This Company Is Successfully Transforming Itself

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Gannett (NYSE: GCI) is a diversified media and advertising conglomerate operating in three segments – publishing, digital and broadcasting. With print publishing slowly on the verge of being a thing of the past, it is imperative that Gannett displays a sense of farsightedness and quickly aligns with new business dynamics.

Gannett seems to be moving in that direction. It posted 2Q 2013 results about a fortnight back, and they were worth discussing.

Decent performance

Gannett reported total revenue of $1.3 billion, which was a shade below the year-ago quarter (by 0.3%_ and missed consensus estimates by roughly $30 million. The decline in total publishing revenue of 1.7% was partly responsible for the miss. In addition, the classified-advertisement revenue in domestic publications slipped 5.2%. In general, soft advertising revenue remained the biggest drag in the quarter.

Gannett posted earnings of $0.58 per share, which was lower than consensus estimates by a few pennies but 4% higher than the year-ago quarter. The year-over-year northward movement in earnings was primarily driven by its all-access content-subscription model, supplemented by the healthy performances of the broadcasting and digital segments.

Including one-time items, EPS worked out to $0.48 per share, compared to $0.51 in the year-ago quarter.

Bright prospects

Publishing companies are plagued by contraction in advertising revenue, and this is prompting them to charge for online access of content. Like a few of its peers, Gannett also moved ahead with a subscription-based model, started digital marketing services in top markets, and its iconic brand, USA Today, got a makeover in order to generate new advertising and marketing revenue. Going forward, this is bound to help the top and bottom line of the company as it expects to have $80 million in incremental revenue from these efforts.

The company made a strategic acquisition of television-station operator Belo (NYSE: BLC). The deal is expected to close by the end of 2013. This move represents a conscious diversification away from the publishing segment and opens up avenues in broadcasting. This deal will nearly double Gannett's broadcast capacity from 23 to 43 stations, and help it to strengthen its foothold in the briskly changing broadcast-media business.

According to analysts, re-transmission revenue is growing faster than expected. The Belo acquisition will help in transforming the company’s business model from being a low-margin newspaper one to a high-margin multimedia business and position it as the top affiliate of CBS. Revenue synergies, however, are not expected soon. It is expected that results of the acquisition would start showing up beginning next year, and Gannett expects to garner as much as $175 million in annual synergies from Belo spread over a period of three years.

The acquisition is a smart one for Gannett as Belo is a strong company. Its quarterly results in the final earnings release before the takeover beat analysts' earnings estimates. Revenue and earnings were flat from last year, but the acquisition should lead to better performance on account of the synergies generated. 

A look at another player

The New York Times (NYSE: NYT) recently posted its 2Q 2013 results. The earnings were reported at $0.14 per share, which beat consensus estimates and the year-ago quarter's $0.11 per share. Including one-time items and discontinued operations, the earnings were $0.13 per share, compared to a year-ago loss of $0.58 per share based on the same inclusions. This turnaround is primarily a result of the success of digital-subscription packages, effective cost management and increased circulation revenue.

The company has done well to expand its digital subscriptions. The number of digital subscribers was 699,000 in the previous quarter, representing growth of 35% year-over-year. Looking ahead, The Times is making significant changes to its business.

It will be expanding globally under “a new unified brand” by focusing on video production. The Times has brought in video executive Rebecca Howard from AOL to grow its video presence, and has eliminated the metered pay-wall from its video, resulting in a 100% jump in ad impressions.


Gannett has done well in transitioning to the digital world, and its all-access subscription model has similarly had solid performance so far. The company has also made a strategic acquisition, which should increase its revenue further, and the resulting synergies should have a positive effect on earnings in the future. Trading at 13 times its trailing PE and offering a dividend that yields 3.1%, Gannett is a stock that will not let you down.

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