Currently, we have a long-term Neutral rating on Gannett Company, Inc. (GCI), the diversified media conglomerate, with a price target of $14.00. Moreover, the company also holds a Zacks #3 Rank, which translates into a short-term Hold recommendation and correlates with our long-term view.
Advertising remains a significant source of revenue for the company, which in turn depends upon the health of the economy. Gannett recently posted lower-than-expected first-quarter 2011 results, reflecting soft publishing advertising demand and the absence of advertising related to Olympics and Super Bowl as well as political spending.
The quarterly earnings of 41 cents a share missed the Zacks Consensus Estimate by a penny and fell 16.3% from last year's 49 cents.
Gannett's total revenue dropped 3.7% to $1,251.3 million from the prior-year quarter due to fall in revenue across Publishing and Broadcasting segments, partially compensated by the gain at the Digital segment. However, total revenue strode ahead of the Zacks Consensus Estimate of $1,247 million.
The company informed that its publishing advertising revenue fell 7.3% to $601.7 million from the year-ago quarter. Publishing circulation revenue dipped 3.9% to $268.2 million. Automotive and employment classified performed well in domestic publishing operations, but softness persisted in the real estate category.
Core television advertising saw robust growth with higher retransmission fees and digital revenue. Retransmission revenue jumped 25.7% to $19.5 million, whereas Digital segment revenue rose 12.1% to $157.6 million, reflecting robust employment advertising demand at CareerBuilder during the quarter. Excluding the impact of political spending, television revenue is expected to increase in the mid single digits during second-quarter 2011.
Gannett is taking initiatives to diversify its business model by adding new revenue streams in an effort to make it less susceptible to economic conditions. The company is also adapting to the changing face of the multiplatform media universe, which currently includes Internet, mobile, social media networks and outdoor video advertising in its fold.
To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content. News International, the subsidiary of News Corporation (NWSA) started charging readers for the online content of The Times of London and Sunday Times of London from June 2010.
In March, another media giant –– The New York Times Company (NYT) –– launched a pricing system similar to that of the Financial Times' metered system, whereby after browsing a certain number of free articles, readers will be asked to subscribe to enjoy full access to its articles on phones, tablet computers and the Internet.
Given slow economic resurgence and soft advertising spending environment, we continue to maintain our long-term “Neutral” rating on Gannett.
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