April 21, 2015

Gannett opened 2015 with a first quarter earnings report similar to those of 2014 — strong growth and profits in its broadcast and digital ventures divisions, but continued substantial declines in publishing revenues.

With publishing set to spin off into a separate company mid-year, the era of the one covering for the other is coming to a close.

Advertising revenues in publishing were down 11.3 percent compared to the same quarter in 2014. Circulation revenues were also off, 3.1 percent.  For the division, quarterly profits were down 57.4 percent on a net basis and 20.1 percent as measured by EBITDA (earnings before interest, taxes, depreciation and amortization).

All those results were made somewhat worse by an unfavorable exchange rate for Gannett’s British regional papers and the discontinuation of USA Weekend.  Circulation revenue declines came from the British papers and USA Today; the company’s 81 community papers held steady..

Despite the lack of a turnaround, division president Bob Dickey, who will become CEO of the publishing company, sounded several optimistic notes:

  • The new Gannett is likely to acquire other newspapers.  Analyst Ken Doctor has written that Gannett is a likely buyer for some of the 75 Digital First papers on the market.  Dickey did not confirm that but said, “We see tremendous opportunities as a consolidator.”  The new company will be on strong enough financial footing to afford those moves and no longer compete for capital allocations with the faster-growing parts of the current company.This marks a significant shift since Gannett has been reducing its number of papers over the last 15 years from almost 100 to the current 81.

    Dickey explained that the company thinks its way of running papers can quickly create improved operating results at those it acquires.  Essentially that was the rationale that drove Gannett’s expansion in the 70s, 80s and 90s to become the nation’s largest newspaper company.

    He is confident that he can find further operating efficiencies at Gannett’s own community papers, Dickey said, as well as at any that may be acquired.

  • Dickey said the business of offering USA Today print supplements of national and entertainment news to non-Gannett papers as well as its own continues to grow.  Led by the Chicago Sun-Times, that group now contributes almost 300,000 daily circulation and more than 800,000 Sunday.
  • The company continues “great growth off a small base” in its mobile advertising efforts, CEO Gracia Martore said.  A particular plus is that auto advertising (as well as video) does well on a smartphone — since dealers are looking for leads on potential customers close to making the decision to buy so they do not care so much about the greater display dimensions of a desktop ad.

On the circulation side, Gannett has greatly reduced its effort to sell single print copies of USA Today as part of a swing to digital.  But as I reported from the Newspaper Association of America conference last month, Gannett and the industry are also struggling now to find a second wind after strong revenue growth in 2012 and 2013 from digital and all-access subscriptions.

The strong performance of Gannett’s broadcast division — up 3.8 percent in revenues for the quarter — was noteworthy because this is an off year without either Olympics or political advertising.  But Gannett was able to more than cover the absent $51 million thanks to very strong growth in the retransmission fees cable companies pay to carry its local stations.

The company also continues to grow revenues at G/O Digital, its digital marketing services arm, and Cars.com, which it now fully owns, having bought out partners last fall.

Gannett shares were up about 1 percent in midday trading.

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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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