New Media/Gatehouse charms Wall Street again with fourth quarter profit story

Finding that Gatehouse has acquired yet another paper doesn't typically earn cheers from affected journalists. Cost cuts and a relentless bottom-line focus is pretty sure to follow.

But the chain's parent, New Media Investment Group, releasing its fourth quarter and full-year results for 2017 today, continues to perform better than the industry norm for investors.

Also, in a surprising answer to an analyst's question during a conference call, CEO Mike Reed said that spending on local information not available elsewhere, and, especially on investigative reporting, are keys to maintaining and growing circulation revenue — both print and digital.

Many of New Media's peer companies have relied on very aggressive subscription price increases, Reed said. In theory, at companies like Gannett, higher revenue per subscriber makes up for any loss in how many people are buying the paper. But the trade-off has not been happening lately, sending circulation revenue in the wrong direction.

The high subscription price strategy creates "too much carnage on the volume side ... (you're losing business) you never get back," Reed said.

Discussing journalism investments, Reed cited a national investigation of wind farm damage to nearby homeowners, announced as a finalist this morning in the multimedia category of the Scripps Howard Awards, as the sort of work he would like to see more of.

Since a 2014 reorganization, the company has acquired 42 local media properties for a total of $892 million.  It currently is absorbing the Morris chain, bought for $120 million late last year — including papers in Jacksonville, Savannah and Augusta. New Media is closing a deal for The Register Guard in Eugene, Oregon, this quarter.

Several published reports have said that Gatehouse is about to buy the Austin American Statesman, which Cox has had on the market for four months, for $50 million. No transaction was announced as part of the company's report, but Reed dropped a broad hint that such a deal may be coming.

Some acquisitions "in the pipeline," he said, "are in better, faster-growing markets," so the company will need to pay at the top of the typical price range. That describes Austin to a T — long one of the nation's fastest-growing mid-sized metros.

New Media reported circulation revenue at properties it owned in both 2016 and 2017 as up 0.6 percent year-to-year. Print advertising on that "same store" basis was down 13.2 percent — hardly good, but better than the 18 percent-plus losses several other publicly traded newspaper companies have reported in the past two weeks.

Revenues from non-news businesses such as marketing services and events grew at roughly a 30 percent rate for 2017 and are expected to show the same growth in 2018. Including commercial printing, those "other" revenues now make up 15 percent of the total.

As for expense reductions, Reed said only that New Media had "very good cost controls in place during the fourth quarter," not specifying just how much it is stripping out of acquired properties.

Unusual for a legacy newspaper company in the midst of digital transformation, New Media pays investors a high dividend — $1.48 a year on shares that are trading at roughly $17. That's a sweet payout so long as the stock also holds its value. Reed noted that, with the dividend, New Media investors' total yield was up 13.8 percent for 2017, compared to a 17.2 percent decline for peer companies.

Wall Street responded favorably to the report, with shares up 8 percent in lunchtime trading.


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