Media conglomerate E.W. Scripps Co posted a surprise quarterly profit, helped by lower expenses even as advertising revenue slumped, and said it amended a credit agreement, sending its shares up as much as 33 percent.

Second-quarter advertising revenue at the company's newspaper segment was down 29 percent to $79.4 million.

U.S. newspapers have been hit by a relentless drop in advertising revenue as companies slash their marketing budgets due to the economic slowdown, but top media executives are optimistic that the advertising recession is stabilizing.

In the near term, we are seeing some slight improvement in the flow of advertising in our markets, particularly at the television stations, Chief Executive Rich Boehne said.

Revenue from the company's television stations fell 24 percent to $61.1 million in the quarter.

It's going to be a tough year. The (television) business did not fall off a cliff until the fourth quarter, and you still had a lot of political advertising for the presidential election that you do not have this year, said Gabelli & Co analyst Barry Lucas, who makes a market in the stock.

In 2010 you have political advertising coming back, you have Olympic games, which should contribute to performance of the business, Lucas added.

SURPRISE Q2 PROFIT

Net income from continuing operations was $2.3 million, or 4 cents per share, compared with a net loss from continuing operations of $608.4 million, or $11.20 per share, a year ago.

Consolidated revenue fell 23 percent to $193.9 million.

Analysts on average were expecting it to post a loss of 11 cents a share, before items, on revenue of $203.1 million, according to Reuters Estimates.

Second-quarter costs and expenses fell by almost 23 percent to $178.9 million at the company, which closed its Rocky Mountain News earlier this year.

Scripps' shares were up $1.45 at $6.91 in afternoon trade Monday, making them one of the top percentage gainers on the New York Stock Exchange. They touched a high of $7.26 earlier in the session.

There is a little whiff of optimism that June was a better month than April or May, and whatever momentum Scripps has seen in June seems to be carrying into July, said Gabelli analyst Lucas.

Scripps also entered into an amended and restated revolving credit agreement, which expires on June 30, 2013. The agreement revises the existing $200 million revolver and reduces the maximum amount of availability under to $150 million.

While we were in compliance with our existing credit facility, it was clear we needed to amend our bank agreement to give us more room to maneuver, said Chief Financial Officer Tim Stautberg.

The new arrangement removes the earnings-based leverage covenant and provides flexibility to make certain organizational changes, the company said.

(Reporting by Deepti Govind in Bangalore; Editing by Aradhana Aravindan)

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