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Gannett 1Q profit drops 60 pct as ad slump worsens

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MICHAEL LIEDTKE | April 16, 2009 04:25 PM EST | AP

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SAN FRANCISCO — Gannett Co.'s first-quarter profit plummeted 60 percent as the recession and Internet competition hammered the advertising revenue that buttresses its newspapers, including USA Today.

As gloomy as Thursday's report was, investors were braced for an even worse showing from the largest U.S. newspaper publisher.

Gannett shares gained 11 cents, 3.15 percent, to close at $3.60. The stock is down about 90 percent from the same time last year.

Investors might have been encouraged by Gannett's pledge to use most of its cash flow to whittle its debt, which stood at $3.7 billion at the end of March. The company's next big repayment, of $500 million, isn't due until 2011.

With its debt apparently under control and operations still profitable, Gannett is less likely to sink into the kind of financial despair that has driven five other U.S. newspaper publishers into bankruptcy protection since December.

The McLean, Va.-based company earned $77.4 million, or 34 cents per share, in the three-month period that ended March 29. That compared with $191.8 million, or 84 cents per share, in the same three months of 2008.

If not for several one-time gains and costs, Gannett said it would have made 25 cents per share. On that basis, Gannett's earnings were a penny above the average estimate among analysts polled by Thomson Reuters.

Total revenue in the period fell 18 percent to $1.38 billion.

Gannett's first-quarter results offered a sobering glimpse at what other newspaper publishers are likely to report during the next two weeks. Much of the industry has been fighting a precipitous drop in revenue because of an advertising downturn that is now in its third year.

Not surprisingly, Gannett's erosion was concentrated in its publishing operations, which include more than 80 U.S. daily newspapers. Ad revenue in this segment plunged 34 percent to $723 million in the first quarter, the biggest drop yet during nine consecutive quarters of decline in the division.

Classified advertising, historically one of newspapers' biggest revenue sources, dropped by more than 46 percent. Newspapers have been having more trouble selling classified ads because of free or less expensive Internet alternatives like Craigslist. More recently, the recession has compounded the problem as fewer ads are purchased for job openings, automobiles and homes.

USA Today, the nation's largest weekday newspaper, sold 36 percent fewer pages of advertising during the quarter. The biggest declines occurred in entertainment, travel and financial services marketing.

Gannett Chief Executive Craig Dubow offered some hope, saying he sees "a bit of leveling" in the newspaper advertising downturn. Without making specific projections, Dubow acknowledged much of the advertising revenue that has evaporated during the past two-plus years may not return even after the recession ends.

The trouble with newspapers isn't limited to advertising. Readers also have been dropping their subscriptions, partly because most newspapers, including Gannett's, give away most of the same information on their Web sites.

Total weekday circulation at Gannett's newspapers fell about 10 percent from a year ago to roughly 6.6 million in the first quarter, according to Gracia Martore, the company's chief financial officer. She blamed some of the readership losses on price increases that Gannett imposed to bring in more money. Even with the higher newspaper prices, Gannett's circulation revenue dipped 3 percent to $300 million in the quarter.

Newspapers have been counting on a surge in online advertising to rescue them, but revenue from the Internet hasn't been nearly enough to offset losses in the print medium.

And now even online advertising is sagging. Excluding USA Today, Gannett's newspaper Web sites suffered a roughly 20 percent decline in first-quarter advertising, Martore told analysts in a Thursday conference call.

The advertising miseries also are spreading to Gannett's 23 television stations. The company's broadcast revenue fell 16 percent to $143.5 million, and a decline in the "high teens" during the second quarter appears likely, Dubow told analysts in the conference call.

To shore up its profits, Gannett has been slashing its expenses through layoffs and furloughs. It also has been combining some of its newspapers' printing and distribution tasks or farming them out to publications owned by other companies. Excluding one-time gains and costs, Gannett said expenses in its publishing division fell 18 percent in the first quarter.

The company saved about $20 million by requiring most of its U.S. employees to take one week of unpaid leave during the first quarter. Gannett expects to save another $20 million or so under a similar furlough program in the current quarter. Martore didn't rule out more furloughs during the second half of the year, saying the decision would hinge on the condition of the economy.

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AP Business Writer Andrew Vanacore in New York contributed to this report.