Gannett (GCI) Q3 Earnings Beat, Revenues Miss, View Intact

Diversified media conglomerate, Gannett Co., Inc. GCI delivered better-than-expected third-quarter 2017 bottom-line results. The company posted adjusted quarterly earnings of 16 cents a share that surpassed the Zacks Consensus Estimate of 8 cents and also rose substantially from 6 cents reported in the year-ago quarter.

The company gained from sturdy digital performance, particularly at ReachLocal, synergies realized from past buyouts and other cost containment endeavors. These helped it to overcome tough print advertising trends.

However, Gannett’s total revenue of $744.3 million declined 3.6% from the prior-year quarter and also came below the Zacks Consensus Estimate of $766.4 million. On a same store basis, total operating revenue decreased 9.4% to $699.8 million.

Lower print advertising and circulation revenues hurt the top line. These were partially offset by increased digital advertising revenue as well as contribution from acquired operations such as North Jersey Media Group, ReachLocal and SweetIQ.

Shares of this McLean, Virginia based company have declined 11.3% so far in the year compared with the industry’s gain of 11.6%.

Advertising revenue fell 1.9% to $420.8 million, whereas circulation revenue slid 7.4% to $264.4 million. Other operating revenue increased 2.4% to $59.1 million.

Adjusted EBITDA surged 27.3% to $73.9 million, whereas adjusted EBITDA margin expanded 240 basis points to 9.9%.

Segment Details

Publishing segment revenue came in at $660.3 million, down 10.3% from the prior year quarter. On a same-store basis, publishing segment operating revenue fell 11%. Print advertising and circulation revenues declined 18.7% and 7.6%, respectively, on a same-store basis. Digital advertising revenue grew 4.1% to $102.9 million. On a same store basis, the same improved 3.7%.

ReachLocal segment revenue came in at $93.8 million during the quarter, reflecting a sequential increase of 9%. Gannett has started introducing ReachLocal in several markets.

Strategic Initiatives

Gannett is realigning its cost structure and streamlining its operations to increase efficiencies and safeguard its earnings and cash flows from dwindling print advertising revenue. It also remains focused on improving its digital business with an aim to lower dependency on soft print media business and traditional advertising. The company also intends to undertake strategic acquisitions in order to strengthen its position in the industry.

Gannett recently acquired majority ownership in Grateful Ventures — a digital media company — that specialized in lifestyle content including food and cooking websites as well as blogs. This investment is expected to strengthen and diversify USA TODAY NETWORK’s portfolio — a subsidiary unit of Gannett — alongside increasing its audience base. Also, it is likely to boost the parent company’s owned and operated digital websites.

Other publishing companies such as New Media Investment Group Inc. NEWM, The New York Times Company NYT and The McClatchy Company MNI are also trying to adapt to different revenue generating ways.

Other Financial Aspects

In the quarter, Gannett paid dividends of $18.1 million and bought back 2 million shares for $17.4 million. During the quarter, net cash flow from operating activities was about $34.1 million and incurred capital expenditures of $17.1 million, thereby generating free cash flow of approximately $17 million. Management expects to incur capital expenditures of approximately $60-$65 million in 2017.

The company ended the quarter with a cash balance of $110 million and a revolving line of credit of $375 million.

Outlook

Gannett maintained its revenue forecast of $3.15-$3.22 billion and adjusted EBITDA projection of $360-$365 million for 2017.

Gannett currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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