favorable terms.

As McClatchy reported in its fourth-quarter call, Gannett benefited in 2015 from a significant drop in newsprint prices. Combined with shorter press runs and smaller papers, it spent 35 percent less on newsprint than in the 2014 quarter.

Newsprint prices are expected to rise this year, though the volume will remain lower.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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