Gannett Earnings Preview: Print Advertising Shrinks, But Digital Could Be The Savior

Gannett Co. Inc. (NYSE: GCI), publisher of USA Today and 81 local daily newspapers, is expected to have slightly lower revenue in the second quarter this year versus last year, as print advertising continues to weaken and the broader economy remains uncertain.

McLean, Va.-based Gannett reports earnings Monday, before the market open. It is forecast to have earnings per share of 52 cents on revenue of $1.32 billion, down from a profit of 58 cents per share, excluding special items, and revenue of $1.33 billion in the year-ago period, according to analysts polled by Reuters.

Print-advertising revenue is expected to fall even as circulation rose in the second quarter, according to Edward Atorino, an analyst with the New York-based Benchmark Co. LLC. But Gannett's broadcast holdings, including 23 television stations around the country, are expected to increase profits in the second quarter and generate strong revenue in the second half of the year because of the London Olympics and political advertising tied to the presidential campaign, he said.

Broadcast is going to be spectacular, it's going to provide the resources, at least on the interim basis, said Atorino, who forecasts more than $30 million from the Olympics and as much as $100 million in political ads during the second half of the year.

In addition to advertising, Gannett's television stations can create additional profits through retransmission fees.

The broadcasting group is achieving improving economics through its ability to secure retransmission fees, which effectively creates a dual revenue stream model of advertising and retransmission dollars equivalent to cable networks that secure ad dollars and affiliate fees, James Goss, an analyst with Chicago-based Barrington Research Associates Inc., wrote in a research note last Monday.

Gannett's online holdings, including the job website CareerBuilder, have also become critical for its future, analysts said. In January, Gannett's USA Today division bought Fantasy Sports Ventures for an undisclosed sum to further expand its online offerings.

The company has begun implementing online pay walls at its local news websites, and it expects to spend a total of $65 million in investments this year, including the $20 million it spent in the first quarter, Gracia Martore, CEO and president of Gannett, said during last quarter's earnings conference call in April. The costs include higher pension expenses.

In implementing digital pay walls, Gannett trails rivals such as the New York Times Co. (NYSE: NYT), parent of the New York Times, and News Corp. (Nasdaq: NWSA), parent of the Wall Street Journal. They're playing catch up, said Benchmark's Atorino, who added that Gannett's presence in underserved local markets could be an advantage.

The knowledge we've accumulated and our strong relationships with consumers and local businesses are the bedrock of our plan, Martore said during the April earnings conference call.

Gannett closed up seven cents to $14.31 on Friday.