Gannett Co., Inc. (GCI) posted second-quarter 2014 earnings of 67 cents a share that surpassed the Zacks Consensus Estimate of 63 cents and jumped 15.5% year over year. The outperformance was prompted by the splendid performance from its Broadcasting segment, which benefited from the acquisition of Belo Corp., as well as profitable results at the Digital segment. The stock rose 4.8% yesterday to close at $33.25.
Including one-time items, earnings came in at 90 cents a share, substantially up from 48 cents reported in the prior-year quarter.
This Zacks Rank #3 (Hold) stock reported total revenue of $1,460 million, up 12.1% from the prior-year quarter, but short of the Zacks Consensus Estimate of $1,483 million. Top-line growth primarily came from improvement in Broadcasting and Digital revenues, offset in part by a decline in Publishing revenues.
However, had Gannett owned the Belo TV stations in the year-ago quarter and eliminated results for Captivate and discounting the impact of the divestiture of Apartments.com, pro-forma revenues would have increased 1.5%.
Behind the Headline
Gannett stated that the Digital segment revenues rose 4.2% to $194.4 million due to robust revenues growth at CareerBuilder. Digital segment operating income came in at $35.7 million, reflecting an increase of 1.2% from the year-ago quarter.
Company-wide pro-forma digital revenues, taking into account the Digital segment and all digital revenues coming from the other business segments, grew 6% to $396.9 million. The upside was driven by revenues gains at CareerBuilder, digital marketing solutions products and digital advertising.
Broadcasting segment revenues, which primarily gained from the Belo acquisition, surged 88% to $398.3 million. Further, the company’s revenues benefited from political spending along with a notable rise in retransmission revenues. Adjusted Broadcasting operating income soared 80.1% to $176.7 million.
On a pro-forma basis, Broadcasting segment revenues surged 13.4%, driven 66.6% growth in retransmission revenues and an increase of 15.2% in digital revenues, partly offset by 2% decline in core revenues impacted by soft national advertising trends. Meanwhile, political advertising revenues totaled $16.6 million compared to $2.8 million in the prior-year quarter.
Management now expects third-quarter 2014 television revenues growth in the high nineties range considering the current trends and taking into account the full-quarter contribution from the Belo stations acquisition. However, on a pro-forma basis, television revenues is projected to jump in the high teens.
Total Publishing segment revenues declined 4.1% to $867.4 million, while on a pro-forma basis it decreased 3.7%. The fall in revenues was due to soft domestic national advertising, partly offset by an increase in revenues across digital advertising and marketing solutions.
Publishing Advertising revenues dropped 5.7% to $530.2 million, while Publishing Circulation revenues slid 0.6% to $277.9 million. Total Publishing segment's adjusted operating income slipped 10.6% to $99.6 million.
Pro-forma Publishing segment digital revenues rose 6.9% attributable to increased digital advertising and marketing solutions revenues.
Classified advertising at domestic publishing operations decreased 4.9% during the quarter under review. Within classified, softness persisted in all operating categories, namely employment (down 6.5%), real estate (down 4.7%), automotive (down 3.5%) and legal (down 3.7%). Retail and national advertising revenues categories at domestic publishing operations declined 4.7% and 18.5%, respectively.
The current economic situation does not look much promising for publishing companies, which are bearing the brunt of waning advertising demand, and Gannett, is no exception. However, robust political advertising demand in the third and fourth quarters would help the company to capture incremental revenues.
Gannett is taking initiatives to diversify its business model, shielding itself against any economic onslaught by adding new revenues streams. The company is also adapting to the changing face of the multi-platform media universe, which currently includes Internet, mobile, social media networks and outdoor video advertising in its portfolio. The company has been also realigning its cost structure and streamlining its operations to increase efficiencies.
Gannett also initiated a subscription-based model, commenced Digital Marketing Services in top markets, and refurbished its iconic brand, USA Today to generate new advertising and marketing revenues sources. Other publishing companies such as Journal Communications, Inc. (JRN), The New York Times Company (NYT) and The E.W. Scripps Co. (SSP) are also trying to adapt to different revenues generating ways.
With a view to lower its dependency on soft print media business as well as traditional advertising and to make itself less susceptible to economic conditions, Gannett is making endeavors to expand its presence in broadcasting and digital products. The recent acquisition of six television stations of London Broadcasting Company underscores the same. Prior to this, the company acquired television-station operator, Belo Corp. We believe this will transform Gannett’s business model, which was largely focused on low margin newspapers to a high-margin multi-media business.
Other Financial Aspects
Gannett ended the quarter with total cash of $430.7 million and long-term debt of $3.45 billion.
The company generated net cash flow from operating activities of $188.9 million and free cash flow of $307.1 million in the quarter. The company, during the reported quarter, repurchased approximately 1.4 million shares aggregating $37.9 million.
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