UPDATE 2-Valassis Q2 profit trails Street view, shares fall

(Adds conference call details, updates share movement)

BANGALORE, July 31 (Reuters) - Valassis Communications Inc (VCI.N), which distributes newspaper inserts, posted a quarterly profit that trailed market estimates, as a weak newspaper industry weighed on its segments, sending its shares down 34 percent to a 14-year low.

The company said its free standing insert segment reported a second quarter loss of $2.4 million, compared with earnings of $5.4 million a year earlier.

Profit at the company's neighborhood targeted segment slumped 19 percent to $11.8 million.

In an environment where newspaper budgets have declined by 10 percent to 15 percent, Valassis said it was able to mitigate about 80 percent of the negative impact by increasing its shared mail distribution and acquiring new clients.

"We have made the assumption that these trends will continue to negatively impact our neighborhood targeted business in the second half of 2008," said Chief Executive Alan Schultz in a conference call with analysts.

The company sees a revenue shortfall of $35 million in its newspaper distributive products in the second half of the year.

A continuing decline in newspaper advertising revenue has affected U.S. newspaper publishers as readers increasingly look to the Internet for news. The slowdown in the U.S. economy has added to their woes.

Valassis also said increasing paper prices were impacting the pre-print side of its business and forcing clients to reduce distribution or media costs.

For the second quarter, net income fell to $7.3 million, or 15 cents a share, from $9.8 million, or 20 cents a share, a year ago.

Revenue fell 3 percent to $549.9 million.

Analysts on average expected the company to earn 25 cents a share, before special items, on revenue of $615.7 million, according to Reuters Estimates.

Valassis forecast full-year adjusted cash earnings of $2.14 to $2.39 a share.

Analysts were expecting the company to earn $1.37 a share, before special items.

The Livonia, Michigan-based company's shares fell to a low of $7.35, before paring some losses to trade down $2.14 at $8.99 Thursday afternoon. The stock was among the top percentage losers on the New York Stock Exchange. (Reporting by Deepti Govind in Bangalore; Editing by Jarshad Kakkrakandy, Deepak Kannan)