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Gannett Posts Solid Earnings Driven by Broadcasting Gains

Gannett Co., Inc. (GCI) posted third-quarter 2014 earnings of 59 cents a share that surpassed the Zacks Consensus Estimate of 55 cents and jumped 37.2% year over year. The outperformance was prompted by the splendid performance from its Broadcasting segment, which benefited from its enhanced portfolio of television stations, as well as profitable results at the Digital segment.

Gannett Co , Inc - Earnings Surprise | FindTheBest

Including one-time items, earnings came in at 51 cents a share, substantially up from 34 cents reported in the prior-year quarter.

Gannett reported total revenue of $1,443.1 million, up 15.2% from the prior-year quarter, and ahead of the Zacks Consensus Estimate of $1,438 million. Top-line growth primarily came from improved Broadcasting and Digital revenues, offset in part by a decline in Publishing revenue.

However, had Gannett owned the Belo TV stations and London TV stations in the year-ago quarter and eliminated results for Captivate and discounted the impact of the divestiture of Apartments.com, pro-forma revenue would have increased 3.8%.

Gannett is taking initiatives to diversify its business model, shielding itself against any economic onslaught by adding new revenues streams. The company is also adapting to the changing face of the multi-platform media universe, with Internet, mobile, social media networks and outdoor video advertising already in its portfolio. The company has been also realigning its cost structure and streamlining its operations to increase efficiencies.

Gannett recently decided to split its business into two separate entities, one completely focusing on Broadcasting and Digital and the other concentrating on Publishing.

For quite some time now, Gannett has been making endeavors to expand its presence in broadcasting and digital products with a view to lower its dependency on its soft print media business and traditional advertising. The news of Gannett taking over Cars.com underscores the same. Prior to this, the company bought six television stations of London Broadcasting Company and acquired television-station operator, Belo Corp. We believe this will transform Gannett’s business model, which was largely focused on low margin newspapers, to a high-margin multi-media one.

Other publishing companies such as Journal Communications, Inc. (JRN), The New York Times Company (NYT) and The E.W. Scripps Co. (SSP) are also trying to adapt to different revenue generating ways.

Behind the Headline

Gannett stated that the Digital segment revenue rose 4.4% to $199.8 million due to robust revenue growth of 6.9% at CareerBuilder. The segment’s operating income came in at $48.3 million, reflecting an increase of 15% from the year-ago quarter.

Company-wide pro-forma digital revenues, taking into account the Digital segment and all digital revenues coming from the other business segments, grew 6.7% to $404.4 million. The upside was driven by revenue gains at CareerBuilder, digital marketing solutions products and digital advertising.

Broadcasting segment revenue, which primarily gained from acquisitions, more than doubled year over year to $416.5 million. Further, the segment revenue also benefited from political spending along with a notable rise in retransmission revenues. Adjusted Broadcasting operating income soared twofold to $179.3 million.

On a pro-forma basis, Broadcasting segment revenues surged 18.6%, driven 60.9% growth in retransmission revenue and an increase of 24.1% in digital revenue. Meanwhile, political advertising revenue totaled $40 million.

Management now expects fourth-quarter 2014 television revenue growth of over 115% considering the current trends and taking into account the full-quarter contribution from the Belo and London stations acquisitions. However, on a pro-forma basis, television revenue is projected to jump in the low-twenties.

Total Publishing segment revenue of this Zacks Rank #4 (Sell) stock declined 3.6% to $826.8 million, while on a pro-forma basis it decreased 2.5%. The fall in revenue was due to soft advertising, partly offset by an increase in revenues across digital advertising and marketing solutions.

Publishing Advertising revenue dropped 4.9% to $494.9 million, while Publishing Circulation revenue inched up 0.7% to $276.8 million. Total Publishing segment adjusted operating income slipped 8.3% to $70.7 million.

Pro-forma Publishing segment digital revenues rose 7.2% attributable to increased digital advertising and marketing solutions revenues.

Classified advertising at domestic publishing operations decreased 3.6% in the quarter under review. Within classified, softness persisted in all operating categories, namely employment (down 1.6%), real estate (down 4.5%), automotive (down 1.4%) and legal (down 4.9%). Retail and national advertising revenue categories at domestic publishing operations declined 5.4% and 10.7%, respectively.

The current economic situation does not look much promising for publishing companies, which are bearing the brunt of waning advertising demand, and Gannett is no exception. However, robust political advertising demand would help the company to generate incremental revenues.

Other Financial Aspects

Gannett ended the quarter with total cash of $1.37 billion and long-term debt of $4.11 billion. The company generated net cash flow from operating activities of $217.7 million and free cash flow of $185.9 million.

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